GHCL stock could deliver strong medium-term returns

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GHCL Ltd is a global chemical and textile company. It manufactures high quality soda ash which is a key ingredient in detergents, soaps, dyes and glassware. The company’s home textile division manufactures premium yarns, fabrics and textile products like bed linen, curtains and cotton yarn. To unlock the intrinsic value of the spinning business and home textiles business from its core chemicals business, GHCL proposes to sell the home textiles business and retain the profitable spinning business in GHCLTextiles . Having a separate entity for each line of business is a win-win situation for shareholders. The company intends to divest the company’s home textile business and sell the identified assets of its wholly-owned US subsidiary Grace Home Fashions LLC in New Delhi, Indo Count Industries Limited and its US-based subsidiary for a consideration of Rs. 596 crores. A sum of Rs 340 crore would be for fixed assets, while Rs 199 crore would be for net realizable current assets in consideration of the Indian home textiles business. GHCL’s US subsidiary Grace Home Fashions will transfer the inventory and intellectual property rights to Indo Count’s US subsidiary for consideration of Rs 37 crore. Additionally, GHCL and Grace Home Fashions expect to make a sum of Rs 20 crore on their own account. GHCL shareholders will be allocated shares of GHCL Textiles at the exchange ratio of one share of Rs 2 each for every Rs 10 share held in GHCL. The resulting company will take over all assets and liabilities of the textile business and will be listed on both the NSE and BSE stock exchanges. There will be no change in the shareholding of the split company. Proceeds from the sale will be used cautiously in the growth initiatives outlined in both the chemical and spinning businesses. GHCL recently announced its expansion plans with plans to set up a 40,000 spindle unit in Tiruchirappalli to produce synthetic and blended synthetic yarns that would cater to the knitting and weaving segments. It would also install an additional 40,000 rings with 24 knitting machines in Madurai district to produce 100% cotton yarn and knitted fabrics. The company also plans to develop a power transmission facility at the Manaparai facility to ensure uninterrupted power supply. GHCL has also proposed to set up a 32 MW solar power plant in Tiruchirappalli district. Currently, 55% of GHCL’s yarn business energy needs are met from renewable resources, but once the projects are completed, nearly 85% of GHCL’s spinning business energy needs will come from renewable energy resources. GHCL stock has recently outperformed on the stock exchanges with the share listed at Rs 570. Analysts are bullish on the scrip and expect solid appreciation in the medium term after investors get the 2 shares of the split company . A good fundamental buy for portfolio investors.
Rajiv Kapoor is a Stock Broker, Certified Mutual Fund Expert and MDRT Insurance Agent.

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