th GUJARAT ALKALIES & CHEMICALS LTD...Gujarat Alkalies and Chemicals Limited (G AOL) was established in the year 1973 with an aim to manufacture caustic soda and allied products. Revenue

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GUJARAT ALKALIES & CHEMICALS LTDResult Update (PARENT BASIS): Q2 FY19

CMP: 559.40 NOV 27th, 2018

Overweight ISIN:INE186A01019

Index Details SYNOPSISGujarat Alkalies and Chemicals Limited (GAOL)was established in the year 1973 with an aim tomanufacture caustic soda and allied products.Revenue for the quarter registered a growth of29.70% and stood at Rs. 7717.20 million as againstRs. 5950.00 million, when compared with the prioryear period.During Q2 FY19, EBIDTA is Rs. 2920.80 million asagainst Rs. 1887.40 million in the correspondingperiod of the previous year, an increase of 54.75%.During Q2 FY19, Profit before tax stood at Rs.2525.70 million from Rs. 1484.20 million in Q2FY18, up by 70.17%.During Q2 FY19, net profit increased by 63.90% toRs.1743.70 million from Rs.1063.90 million in thecorresponding period of the previous year.EPS of the company stood at Rs. 23.74 a share duringthe quarter, as against Rs. 14.49 per share overprevious year period.Revenue of the company registered a growth of33.84% at Rs. 15010.00 mn in H1 FY19 as againstRs. 11215.00 mn in H1 FY18.During H1 FY19, PAT of the company stood at Rs.3575.40 mn as compared to Rs. 2017.50 mn in H1FY18.During the second quarter of financial year 2018-19,the company has commissioned 14000 MTPAHydrogen Peroxide Plant in Dahej, Gujarat and32000 MTPA Poly Aluminium Chloride Plant atVadodara, Gujarat.The other projects viz., Hydrazine Hydrate, NewPhosphoric Acid New Chloromethanes, 20MW SolarPower Plant, stable Bleaching Powder, AnhydrousAluminium Chloride and Chlorotoluence areprogressing satisfatorily and are expected to becompleted by the envisaged schedule in the nextfinancial years.Net Sales and PAT of the company are expected togrow at a CAGR of 9% and 37% over 2017 to2020E, respectively.

Stock DataSector Commodity ChemicalsBSE Code 530001Face Value 10.0052wk. High / Low (Rs.) 932.35/433.75Volume (2wk. Avg.) 7646Market Cap (Rs. in mn.) 41082.34

Annual Estimated Results(A*: Actual / E*: Estimated)Years(Rs in mn) FY18A FY19E FY20ENet Sales 25138.90 28155.57 31252.68EBITDA 8924.30 11123.25 12514.72Net Profit 5350.20 6660.13 7729.31EPS 72.85 90.69 105.25P/E 7.68 6.17 5.32

Shareholding Pattern (%)

As on Sep 2018 As on June 2018

Promoter 46.28 46.28

Public 53.72 53.72

Others -- --

1 Year Comparative Graph

GUJARAT ALKALIES & CHEMICALS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDEND

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Gujarat Alkalies & Chem. Ltd 559.40 41082.34 94.06 13.11 1.07 65.00

GHCL Ltd 208.20 20409.50 29.92 6.96 1.26 50.00

Bodal Chemicals Ltd 111.50 13624.00 12.51 8.91 1.94 40.00


QUARTERLY HIGHLIGHTS (PARENT BASIS)

Results updates- Q2 FY19,

(Rs in mn) Sep-18 Sep-18 % Change

Revenue 7717.20 5950.00 29.70%

Net Profit 1743.70 1063.90 63.90%

EPS 23.74 14.49 63.90%

EBIDTA 2920.80 1887.40 54.75%

The company’s net profit registered a growth of 63.90% and stood at Rs. 1743.70 million against Rs. 1063.90 million in

the corresponding quarter ending of previous year. Revenue for the quarter stood at Rs. 7717.20 million as against Rs.

