GHCL Limited
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The short-term oversupply situation is not likely to continue. Currently, about 25% to 26% of the product in India comes from imports. While pricing may be a challenge, producers can still sell domestically. In the medium term, India will need an additional 200,000 tons of demand growth annually, leading to a projected demand increase from 4.3 million tons to around 7 million tons in the next 5 to 7 years. Therefore, the proposed 500,000 tons expansion will be absorbed without difficulty.
Capital allocation is viewed from a long-term perspective. Market capitalization is influenced by various factors, and growth is crucial for shareholder valuation. The company has maintained a return on capital employed of over 25%-26%. The internal rate of return for the greenfield project is projected at over 16%. The management believes in balancing resource allocation for growth and shareholder rewards, including dividends or buybacks. The company has also expanded from 7 lakh tons to 12 lakh tons and aims to continue this growth.
The current balance sheet shows around 900 crores, and by the project's completion in about 3 years, the company expects to have around 500 crores of net cash after dividends. The debt to equity ratio will remain balanced, peaking at around 0.5, with maximum funding not exceeding 2,000 crores.
The supply from Turkey is a temporary phenomenon, as their natural market is Europe. Once Europe recovers, most of Turkey's volume will shift there. In India, large players are investing in solar and green hydrogen, which will drive demand. Although imports are currently allowed, domestic capacity for solar glass will eventually reduce the need for imports, leading to demand recovery.
Demand growth for 2023-24 was 2.7%. For FY24-25, we expect better demand growth compared to FY23-24, particularly in sectors like detergent and chemicals.
The bromine project will require around 115-120 crores, and the vacuum salt project will need approximately 150-170 crores. Overall, the major investment for the greenfield project is around 4,000 crores, totaling approximately 4,300 crores over the next 3 years.
Volume production will improve this year compared to last year due to resolved technical issues. We expect better sales numbers based on demand projections. Additionally, revenue from sodium bicarbonate expansion will contribute positively in FY24-25.
The demand growth in China was primarily driven by high growth in solar and lithium carbonate, with China being a net importer last year. Future projections are uncertain due to the global situation, but the performance of the real estate sector will also influence demand.
Volume growth in Q4 was marginally up by around 5% compared to Q3. However, realization per ton was lower than Q3, while EBITDA improved due to better cost control.
Currently, prices are stable in energy prices, but due to global uncertainty, it's difficult to predict future changes.
We are in the very last leg of our approvals.
It's difficult to predict changes in European capacity. In China, major expansions have balanced supply and demand without major disruptions.
The current environment is highly uncertain, making it difficult to predict pricing recovery. We are focusing on long-term competitiveness and exploring new product opportunities.
While lithium carbonate prices have softened, we expect robust future demand. The solar industry is a sunrise sector that will significantly grow soda ash consumption.
Sodium bicarbonate demand is expected to expand significantly by 2024-25. The bromine project will have an investment of around 120 crores, producing 2,800 tons with an IRR of 18-20%.
Soda ash has good margins, and we are gradually expanding our product base. We aim to reduce dependence on soda ash over time.
Other expenses increased due to higher freight costs and CSR expenses. The dividend payout will depend on growth opportunities and overall profitability.
It's difficult to provide guidance on margins due to uncertainty. We will assess the situation as it develops.
We expect a rebalancing of capacity in China in the coming years, but prices may not significantly change in the near term.
It's difficult to predict future pricing, but we believe prices have bottomed out and will remain range-bound for now.
While demand growth may occur in India, realizations could remain poor due to weak demand in Europe linked to Turkish dumping.
Predicting the shape of Europe’s demand and supply situation is uncertain. We believe regionalization will occur, similar to China. For 2024-25, we expect a range-bound situation, but we cannot predict beyond that.
The projection is around 3 years from now to complete this massive project.
We have high capacity utilization. Some volume growth is expected in 2024-25, but we may not see new volume in soda ash in the next 2 years.
Demand growth is expected to be higher for dense soda ash. Currently, 60% of our volume is dense, and we will maintain this ratio in new locations.
It's difficult to predict realizations, but we see a range-bound situation for prices in the near term, with potential upside if opportunities arise.
We have spent a meager amount primarily on land acquisitions. Significant expenditure will begin once physical activities start, likely in 2024-25.
There is not a significant inventory buildup globally, as China is in a low inventory situation. The CAPEX for regular expansion plans will be around 250 crores annually.
Yes, some competitors have announced capacity expansions, and there is room for growth for all players in India.
Total imports this year were around a million tons, with peak utilization levels achieved in the last quarter.
The increase is due to the acquisition of Ajmera Cement, which includes lease reserves classified as intangible assets.
We are enhancing our salt capacity and acquiring more salt fields. However, we will remain dependent on imported limestone for the greenfield project.