Emkay Initiates 'Buy' On GHCL, Sees 35% Upside—Key Reasons Why

Emkay Global Financial Services has initiated coverage on GHCL Ltd. with a 'buy' recommendation and a target price of Rs 900 by Dec. 2025, implying an upside of nearly 35% from its current market price of Rs 667.2, as of Dec. 6, 2024.

The bullish outlook is based on GHCL's strategic expansions, foray into high-margin derivatives, and its backward integration initiatives, stated Emkay, which are expected to drive significant growth and margin improvements over the next few years.

One of GHCL's most exciting moves is its entry into the bromine market. The company is setting up a 2,800 metric ton bromine plant, with plans to expand capacity to 12,000 metric tons at its new salt field. This will make GHCL the fourth-largest bromine producer in India.

GHCL, a major player in the soda ash industry, is well-positioned to capitalise on the anticipated recovery in soda ash prices, holds the brokerage. The soda ash cycle is currently at its bottom, and Emkay predicts a demand-supply mismatch of 4 million metric tons by fiscal 2030, driven by growing requirements from solar glass, detergents, and other new-age sectors.

The brokerage also notes that GHCL's new 1.1mmt soda ash capacity in Kutch will significantly enhance its production capabilities. Furthermore, GHCL's move into value-added derivatives like sodium bicarbonate, vacuum salt, and elemental bromine is expected to boost margins and drive a re-rating of the company's valuation.

Emkay highlighted several reasons for its bullish stance:

• Soda Ash Pricing Recovery: Tightening global demand-supply dynamics and the closure of less efficient synthetic soda ash plants in China are likely to support price increases.

• Value-Added Products: GHCL's diversification into high-margin derivatives could lead to a significant valuation re-rating.

• Cost Efficiencies: Backward integration and the development of salt fields are expected to lower input costs and expand margins.

• Strong Capex Execution: The company's ability to execute its expansion plans will be crucial for achieving the forecasted Ebitda growth of 2.5 times by the next five fiscals.

GHCL's backward integration strategy into salt production, limestone, and captive power is another key factor behind Emkay's optimistic outlook. With a new salt field in Kutch under development at a cost of Rs 3,500 crore, GHCL aims to achieve 70-75% salt self-sufficiency, resulting in cost savings of Rs 1-1.5 per kg of soda ash produced.

The company also plans to utilise waste heat from its soda ash production to manufacture vacuum salt, further enhancing profitability.

By tapping into the growing demand for bromine and its derivatives—used in fire retardants and agrochemicals—GHCL aims to generate over 12% of its revenue from derivatives by financial year 2030, providing a strong margin uptick.