5950.00 million as compared with the prior year period, up by 29.70%. Reported earnings per share of the company stood

at Rs. 23.74 a share during the quarter, as against Rs. 14.49 per share over previous year period. Profit before interest,

depreciation and tax is Rs. 2920.80 million as against Rs. 1887.40 million in the corresponding period of the previous

year.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Q2 FY19 Q2 FY18 %Change

Cost of MaterialConsumed 2129.90 1567.50 36%

Employee BenefitExpenses 530.80 551.90 -4%

Depreciation &Amortization Expenses 356.10 367.60 -3%

Power, fuel & otherutilities 1488.20 1254.80 19%

Other Expenses 866.70 847.60 2%


Result Highlights:

Revenue of the company registered a growth of 33.84% at Rs. 15010.00 mn in H1 FY19 as against Rs. 11215.00 mn

in H1 FY18.

During H1 FY19, PAT of the company stood at Rs. 3575.40 mn as compared to Rs. 2017.50 mn in H1 FY18.

Profit Before Tax for the six months of Financial Year 2018-19 has soared to Rs. 5119.4 mn as against Rs. 2765.90

mn in H1 FY18, up by 85.09%.

Other Highlights:

During the second quarter of financial year 2018-19, the company has commissioned 14000 MTPA Hydrogen

Peroxide Plant in Dahej, Gujarat and 32000 MTPA Poly Aluminium Chloride Plant at Vadodara, Gujarat.

The other projects viz., Hydrazine Hydrate, New Phosphoric Acid New Chloromethanes, 20MW Solar Power Plant,

stable Bleaching Powder, Anhydrous Aluminium Chloride and Chlorotoluence are progressing satisfatorily and are

expected to be completed by the envisaged schedule in the next financial years.

COMPANY PROFILE

Gujarat Alkalies and Ohemicals Limited (GAOL) was established in the year 1973 with an aim to manufacture caustic

soda and allied products. Today spread over 2 strategic locations at Vadodara and Dahej, by harnessing cutting edge

technology, groundbreaking research and development, GAOL has emerged as one of the largest merchant manufacturers

of Chloro-alkali products including caustic Soda in India. It is offering more than 33 products. The Organization follows

stringent quality protocols set in accordance with global quality norms and manufactures purity-rich chemicals that play a

vital role in industrial development. The company's products are used in industries like Paper & Pulp, Soaps & Detergent,

Textile, Paint, Pharmaceuticals, Fertilizers, Pesticides, Metal, Rubber, PVO, Water Treatment, Food Processing,

Activation of Petroleum Wells, Rocket Propellant and many such fields


FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2017 -2020E

FY-17A FY-18A FY-19E FY20EASSETSNon-Current Assets

a) Property, Plant and Equipment 20731.90 21007.40 23528.29 25881.12b) Capital Work In Progress 1433.70 2478.90 2156.64 1984.11c) Other Intangible Assets 2.70 36.10 77.62 122.63d) Intangible Assets Under Development 73.70 38.90 0.00 0.00e) Financial Assets

i) Investments 10059.50 11448.60 10303.74 9685.52ii) Loans 7.50 5.60 16.69 21.36iii) Other Financial Assets 197.40 197.40 207.27 215.56

f) Income Tax Assets (Net) 927.30 922.80 950.48 998.01g) Other Non -Current Assets 804.60 837.80 904.82 959.11

1. Sub - Total Non- Current Assets 34238.30 36973.50 38145.55 39867.42Current Assets

a) Inventories 1699.00 2654.70 1991.03 1692.37b) Financial Assets

i) Investments 112.10 23.00 14.95 10.76ii) Trade Receivables 3287.50 4032.80 4839.36 5613.66iii) Cash and Cash Equivalents 678.80 707.10 1824.32 2791.21iv) Bank Balances 632.00 634.00 494.52 370.89v) Loans 2921.30 3762.90 4816.51 6020.64vi) Other Financial Assets 261.10 282.90 311.19 336.09

c) Other Current Assets 536.00 652.50 548.10 482.332. Sub - Total Current Assets 10127.80 12749.90 14839.98 17317.94Total Assets (1+2) 44366.10 49723.40 52985.53 57185.36EQUITY AND LIABILITIESEQUITY

a) Equity Share Capital 734.40 734.40 734.40 734.40b) Other Equity 32833.40 37491.90 39366.50 41728.48

