The Hindu Business Line : GHCL restructuring is long-term positive

GHCL’s proposal to restructure its business into two separate segments — by separating its commodity-oriented soda ash business from its brand-oriented home textile and retail business — appears to be a positive move from a long-term perspective.

However, the immediate impact of this move on the stock may be muted, as the de-merger is not being structured as a vertical split between these businesses. GHCL has so far approved only the first move in this restructuring process-transfer of the home textiles and retail segment to a wholly-owned subsidiary.

Vertical split

With the home textiles division to be housed in a subsidiary, GHCL shareholders may not receive any proportionate stakes in this business, as would have been the case with a vertical split. A stake sale or listing of the subsidiary, which may help unlock value for GHCL investors, may follow only at a later date.

The move to separate the home textiles and retailing businesses from the soda ash operations appears to make strategic sense at this juncture, as it may enable better focus and valuations for each of these businesses.

GHCL’s home textile and retail operations have grown substantially in size and scale in the past year and now contribute well over half of the consolidated revenues, helped by GHCL’s acquisition of three separate companies in the US and one in the UK-retail chain Roseby’s.

GHCL has plans for rolling out a home textile retail chain under the Roseby’s brand in the domestic market. This may require a substantial infusion of cash and may entail heavy investments in the initial years. Under the circumstances, a separate entity dedicated to this foray may be better placed to raise funds either from banks or equity investors, for funding such investments.

This restructuring may also free up cash flows from the soda ash business for distribution to the company’s shareholders. The global soda ash cycle is in a strong uptrend and GHCL is well placed to capitalise on this with the recent scaling up of its capacities through the acquisition route.

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