Buy GHCL, target Rs 358: Emkay Global Financial Services

Emkay Global Financial Services has a buy call on GHCL with a target price of Rs 358.

The current market price of GHCL is Rs 221.95.

Time period given by the brokerage is one year when GHCL price can reach the defined target.


Investment rationale by the brokerage:
Inorganic Chemicals growth remains firm: Inorganic Chemicals business revenue grew 20 per cent y-o-y to Rs5.32bn, driven by better realization and higher volumes. Volumes rose 7 per cent y-o-y to 2.29 lakh MT, while overall realization increased 8 per cent y-o-y on price hike. Last quarter, there was a maintenance shutdown that impacted nearly 15,000MT volume which the company has recovered in the quarter. We expect Soda-ash revenue to grow 12.7 per cent y-o-y and 13.4 per cent y-o-y in FY19/FY20E.

Home Textiles delivered strong operational performance: The Home Textiles business revenue increased 12 per cent y-o-y to Rs 3bn, led by better performance from the spinning business. Prolonged weakness in the segment seems to be fading away with the last two quarters’ positive performance. EBIT margin improved 864bps y-o-y to 6 per cent (vs. -2 per cent in Q2FY18). Management is positive on the Home Textiles business, and we expect positive EBIT performance (vs. negative estimate), with -3 per cent/3 per cent y-o-y revenue growth in FY19E and FY20E.

Outlook remains positive; maintain Buy: The Soda-ash business witnessed an uptick in realization with healthy volume growth. We expect the benefit of an increase in realizations to fully percolate in 2HFY19. The tight global supply situation and steady demand in Asia may trigger a further rise in realization going forward. A recovery in the Home Textiles segment is expected over the medium- to long-term. We reiterate our Buy rating with a target price of Rs 358 based on 8.0x FY20E EPS of Rs 44.3.