1. Total Equity 33567.80 38226.30 40100.90 42462.88LiabilitiesNon Current Liabilities

a) Financial Liabilitiesi) Borrowings 2843.50 2298.10 2367.04 2485.40

b) Provisions 805.00 907.10 952.46 990.55c) Deferred Tax Liabilities (Net) 3064.20 3509.80 3860.78 4169.64

2. Total Non Current Liabilities 6712.70 6715.00 7180.28 7645.59Current Liabilities

a) Financial Liabilitiesi) Borrowings 68.30 43.30 54.13 63.87ii) Trade Payables 2257.70 2785.60 2741.79 2659.54iii)Other Financial Liabilities 1428.40 1410.60 1325.96 1286.19

b) Provisions 57.90 77.00 69.30 63.76c) Income Tax Liabilities 81.90 338.40 571.90 732.03d) Other Current Liabilities 191.40 127.20 941.28 2271.51

3. Total Current Liabilities 4085.60 4782.10 5704.36 7076.88Total Equity and Liabilities (1+2+3) 44366.10 49723.40 52985.53 57185.36


Annual Profit & Loss Statement for the period of 2017 to 2020E

Value(Rs.in.mn) FY17A FY18A FY19E FY20E

Description 12m 12m 12m 12mNet Sales 23025.10 25138.90 28155.57 31252.68

Other Income 559.20 1057.50 1142.10 1210.63

Total Income 23584.30 26196.40 29297.67 32463.31

Expenditure -18528.90 -17272.10 -18174.42 -19948.59

Operating Profit 5055.40 8924.30 11123.25 12514.72

Interest -128.40 -149.00 -160.92 -168.97

Gross profit 4927.00 8775.30 10962.33 12345.75

Depreciation -1109.20 -1273.10 -1387.68 -1526.45

Profit Before Tax 3817.80 7502.20 9574.65 10819.31

Tax -736.80 -2152.00 -2914.52 -3089.99

Net Profit 3081.00 5350.20 6660.13 7729.31

Equity capital 734.40 734.40 734.40 734.40

Reserves 32833.40 37491.90 39366.50 41728.48

Face value 10.00 10.00 10.00 10.00

EPS 41.95 72.85 90.69 105.25

Quarterly Profit & Loss Statement for the period of 31st Mar, 2018 to 31st Dec, 2018E

Value(Rs.in.mn) 31-Mar-18 30-Jun-18 30-Sep-18 31-Dec-18E

Description 3m 3m 3m 3mNet sales 6973.20 7528.50 7717.20 7331.34

Other income 599.70 87.10 139.10 86.24

Total Income 7572.90 7615.60 7856.30 7417.58

Expenditure -4044.90 -4654.80 -4935.50 -4678.86

Operating profit 3528.00 2960.80 2920.80 2738.72

Interest -35.30 -39.40 -39.00 -40.95

Gross profit 3492.70 2921.40 2881.80 2697.77

Depreciation -297.50 -327.70 -356.10 -395.27

Profit Before Tax 3195.20 2593.70 2525.70 2302.50

Tax -984.60 -762.00 -782.00 -704.33

Net Profit 2210.60 1831.70 1743.70 1598.17

Equity capital 734.40 734.40 734.40 734.40

Face value 10.00 10.00 10.00 10.00

EPS 30.10 24.94 23.74 21.76


Ratio Analysis

Particulars FY17A FY18A FY19E FY20E

EPS (Rs.) 41.95 72.85 90.69 105.25

EBITDA Margin (%) 21.96% 35.50% 39.51% 40.04%

PBT Margin (%) 16.58% 29.84% 34.01% 34.62%

PAT Margin (%) 13.38% 21.28% 23.65% 24.73%

P/E Ratio (x) 13.33 7.68 6.17 5.32

ROE (%) 9.18% 14.00% 16.61% 18.20%

ROCE (%) 10.82% 18.86% 22.90% 24.41%

Debt Equity Ratio 0.09 0.06 0.06 0.06

EV/EBITDA (x) 8.42 4.71 3.70 3.23

Book Value (Rs.) 457.08 520.51 546.04 578.20

P/BV 1.22 1.07 1.02 0.97

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 559.40, the stock P/E ratio is at 6.17 x FY19E and 5.32 x FY20E respectively.

