GOCL Corporation LtdQ1 FY18Chemicals & Petrochemicals

GOCL Corporation Ltd

Q1 FY18 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

N/A

Order

Yes

Capex

Yes

2 of 4 growth signals are positive.

Full analysis

Revenue guidance

Category 2

→Exports expected to grow by nearly 33%, driven by demand from South East Asia, Africa, Middle East, Gulf, and Eastern Europe.
→Domestic business growth anticipated at about 20% due to improved mining activity and new orders.
→Special Products Group (defense and space applications) expected to grow 25-30%.
→Metal Cladding operations projected to grow by 50%, tapping into emerging demand for stringent specifications.
→Overall business growth target averages around 25% across segments.
→IDL Explosives cautiously expanding capacity with new licenses and enhanced production to meet increasing demand.
→The company plans 22% top-line growth for the next year, exceeding industry growth of 7%.
→PBT growth expected to outpace revenue growth, with a 22% PBT increase over five years and continued improvement anticipated.

Margin guidance

Category 3

→GOCL expects overall revenue growth of around 25% across segments, driven by:
→ - Export growth targeted at ~33%
→ - Domestic business growth at about 20%
→ - Special Products Group aiming for 25%-30% growth
→ - Metal Cladding segment targeting 50% growth
→The explosives business PBT growth has been strong (22% over last 5 years) and expected to continue improving.
→IDL Explosives expects higher capacity utilization and increased volumes, improving profitability.
→Operating efficiencies and cost savings measures are ongoing to improve margins.
→Mining sector uptake is cautious due to policy uncertainties but improving demand is expected.
→Management remains optimistic about maintaining or improving Profit Before Tax (PBT) margins alongside revenue growth.
→Dividend payouts maintained (IDL at 100%, GOCL at 80%), indicating stable profit outlook.
→No explicit EPS guidance given, but growth in profits and operational efficiencies suggest positive EPS trajectory.

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Fundraise plans

Based on the provided transcript from June 6, 2018: - There is no explicit mention of any current or future fundraising plans through new debt or equity. - The company has successfully reduced its short-term liabilities and almost nil long-term liabilities. - GOCL’s credit rating has improved by two notches (from BBB stable to A- for long term, and from A3+ to A2+ for short term). - Working capital interest rate has been reduced from 11.5% to 10%, indicating improved financial conditions. - The company has mainly used internal funds for CAPEX (90% from internal funds for Rs. 20 crores spent). - No announcements or indications regarding new fundraises via debt or equity issuance were reported during the call.

Order book

Yes

→Current domestic orders stand at approximately Rs. 562 crores.
→An additional Rs. 200 crores worth of large orders from major mining companies are in the pipeline.
→Orders on hand as mentioned by COO IDL Explosives are Rs. 554 crores, with an expectation of adding another Rs. 200 crores.
→The orderbook consists of a balanced mix of business with Coal India (50%) and non-Coal India (50%).
→The company expects robust demand with existing and new products to meet customer requirements.
→Capacity enhancements are underway with licenses received for increasing explosive manufacturing capacity by 59,600 tons at four locations.
→The market outlook shows positive growth trends domestically and internationally.

Capex plans

Yes

→GOCL Corporation spent Rs. 20 crores CAPEX for itself and subsidiaries in the financial year, with 90% funded through internal funds (Page 9).
→Licenses received for enhancing capacities at four locations by 59,600 tons of bulk explosives; additional licenses applied for further capacity enhancement to meet rising demand (Page 5).
→At Hyderabad Energetics plant, new equipment and machinery were installed, improving quality and production rates (Page 4).
→Two new bulk plants added: 10,000 tons capacity in West Bengal and 6,000 tons in Chhattisgarh to boost production capacity (Page 4).
→Ongoing strategic real estate development: 100-acre integrated township at Hyderabad with approvals in progress and plans to start work once permits are in place; delay noted but pushing for progress (Pages 7, 12, 13, 18).
→Investment in merger of Houghton International with Quaker Chemical underway, valued around Rs. 439 crores, with closure expected by Sept-Oct 2018; rights to liquidate shares flexibly (Pages 7, 12, 18).

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