Equity Research: Gujarat Alkalies & Chemicals
Gujarat Alkalies & Chemicals Ltd. (GACL) is the second-largest participant in the local caustic chlorine business with integrated operations. A diverse range of industries, including textile, pulp and paper, aluminum, detergents, soaps, rayon, plastics, pharmaceuticals, water treatment, and agricultural chemicals, use the company's wide range of products, which include caustic soda, liquid, and gaseous chlorine, hydrogen peroxide, phosphoric acid, and aluminum chloride.
ABOUT:
- Gujarat Alkalies and Chemicals Ltd. (GACL) was founded in 1973 by the Gujarat government's industrial investment arm, Gujarat Industrial Investment Corporation Ltd. (GIIC). The Gujarati government-owned 46.28% of the company, the majority of which was controlled by Gujarat State Investments Ltd (GSIL), which owned 20.87%.
- GACL is the second-largest participant in the local caustic chlorine business with integrated operations.
- It produces a wide variety of goods, including caustic soda, liquid, and gaseous chlorine, hydrogen peroxide, phosphoric acid, and aluminum chloride, that are used in several sectors, including textile, pulp and paper, aluminum, detergents, soaps, rayon, plastics, pharmaceutical, water treatment, and agricultural chemical industries. In FY22, the company's revenue came from 45% of caustic soda, 9% of chloromethane, 7% of caustic potash, 8% of hydrogen peroxide, 7% of phosphoric acid, 9% of aluminum chloride, and the remaining 15% from various sources.
- As of March 2022, GACL's manufacturing facilities had significant capacity for downstream products and a total installed capacity of about 1,750 MTPD of caustic soda. (caustic soda lye and caustic soda flakes) Additionally, GACL is attempting to increase its caustic soda production at Dahej by 425 MTPD. To construct an 800 MTPD caustic soda facility and a 130 MW coal-fired captive power station at Dahej, close to GACL's current plant, GNAL and GACL created a 60:40 joint venture in December 2015.
SHAREHOLDING PATTERN
HIGHLIGHTS & INDUSTRY ANALYSIS
CAUSTIC SODA:
- The company's product portfolio includes Caustic Soda (Lye, Flakes/Prills), Because the Caustic Soda Group accounts for the majority of the company's revenues, the market conditions for Caustic Soda and Chlorine have a substantial impact on the company's success. Textiles, pulp and paper, soaps and detergents, alumina, water treatment, petroleum, plastics, fertilizers, medicines, agrochemicals, plant protection, dyes and dye intermediates, refrigeration gases, epoxy, and other sectors use the goods.
- The electrolysis procedure used to produce Caustic Soda is extremely energy consuming. Aside from its 90 MW Gas-based Captive Co-generation Power Plant and involvement in a 145 MW Joint Captive Gas-based Power Plant, GIPCL has taken a huge step toward green energy by establishing Wind Farms with a total installed capacity of 171.45 MW by March 2022. The company has previously built a 35 MW solar power plant. This brings the total renewable energy capacity to 206.5 MW.
- At the Dahej complex, the company has also erected a floating Solar Power Plant with a capacity of 640 kW and Solar Rooftop installations with a capacity of 220 kW. Total product production climbed by 6.9% to 17,18,835 MT in FY22, up from 16,07,469 MT the previous year. The board had already approved installing a 65 MW coal-based power plant and increasing the capacity of the Dahej Caustic Soda Plant from 785 TPD to 1310 TPD. The Dahej Caustic Soda Plant's capacity expansion from 785 TPD to 1310 TPD began commercial production on September 21, 2022.
- In March 2022, GNAL successfully commissioned one of the Caustic Evaporation Units (CEU), generated 100 MT Caustic Soda Lye - Rayon grade, and declared the Caustic Soda plant partially operational. Furthermore, in May 2022, GNAL commissioned Unit - 1 of a 2x65 Captive Power Plant, as well as two of the eight electrolyzers of the Caustic Soda Plant. The entire project, which includes an 800 TPD Caustic Soda Plant and two 65 MW power plants, is projected to be completed by the third quarter of FY23.
GLOBAL PRESENCE:
Despite the tough worldwide competition, the company has created a global presence by selling high-quality products such as caustic soda, Potassium Carbonate, Potassium Hydroxide Flakes, Hydrogen Peroxide, Liquid Chlorine, Phosphoric Acid, Aluminium Chloride, PAC, Hydrochloric Acid, and CPW are shipped to Europe, West Asia, South East Asia, Africa, the Middle East/Far East, and SAARC countries, among other places.
JOINT VENTURE:
In August 2022, a joint venture firm called GACL-Nalco Alkalies & Chemicals Private Limited (GNAL), which was established by GACL and National Aluminium Company Limited (NALCO) would build an 800 TPD Caustic Soda Plant and a 130 MW captive power plant at Dahej. GNAL has transported 1,300 MT of Caustic Soda from Ankleshwar to Nalco.