Earning per share (EPS) of the company for the earnings for FY19E and FY20E is seen at Rs. 90.69 and Rs. 105.25

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 9% and 37% over 2017 to 2020E,

respectively.

On the basis of EV/EBITDA, the stock trades at 3.70 x for FY19E and 3.23 x for FY20E.

Price to Book Value of the stock is expected to be at 1.02 x and 0.97 x for FY19E and FY20E respectively.

Hence, we say that, we are Overweight in this particular scrip for Medium to Long term investment.

INDUSTRY OVERVIEW

Indian Chlor-Alkali Industry at a Glance:

There are 32 active Chlor-Alkali Units in India. The production of Caustic Soda during the FY 2017-18 has been 32.21

Lakhs MTPA as against total capacity of approx. 39 Lakhs MTPA i.e. capacity utilization is approx. 83%. The products of

Chlor-alkali industry are the basic raw materials for various industries like Alumina, Paper & Pulp, Soaps & Detergents,

Dyes, Pharmaceuticals, Pesticides, Water Treatment, etc.

The additional capacity expansion during FY 2017-18 was approx. 2.40 Lakhs MTPA in India mainly because of

expansion of existing Plants.

However, due to fall in global Ethylene Dichloride (EDC) price, Indian producers continued to import EDC – which is the

key input in the production of Poly Vinyl Chloride (PVC) as also due to new Chlor-Alkali capacity addition and


expansions of existing plants - Chlorine demand remain depressed; whereas supplies were in excess during the entire

fiscal year.

Depressed Chlorine demand & over all negative Chlorine value impacted overall capacity utilizations of Chlor-Alkali

plants across the industry, which reduced domestic availability of Caustic Soda. Also because of price rise in Caustic Soda

globally, domestic Caustic Soda prices remain firmed during the whole fiscal year.

The Caustic Soda Market Scenario:

The Company having more than 36 products in basket, yet the major revenues are coming from Caustic Soda Group and

therefore, market scenario of Caustic Soda and Chlorine market is of utmost important to the company.

The installed capacity of Caustic Soda in the country is about 39 Lakhs MTPA as on 31.03.2018 as compared to 37.00

Lakhs MTPA as on 31.03.2017. The total installed capacity of 39.00 Lakhs MTPA is based on Membrane Cell

Technology. The Membrane Cell process is energy efficient as the power requirement is much less and is in the range of

2300-2450 kwh/MT as compared to Mercury Cell where it is around 3150-3300 kwh/MT. GACL has the advantage of

having its entire production from Membrane Cell. However, now all the medium and large scale ChlorAlkali units have

converted their plants to Membrane Cell Technology.

Opportunities:

The strengths of the Company are economies of scale, state of the art eco-friendly technologies, extensive usage of

renewable energy, integrated downstream plants, strong network for Marketing and Distribution, In-house Research and

Development facilities, proximity to major raw material source and markets etc. Economical power supply has remained a

major area of concern for the Company; however, during the year under review, the power cost has increased as compared

to previous year due to increase in power rates from all sources and increase of power generation from Wind Farm.

The combined average power rate at Caustic Soda Complex, Baroda for the current Financial Year has increased to Rs.

5.47 per KWH from Rs. 5.07 per KWH mainly due to increase in power rates from GIPCL, more power drawal from

MGVCL and no power procurement through IES.

The Company has followed a business plan for growth and sustained performance. The Company has continued to

concentrate both on top and bottom lines. The increase in Net Sales by 19.67% and Other Income by 89.11%, decrease in

Raw Material Cost (other than Natural Gas), Packing Materials and Other Expenditure are the major factors contributing

to the profitability of the Company, during the Financial Year 2017-18. However, due to decrease in Other Operating

Income, increase in cost of Natural Gas, Employee Benefit expenses, Finance Costs, Depreciation and Amortization

expense, Net External Electricity Charges, Water, Fuel and Natural Gas costs of utilities, Stores & Spares Parts consumed

and Repairs & Maintenance expense, Job Work / Processing Charges and Insurance Cost, the profitability of the Company

for the year under review was affected.

