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Sunday, September 30, 2012

GHCL: Market Leader in Industrial Products, Textiles and a Dividend Gem!

GHCL - Gujarat Heavy Chemicals Ltd - is from a category of stocks which makes me wonder that how many undervalued gems are lying around undiscovered in Indian Markets. GHCL is a crown jewel from the erstwhile Dalmia empire, which had its businesses in myriad of spheres such as Newspapers and Publishing Houses, Biscuits, Cement, Chemicals, Distilleries, Dairy Products, Sugar, Textiles and many others.

GHCL operates in two key business verticals which are Industrial Products - Soda Ash and Textiles.

Soda Ash - GHCL is among the Market Leaders in production of Light and Dense Soda Ash, which is a essential ingredient in the manufacture of detergent, soap, glass, sodium salts and dyes. In India, GHCL is among the top three producers of soda ash with a production capacity of 850000 MT per annum, with an expansion capacity of 1,100,000 MT per annum. being worked at. This accounts for 32% of the market share in India. Soda Ash vertical is a money spinner for GHCL and accounts for most of its profitability. The plant is also self sufficient in terms of power and steam.

Textiles - There was a market news in 2008-09 timeframe that GHCL is mulling vertical split of its textile business as GHCL market valuation doesn't suitably account for its textiles divisions. The Textile division at GHCL manufactures premium quality Yarn,  Fabric and Home Textile products like Bed Linen, Curtains, Madeups and Cotton Yarn. The manufacturing units at the Textile Company have modern textile machinery from Switzerland and Germany and have an Installed capacity of 125,000 spindles,. With the downturn in Textile companies in last year or so, due to INR-Dollar price movement and slow exports, Textile has been a dull sector in recent past.  

GHCL has also acquired Colwell & Salmon which is a domestic BPO firm, but its share to overall GHCL profits is minuscule.

Fundamentally speaking, GHCL has been clocking impressive revenue growth from Rs 1164 crores in 2008, to Rs 1896 crores. Earning per share has been a stable from Rs 10.08 per share to Rs 11.96 per share. This is one reason why share price has been languishing as market loves stocks who show aggressive growth. Companies growing with stable revenue growth and flat EPS will see P/E ratio declining over the years and become deep value picks.

Dividend wise, this is a gem of a stock. GHCL has paid regular dividend from past 14 years and at 20% dividend at face value, this translates to Rs 2 of dividend on current market price of Rs 36, which is 5.5% return on market price of the share. Thus dividend alone will make it a worth while share to hold at and any capital appreciation is extra and in addition to the dividend gains.

Low Promoter holding is a concern, that is one of the reasons why GHCL couldn't fly in the super bull run of 2009-10 as well.

Technically speaking, looking at the weekly chart below, GHCL is sitting at its support of Rs 36, from which next resistance level is at 41 - 42 price range. 53-55 will be the next big resistance zone for GHCL which was a high in last bull run of 2009-10. Once crossing this, 115 and 195 are next probably resistance zones.

This is definitely a good scrip, lying in heap of unrecognized or forgotten stories and hence is a scrip to hold for dividend and capital appreciations in months to come. 


  1. Another good pick, valuations are attractive and consistent dividend payer. What is your time frame? You described it in few months. You have not considered the company's huge debt and it's impact on company performance, also the low promoter holding is a concern or it may add value if stake sale happens.

    Infact many of chemical companies are at attractive valuations, for e.g. Aarti Industries, Phillips Carbon (major player in carbon black), Atul, Tata Chemicals, etc... Any comments on these stocks? I mean at this point, there may be better stocks in the same space.

  2. Thanks Venkata. Philips Carbon is another gem. Will write about it in near future.

    Low promoter stake is a concern, i highlighted in my post, for GHCL. Since GHCL didnt participated a lot in last bull run 2009-10(went about 2X), i suspect there might be good participation in the coming months.

    Chemical firms are very good assets, high moat and low competition, and often decent valuations. Good in have a few scrips in portfolio for long duration.

  3. I prefer to call Venki or Ramana :). 'Venkata' is incomplete.

    Phillips Carbon is RPG company, fundamentally good one. The carbon black prices are under check, year time low, hence the low valuations of stock. My preference will be to enter at @80 levels.

    Low carbon prices are positive news for Tyre stocks. What will be your pick in tyre sector? I expect some correction in these tyre stocks till results are announced.

  4. Good pick of gem. It has run up by 15% in a week time, reached near 52 week high. What is your target (3 months)?

    Disclosure: I have booked my profit at 12% :).

  5. Good to know that! I expect GHCL to double in next 3 months.


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