RENEWABLE ENERGY:
A total of 171.45 MW of wind power plants and 35 MW of solar power plants totaling 206.45 MW have been installed by the company. The corporation has benefited from lower electricity costs for its power-intensive processes thanks to the captive use of the power from these facilities.
DIVERSE CUSTOMER BASE:
- GACL's operations are effectively integrated, allowing the company to make the most of its substantial production capacity by using a byproduct of one process as a raw material for another.
- As a negative demand situation for one set of products is offset by a favorable movement in other items, it shields profitability to some extent from the consequences of the inherent cyclicality in the demand for its primary products.
- Products made by GACL are used in a variety of processes in a wide range of industries, including textile, pulp and paper, alumina, soaps and detergents, rayon, fertilizers, petroleum, pharmaceuticals, agrochemicals, water treatment, ink, and paint. This enables the business to serve a diverse clientele and, as a result, helps it fend off a downturn in any one industry or group of industries.
TECHNOLOGICAL ADVANTAGE & CAPTIVE POWER GENERATION:
- Due to its membrane cell technology, which uses one-third less power and is less polluting than conventional mercury cell technology while electrolyzing salt, GACL's cost structure has managed to stay competitive.
- The investment in wind and solar power plants to offset the rising cost of power obtained from the market and the captive power plant for fulfilling a portion of its energy needs to help its cost structure.
- In addition to a wind power generation capacity of 171.45 MW and a captive 90 MW gas-based power plant, the total installed capacity of the solar power plant stood at 35 MW at Charanka Solar Park in Patan, 640 kW floating solar power plant on the reservoir of the captive power plant, and 220 kW solar rooftop installations at its Dahej complex and a 40–50 MW share in a Gujarat Industries Power Company Limited-run 145 MW group captive gas-based power plant. In FY22, GACL spent an average of Rs 7.12 per unit on electricity.
PROJECT DETAILS
GACL & IICT
GACL and IICT, Hyderabad, has successfully received patents from both India and the United States for an improved technique of generating hydrazine hydrate. Currently, Europe and other countries supply all of India's hydrazine hydrate requirements. The business was building a factory in Dahej to generate 10,000 MTA of hydrazine hydrate for Rs 405 crore. On September 26, 2022, the Dahej Complex's 10,000 TPA (80%) Hydrazine Hydrate Project began by supplying raw materials to the processing machinery. The goal of this project is to provide an import substitution with forward integration to hydrogen peroxide at the Dahej Complex. The procedure is still in progress, and the end outcome is expected in due time.
GACL & GAIL
The government released a Roadmap for 20% Ethanol Blending in Petrol by 2025, to reduce crude oil imports while also conserving valuable foreign currency. GACL and GAIL (India) Limited have signed a Memorandum of Understanding (MoU) for the development of a 500 KLD Bioethanol facility in Gujarat. The project's estimated cost is Rs. 1,000 crores, while annual revenue is expected to be around Rs. 1500 crore. A term agreement has already been signed by the two companies.
GACL & NTPC REL
A Memorandum of Understanding (MoU) between GACL and NTPC Renewable Energy Limited (NTPC REL), a fully owned subsidiary of NTPC Limited, was signed in July 2022 to explore business opportunities of mutual interest in the areas of sourcing renewable power with the ideal mix of solar, wind, and other clean energy, as well as energy storage solutions to the extent of about 100 MW, as required for the operations and manufacturing of GACL at Vadodara Complex and/or Dahej Complex.
FINANCIALS
- Due to the industry's natural cyclicality, total revenue increased 56% year on year in FY22, owing mostly to increased caustic soda product realization. Despite a significant increase, the EBITDA margin and net profit margin could not reach FY19 levels due to growing costs for salt, potassium chloride, rock phosphate, aluminum, and toluene (which comprise a large part of the total cost of materials consumed).
- The company holds non-current investments worth Rs 2087 crore, including Rs 1364 crore in Gujarat Gas, Rs 314 crore in unquoted investments, and Rs 2087 crore in GSFC and GIPCL. The investment value of the GACL-Nalco JV was Rs 409cr. As of March 2022, the total investment value per share, excluding joint venture investments, is Rs 230 per share.
- The Company has occasionally employed External Commercial Borrowing (ECB) rather than a Rupee Term Loan to help pay for the expansion's costs to lower interest costs. Even though a natural hedge is available because of exports and the company's low-risk profile.
VALUATION:
We forecast a 20% revenue CAGR, powered by strong realizations and solid volume growth across business categories. Due to excellent realizations, the company's revenue increased by 55% year on year in FY22, reaching Rs 3759cr & PAT jumped 238% year on year to Rs 560cr. Despite having a portfolio dominated by commodities, we think that the completion of forward integration projects, expansions, energy-saving measures, and the NALCO JV might lead to scale economies/operating leverage, a re-rating of the firm, as well as an increase in earnings (though going into higher value add products).
SOURCE:
COMPANY'S WEBSITE
STOCX