The manpower of the Company with high morale and motivation always endeavours to bring better results. In next 2 to 3

years, considerable numbers of employees will retire from service of the Company due to superannuation. The Company

is in process of identifying succession plan and will implement the same in due course of time. Keeping in view, the


current trends of Indian and global economy, the time ahead may prop-up newer hurdles. To overcome such hurdles, the

company has planned new projects during next 3 to 4 years, to diversify, add new products, enlarge portfolio and expand

its existing capacities. The Company is also considering various Chlorine / HCL based projects so that the production of

Caustic Soda can be optimized. It will also enable consolidate and maintain prime position in Chlor-alkali and other

integrated downstream products.

Outlook:

The Company deals in marketing of Caustic Soda (Lye, Flakes & Prills), Liquid Chlorine, Hydrochloric Acid,

Chloromethanes, Hydrogen Peroxide, Caustic Potash (Lye & Flakes), Potassium Carbonate, Aluminium Chloride,

Phosphoric Acid, Chlorinated Paraffin, Poly Aluminium Chloride (various grades), Chloro-Toluene, Sodium Chlorate etc.

Most of the plants are integrated in such a way that part of finished product of one plant is consumed as a raw material in

other plant.

The company, thus, enjoys some leverage over its competitors due to its integration philosophy. As a value addition to

Hydrochloric Acid, company had commissioned Poly Aluminium Chloride (PAC) and is able to capture sizable domestic

market for various grades of PAC. The physical export of PAC powder has also been increased, wherein realizations are

promising.

The Company has put up Stable Bleaching Powder plant facility as a value addition to Chlorine at Dahej Complex and the

production is optimized and its product has been widely accepted among various segments like Water Treatment Plants,

Disinfection, Aquaculture etc. across India. Moreover, additional capacity of Chloromethanes Plant is now on stream

towards value addition for Chlorine for captive consumption as well as value addition for Chlorine. In addition to this,

captive consumption of Hydrogen Gas is maximized through newly expanded Hydrogen Peroxide Plant, which is also

fetching additional value addition.

Further, the Company has successfully resume supplies of 75 TPD Chlorine to M/s. Reliance Industries Ltd., Baroda

through pipeline at Baroda, which has not only eased the day to day concern of Chlorine disposal, but has also helped in

optimizing Caustic Soda production and better realization for Chlorine from market. The Company is putting up Poly

Aluminium Chloride plant as value addition and captive consumption of Chlorine at Baroda Complex.

Further, the Company has successfully optimized its Sodium Chlorate Plant at Dahej, which finds applications primarily

in Paper & Pulp Industry for “Elemental Chlorine Free Bleaching”. Gujarat is predominantly an industrial state, which

contains a number of large, medium & small business units in the Chemical, Petrochemical, Plastics, Textile and Fertilizer

& other Industries. As part of market development, the emphasis is to interact with customers and develop new market for

the products. Providing prompt after sales service as & when required is part of this strategy and this helps the company to

increase its volume especially for new products.

GACL is also exporting some of its products viz. Caustic Soda Flakes, Caustic Soda Prills, Potassium Carbonate,

Potassium Hydroxide Flakes, Hydrogen Peroxide, Phosphoric Acid, Liquid Chlorine, Aluminum Chloride, PAC,

Hydrochloric Acid and CPW to Europe, West Asia, South East Asia, Africa, Middle East/Far East, SAARC countries etc.


The Company is facing import threat and dumping of various products at low prices, which affects its capacity utilization,

prices etc and is pro-actively taking corrective action for imposition of Anti Dumping Duty within the WTO guidelines.

As, more than 54% of the total production capacity of India is located in Western region, it has been observed that - there

is 10-15% surplus supply available than the actual current demand.

In order to balance Western market, Company has taken initiatives and explored market in Eastern part of India.

Accordingly, Company had successfully executed supplies to M/s. NALCO, Orissa in the tune of approx. 25000 MT to

curtail demand supply gap in Western India during the Financial Year 2017-18.


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Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

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Pharma &Diversified

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Documents

th GUJARAT ALKALIES & CHEMICALS LTD...Gujarat Alkalies and Chemicals Limited (G AOL) was established in the year 1973 with an aim to manufacture caustic soda and allied products. Revenue