Why GHCL Share Price is Falling

Indian chemical stocks are among those that have capitalised on China+1 theme over the last couple of years.

Increased restrictions in China due to environmental concerns and closure of several units across the country opened up opportunities for Indian companies. Further, the challenges in Europe amid the war between Ukraine and Russia added to the upside.

However, despite this upward tendency, shares of many chemical stocks have fallen in the last one month. The correction has come even as companies have reported strong growth in earnings in the last two quarters, weathering the spike in raw material prices.

Among the many companies that have seen their share price take a hit, are shares of Gujarat Heavy Chemical Limited (GHCL). The stock has fallen 15% in the past month.

Let's look into what has caused a sharp drop in the share price.

Why GHCL Share Price is Falling

#1 Mutual Fund stake sell

Mutual funds have been selling their stake in GHCL since March 2021. Mutual Fund holding in June 2022 quarter stood at 13.3%. It has now reduced to 10.6%.

Apart from this, financial institution holding has decreased from 2.9% in June 2022 quarter to 1.1% in September 2022.

Chemical sector stocks came under pressure due to the Russia-Ukraine war. Global chemical prices plummeted, ending the three-year bull run, leading to margins shrinking and raising doubts over the rich valuations of chemical companies.

Since then, the shareholding pattern of even the best chemical stocks has seen many changes.

For more details, you can have a look at the latest shareholding pattern of GHCL.

#2 Robust quarterly results but less margin upside in the next two quarters

For the September 2022 quarter, the company reported a 40.6% YoY rise in revenue at Rs 13.8 bn from 9.8 bn in the previous year.

On the back of high demand of soda ash and other chemicals, the net profit for the same period came in at Rs 2.9 bn, up 166.1% YoY from 1.1 bn in September 2021.

As a part of its capex for the financial year 2023, the company plans to set up a Rs 35 bn greenfield manufacturing facility in Gujarat.

It's currently one of India's biggest single-location soda ash manufacturing facilities, having an installed capacity of 1.1 million tons. With an additional 0.5 million tons additional capacity through the greenfield project, it will have an aggregate of 1.6 MTPA by the end of 2025.

In an interview, the company's MD RS Jalan said they will not see too much upside in the next two quarters. However, in the long term by 2023-24, margin expansion could be seen.

Jalan added that the company had a shutdown in October this year, which will have some impact on the volume of production. How shares of GHCL have performed recently

GHCL share price is down 15% in the last one month. However, so far in 2022, the share price has risen by 33.5%.

Over the year the shares of the company have given 26.9% return. The company touched its 52-week high of Rs 708.8 on 14 September 2022 and its 52-week low of Rs 345.5 on 20 December 2021.

GHCL is currently trading at a PE (Price to Earnings) multiple of 4.6x, with the industry PE ratio being 1.4x. This makes it undervalued on the PE front.

About GHCL

GHCL is an India-based manufacturing company. The Company is engaged in the business of, manufacturing and trading chemicals and yarn.

The Company's business includes chemicals and textile spinning businesses. Its chemical products include soda ash, bromides, and liquid bromine. It is among one of India's leading manufacturers of soda ash.

It manufactures 60,000 MTPA of refined sodium bicarbonate or baking soda, which is marketed under the brand name - LION.

It has captive limestone mines at two places in India. These mines produce an average of 45 MTPD to 500 MTPD of chemical-grade limestone through semi-mechanized mining technologies.

In the textile sector, the company's home textile products are primarily exported worldwide.

The company also has a presence in edible salt.

For more details about the company, you can have a look at these articles:

GHCL vs Tata Chemicals

GHCL vs Aarti Industries

GHCL vs Alkali Metals

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