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Emkay Global
GHCL (Buy)
CMP: ₹221.7
Target: ₹345
Key takeaways: a) Advanced materials and specialty chemicals company Solvay will increase its soda ash production capacity by 600 kilo tonnes (kt) at its trona-based Green River site in Wyoming, US in order to meet long-term global demand growth in various applications. The company will also expand its sodium bicarbonate capacity by 200 kt at its Devnya plant in Bulgaria to address global demand growth for flue gas treatments that improve air quality. The combined investments total €185 million, spread over the next three years.
b) This move has strengthened our view on positive soda ash outlook in the near-to-long term. Furthermore, the new tax reforms should benefit GHCL’s earnings as its current tax rate is higher than 25 per cent (our assumption was 33.3 per cent for FY20/21E). This should make the company more cost competitive in the global market and could capture potential market share in the imports segment. India imports close to 20 per cent of soda ash demand.
c) The benefit of a lower tax rate at 17 per cent (including surcharge) for new manufacturing units could help the company in its planned capex of ₹300 crore to expand soda ash capacity. This will make GHCL more cost competitive with global and domestic players (no new domestic greenfield capex coming in the near term).
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