Unveiling the Tapestry of GHCL Textile Limited: Weaving Success with Precision and Promise

GHCL Textile Limited (GTL) stands out in the textile industry for its innovation and resilience, with a rich history dating back to 1927. Led by visionary leadership, GTL navigates market challenges, harnesses renewable energy, and forges strategic partnerships for sustainable growth. Post demerger, GHCL Textile is available at steep discount, and available at almost net debt free.

In the sprawling landscape of the textile industry, GHCL Textile Limited (GTL) emerges as a beacon of innovation and resilience, boasting a legacy steeped in excellence and a vision set on the horizon of progress. As we delve into the intricate threads of GTL's narrative, we uncover a tale of evolution, strategic foresight, and unwavering commitment to quality.

Embarking on the Journey

GHCL Limited, a stalwart in the domain of soda ash, embarked on a new chapter in 2002 with the inception of its yarn division. This division, steeped in tradition yet imbued with a spirit of innovation, was destined for greatness. Fast forward to April 01, 2023, and the yarn division metamorphosed into GTL, charting a course toward unparalleled success.

Prominent Player in the Industry

o Established in 1927 as Sri Meenakshi Mills in state of Tamil Naidu
o Prominent and one of India's leading yarn manufacturers and exporters.
o Producers of high-quality yarns, including GIZA, SUPIMA, Australian, and CmiA Yarn, catering to domestic and international markets.
o Committed to sustainability with substantial green energy assets providing cost benefits as well.
o State-of-the-art manufacturing infrastructure with cutting-edge textile machinery.
o Known for quality and customer-oriented focus.

To simplify the structure, GHCL Textile form the GHCL Limited and rationale behind the merger includes simplified corporate structure, maximisation of shareholders value and growth.

Guiding Lights: The Pillars of Leadership

At the helm of GTL stands Rajappan Balakrishnan, a luminary in the textile realm whose illustrious career spans nearly four decades. With a diploma in textile technology and a passion for excellence, Balakrishnan orchestrates the company's operations with precision and poise, embodying the ethos of quality craftsmanship and visionary leadership.

Crafting Excellence: Unraveling GTL's Tapestry

GTL's tapestry is woven with threads of innovation and diversity, reflecting its commitment to excellence. The company's modern manufacturing facilities, nestled in the heart of Tamil Nadu, boast a formidable arsenal comprising 2.25 lakh ring spindles, 3,320 rotors, 5,760 TFO spindles, and 5 Airjet Spinning units. This robust infrastructure forms the bedrock of GTL's operations, facilitating the production of open-end yarns, ring-spun yarns, blended yarns, and fabrics of uncompromising quality.

Company has capacity of 2.25 lac ring spindles, 3320 rotors, 480 Vortox and 5760 TFO spindles, with 54% revenue is coming form value added products. 

Company has significantly reduced its debt and operating at net debt of just 2Cr only. 

Embracing Tomorrow: Forging Partnerships for Growth

In January 2024, GTL embarked on a transformative journey, signing a Memorandum of Understanding with the Government of Tamil Nadu as part of the Tamil Nadu Global Investors Meet 2024. This visionary partnership heralds a new era of expansion and innovation, with GTL poised to invest up to Rs. 535 Crores over the next four years, further solidifying its position as an industry leader.

Navigating Market Challenges: The Quest for Resilience

Amidst the ebbs and flows of the market, GTL stands resilient, weathering challenges with fortitude and foresight. Despite margin pressures stemming from a decline in cotton yarn spread and inventory losses, GTL remains steadfast in its pursuit of excellence. The company's unwavering focus on value-added yarn and enhanced efficiency underscores its commitment to sustainable growth.

Powering Ahead: Harnessing the Winds of Change

In its quest for sustainability, GTL has embraced renewable energy with fervor, boasting an impressive portfolio comprising 25.2 MW of windmill power and 22.0 MW of solar power. With plans to expand its green energy portfolio to 75 MW, GTL is charting a course toward energy independence, reducing its carbon footprint while enhancing operational efficiency.

Industry Dynamics: Sailing Amidst Tailwinds

As the textile industry navigates choppy waters, GTL stands poised for success, buoyed by favorable industry dynamics and strategic foresight. With cotton prices witnessing a correction and export demand poised for a resurgence, GTL is primed for a period of sustained growth, leveraging its expertise and market acumen to chart a course toward prosperity.

Financials

Company's revenue and operating profit is bit cyclical and looking like it is bottoming out now.

Positives

Experience of promoters in the textile industry
Rajappan Balakrishnan, CEO, has done diploma in textile technology with total work experience of nearly four decades in the industry. He looks after the overall operations of the company. V Gaurav, CFO, is a Chartered Accountant with total work experience of 11 years and looks after the finance function. Moreover, Ravi Shanker Jalan (MD of GHCL) and Raman Chopra (CEO & Executive Director-Finance, GHCL) are the directors of GTL who have been facilitating healthy and steady growth of operations. The in-house team of GTL also consists of experienced professionals who have guided the yarn business successfully through various economic cycles.

