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Last Updated : Jun 22, 2016 12:04 PM IST | Source: Moneycontrol.com

Buy GHCL; target of Rs 228: Emkay

Emkay is bullish on GHCL has recommended buy rating on the stock with a target price of Rs 228 in its research report dated June 21, 2016.

 
 
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Emkay's research report on GHCL


GHCL is among the key domestic soda ash players (23% market share) and benefits from fully integrated plant and various distinct cost advantages which helps it to enjoy highest margins in the industry (EBIT margins 28-31%) and strong return ratios. It's the textile business (40% of revenues and 20% of EBIT) is also backward integrated from yarn to home textiles, however thrust in this segment is to drive margins (from EBIT of 11% in FY16 to 13%/15% in FY17/FY18) by changing customer and product mix. We believe that GHCL's strong free cash flow generating business (FCF yield of ~30%), falling D/E to 0.6x (from 1.2x) and its ability to protect its margins in soda ash in weak market driven by cost leadership is not truly reflected in its current valuations.  

 
Ongoing capex in soda ash and potential ramp up in textile segment margins to drive company's earnings at a CAGR (FY16-18E) of 21% with RoE of 28%. We see significant re-rating potential in the stock and initiate coverage with Buy recommendation with target price of Rs 228 (based on 6x FY18E EPS of Rs 38).

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First Published on Jun 22, 2016 12:04 pm
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