Future Performer - Gujarat Alkalies & Chemicals

Gujarat Alkalies & Chemicals (GACL) was recommended in the Choice Scrip column of the Dalal Street Investment Journal datelined October 15-28,2007, at a price of around Rs 150.55. Since the recommendation, the scrip has peaked to a 52-week high of Rs 275, giving a staggering growth of 82.66 per cent. At the time of the recommendation, the Sensex was hovering around 18,500 mark. It is currently around13,802, which means it is down 4698 points or 25 per cent. Despite weak market sentiments, GACL is trading above the recommended price at Rs 168, giving a return of 12 per cent. This clearly shows the strength of the counter.

The company had been recommended as it was seen as a silent performer and had valuations that could not be overlooked. Also, the counter had at that point underperformed the broader market, which meant greater probability of the counter moving up. GACL had additionally undertaken a huge capex of around Rs 600-700 crore and it was assumed this would drive its future growth.

Among other advantages is the fact that GACL products find applications across various user industries. This de-risks business and enables it to sustain its revenue growth. Promoted by the Gujarat government, GACL is the single-largest producer of caustic soda in India. It has a production capacity of 1,087 tpa.  GACL has been constantly working on international tie-ups which can give the company access to closely-held energy-efficient technology and enhance its global brand even further. It has also entered into joint venture with global giant Dow Europe, through which it would be setting up a plant for manufacturing chlorinated organics at Dahej at an estimated project cost of Rs 600crore. The JV-manufactured products would be marketed in SAARC countries.

For FY08, the company’s net sales increased 8.49 per cent to Rs 1133.63 crore (Rs 1044.84 crore), while the bottomline during the same period increased 20 per cent to Rs 224.08 crore (186.82 crore).This growth has come despite a comparatively weaker Q4FY08, when its bottomline had declined on account of high employee cost and higher tax outgo. At FY08 profit, the company is available at a P/E of just 5.51x, which is very attractive. We are still bullish on this counter and suggest a hold for long-term gains.