Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- GHCL Ltd (BOM:500171, Financial) reported higher sales and margins in Q4 FY24 due to increased volumes and lower input costs.
- The company achieved a 9% CAGR in revenue and a 6% CAGR in EBITDA from FY 2019 to FY 2024.
- GHCL Ltd (BOM:500171) is making progress on its Greenfield soda ash project and expects to obtain final approval soon.
- The company successfully installed 6.7 megawatts of renewable energy in FY24, demonstrating its commitment to sustainability.
- GHCL Ltd (BOM:500171) is a net debt-free company with a net cash surplus of around INR701 crores at the year-end.
Negative Points
- Revenue for Q4 FY24 was lower compared to the corresponding quarter of the previous year, primarily due to increased imports from Turkey, USA, and Russia.
- EBITDA for the quarter stood at INR201 crores, significantly lower than INR371 crores in Q4 FY23.
- The global soda ash market is currently oversupplied, putting pressure on realizations and margins.
- The company faces challenges from higher imports, particularly affecting the solar glass segment.
- There is uncertainty in the global supply chain due to geopolitical tensions, impacting the overall market sentiment.
Q & A Highlights
Q: Considering the market is already struggling with oversupply and subdued realizations, how is the proposed expansion of 5.5 lakh tonnes per annum justified?
A: The current oversupply situation is short-term. In India, around 25%-26% of the product is imported. The demand in India is expected to grow by 200,000 tonnes annually, reaching around 7 million tonnes in the next 5-7 years. Thus, the 500,000 tonnes expansion will be absorbed without difficulty. - R. Jalan, Managing Director, Executive Director
Q: From a capital allocation perspective, wouldn't it make more sense to do a buyback rather than spending on expansion given the current market valuation?
A: The capital allocation is viewed from a longer-term perspective. Growth is crucial for shareholder valuation. The return on capital employed in our business is more than 25%-26%, and the projected IRR for the greenfield project is over 16%. We believe in a balanced approach of rewarding shareholders and investing in growth. - R. Jalan, Managing Director, Executive Director
Q: Can you provide insights into the demand outlook for the domestic market, especially considering the pressure on solar glass demand?
A: The demand growth in 2023-24 was 2.7%. We expect better demand growth in 2024-25, driven by segments like detergent and chemicals. The solar glass demand is expected to recover as domestic capacities build up, reducing the incentive for imports. - R. Jalan, Managing Director, Executive Director
Q: Are we seeing any rationalization of capacity in the industry given the current pressure on margins?
A: Despite the margin pressure, which is still healthy at 23%-24%, we do not foresee any significant rationalization of capacity in the domestic or global market at this time. - R. Jalan, Managing Director, Executive Director
Q: What is the total CapEx GHCL will be spending over the next 3-4 years, including the greenfield project, vacuum salt, and bromine projects?
A: The total investment will be around INR4,300 crores over the next 3 years. This includes INR4,000 crores for the greenfield project, INR160-170 crores for vacuum salt, and INR115-120 crores for the bromine project. - R. Jalan, Managing Director, Executive Director
Q: What is the expected timeline for the greenfield project to start contributing volumes?
A: The greenfield project is expected to take around 3 years from now to complete and start contributing volumes. - R. Jalan, Managing Director, Executive Director
Q: How will the bromine project impact GHCL's revenue and margins?
A: The bromine project, with an investment of around INR120 crores, will produce approximately 2,800 tonnes, contributing around INR263 crores in revenue with an IRR of 18%-20%. - R. Jalan, Managing Director, Executive Director
Q: What is the current status of the sodium bicarbonate capacity utilization and future plans?
A: The demand for sodium bicarbonate is growing, especially for flue gas treatment. We expect significant growth in utilization in 2024-25 and are considering further expansion. - R. Jalan, Managing Director, Executive Director
Q: Given the oversupply in the market, is there any significant inventory buildup globally?
A: Currently, there is no significant inventory buildup globally. The situation remains balanced with low inventory levels in China. - R. Jalan, Managing Director, Executive Director
Q: What is the expected CapEx for FY25 and FY26, excluding the greenfield project?
A: Excluding the greenfield project, the CapEx for FY25 and FY26 will be around INR250 crores each year, primarily for the completion of the vacuum salt and bromine projects. - R. Jalan, Managing Director, Executive Director
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
