Recommendation Review: Gujarat Alkalies And Chemicals

We had recommended Gujarat Alkalies and Chemicals in DSIJ Vol. 28, Issue # 10 (dated May 5, 2013). based on its ability to maintain profitability in the face of intense cost pressures, its extensive expansion plan and the strategy of diversification to expand its portfolio and reduce risk.

We have recommended the stock as a buy at Rs 172 and it is currently trading at Rs 178, providing an upside of 3.50 per cent. The reason that we have taken the stock for review is that we are still confident of the company’s prospects in the current market scenario. The fundamentals of the stock remain intact.

An impressive set of results for March 2013 adds to our conviction in this stock and supports our positive outlook on its performance. During the period, its revenues grew by 10.46 per cent to Rs 472.12 crore on a yearly basis, the EBITDA was up 61.85 per cent to Rs 118.88 crore and its net profit increased 82.61 per cent to Rs 80.73 crore. The EBITDA margins also expanded by 799 basis points to 25.18 per cent. The reduced finance cost was the major contributor to the company’s profitability, amounting to Rs 0.67 crore as compared to Rs 4.03 crore in the corresponding quarter of the previous fiscal.

Despite troubles in maintaining volumes, the company has not only maintained strong revenue growth but has also shown improved efficiency. We suggest that investors hold this counter from a longer term perspective.