Long and established track record of operations
GHCL Textile has a track record of over two decades in the textile industry. Over the years, the company has expanded its operations to include open-end yarns, ring-spun yarns, blended yarns and fabrics. It has
capacity of 225,000 ring spindles and 3,320 rotors with a balanced mix of cotton and synthetic yarn in its portfolio.
Manufacturing infrastructure was established with machineries from reputed suppliers, i.e., Rieter (Switzerland), Schlafhorst
(Germany), Savio (Italy), Murata (Japan), Trueztschler (Germany), etc.

High operating efficiency with healthy capacity utilisation and growing share of captive power consumption
GTL has operated its installed capacity at over 90% in the past two years ended FY23. During FY23, the company increased
production of synthetic blend yarn by 15-20% amidst rising cotton price and decline in export demand thereby maintaining
optimum utilisation of capacities.  Moreover, GTL has an installed capacity of 25.2 MW of windmill power plant and 22.0 MW solar power plant (excluding ongoing development of 10 MW) for captive consumption which reduces the average power cost. GTL also receives power from hybrid power plant at cheaper rate and through group captive power project. During FY23, captive power consumption stood at around 70% of power requirements of yarn business as against 54% in FY22.

Reputed and diversified customer base
Over the years, the company has refined its product and customer base with increase in the share of high value-added yarn in
its total sales. The customer base of yarn business is diversified with the top 10 customers accounting for 43% of its total
income in FY23 (P.Y.: 38%). The customer base includes reputed companies like Raymond Limited Arvind Limited , Indo Count Industries Limited, Shahi Exports Private Limited, etc. The company enjoys a good relationship with these customers and receives repeat orders from them. Hence, GTL is expected to maintain customer diversification in the medium term. GTL has also increased its focus on geographical diversification and has witnessed growth in its export revenue over the past two years ended FY23. The company earned around 13% of its revenue from export market during FY23 as compared with 6% in FY21.

Key weaknesses

Low rerun indicator
With significant decline in operating profitability margin, return indicator marked by ROCE remained low at 2% in FY23 (FY22:
21%). Moreover, despite expected improvement in the operating profitability, CARE Ratings expects the ROCE to remain 6%-
10% in the medium term.

Susceptibility to volatility in the raw material prices and foreign exchange rate fluctuations
The basic raw material consumed by GTL to produce yarn is raw cotton, which accounts for 50%-55% of the total cost of
production. The prices of raw cotton are volatile in nature and depends upon factors like area under production, yield for the
year, vagaries of the monsoon, international demand-supply scenario, inventory carry forward from the previous year and
minimum support price (MSP) decided by the government. The prices of raw cotton have been volatile over the last couple of
years, which translates into risk of inventory losses for the industry players; albeit at times it also leads to inventory gains.
Collectively, these factors along with intense competition in the industry contribute to low bargaining power of yarn
manufacturers and volatility in profitability. Furthermore, GTL is also exposed to foreign currency rate fluctuation as the
company derives 12%-13% of its revenue from the export market while it imports 35%-40% of its raw material requirement. Thus, the profitability margins of the company remain susceptible to any adverse movement in the foreign exchange rate.
However, GTL has a policy to hedge its foreign currency exposure through forward contracts, mitigating the forex exposure to
an extent. GTL hedges 100% of its imports (rolling three months hedge) and nearly 60% of its exports on a gross basis.

Presence in fragmented, cyclical and competitive textile industry
GTL operates in a cyclical and fragmented textile industry marked by the presence of many organised as well as unorganised
players leading to high competition in the industry. Apart from this, capacity additions by large players and the commoditised
nature of cotton yarn also limits the pricing ability of the industry players to an extent. Furthermore, the textile industry is
inherently cyclical in nature and closely follows the macroeconomic business cycles. The prices of raw materials and finished
goods are also determined by global demand-supply scenario, hence any shift in macroeconomic environment globally also
impacts the domestic textile industry. Having experienced professionals who have guided the yarn business successfully
through various economic cycles

Company Guidance
• Vertical integration of textile manufacturing to include knitted and woven finished fabrics which yields superior margins
• Product basket expansions and increase the spinning capacity by ~1.5x
• Enhancement of Green energy portfolio to 75 MW (from 62 MW currently) to cater up to 85% of our energy requirement.
• Long term margins shall remain in the 17-20% range

Management

Valuation

Company is operating at 0.6x Price to Book and will be a bit lucrative at this price. 

Charting the Course Ahead: A Tapestry of Promise

As GTL prepares to showcase its prowess on the global stage at "Bharat Tex 2024," the stage is set for a symphony of success and innovation. With over 1,000 exhibitors and 30,000 visitors from across the globe, GTL is poised to unveil its tapestry of promise, weaving a narrative of excellence and resilience that transcends borders and boundaries.

In the grand tapestry of GTL's journey, each thread tells a story of resilience, innovation, and unwavering commitment to excellence. As the company navigates the currents of change, its vision remains steadfast, anchored in a legacy of quality craftsmanship and visionary leadership. As the sun sets on another chapter in GTL's narrative, the promise of tomorrow beckons—a promise of growth, prosperity, and boundless potential.

As we gaze upon the horizon, we see GTL standing tall, its tapestry unfurled in all its glory—a testament to the indomitable spirit of human endeavor and the limitless possibilities that lie ahead. In the ever-changing landscape of the textile industry, GTL remains a beacon of hope and inspiration, illuminating the path toward a future defined by innovation, sustainability, and shared prosperity.

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