5 stocks that stand to benefit from govt's decision to curb soda ash import

This decision, communicated by the Directorate General of Foreign Trade (DGFT), aims to curb the inflow of lower-cost imports and protect the local manufacturing sector. Soda ash is the secret sauce for making detergents, glass, and chemicals.

In this article, we will look at five stocks set to gain from the government’s new soda ash price policy.

#1 Tata Chemicals

Tata Chemicals is among the world's largest and most geographically diversified soda ash companies.

It is one of the largest producers of synthetic soda ash in the world, accounting for as much as 35% of the total production in India.

The Tata Group company produces four categories of this vital alkali: light soda ash, dense soda ash, medium dense soda ash and granular soda ash.

Over the years, the manufacturing capacity of its soda ash plant has increased from 40 tonnes per day to the current level of 2,500 tonnes per day. It has manufacturing facilities in India, the UK, the US and Kenya.

It has a global capacity of around 5.5 million tonnes of soda ash per annum, of which 60% is from natural deposits at Wyoming, US, and Lake Magadi, Kenya.

Given its strong foothold in the market, Tata Chemicals stands to gain significantly from the Indian government’s decision to impose a MIP on soda ash.

The move will bolster domestic demand for locally produced soda ash, providing Tata Chemicals with an opportunity to strengthen its market position.

For the September 2024 quarter, the company reported a flat revenue of ₹3,990 crore. Meanwhile, the net profit for the quarter tumbled to ₹190 crore from ₹430 crore a year back.

Over the five years, its revenue has grown at a CAGR of 8.3%. The returns have been strong, with the RoE and RoCE averaging over 6.6% and 8.3%, respectively.

Recently, Tata Chemicals' wholly-owned subsidiary Tata Chemicals Europe announced its plan to invest ₹660 crore to build a 180,000 tonnes per annum pharmaceutical grade sodium bicarbonate plant in Northwich in the UK.

This new plant will triple TCEL's production capacity of pharmaceutical-grade sodium bicarbonate in the UK. The construction of the plant is expected to commence in 2025, with the first production likely to begin in 2027.

#2 GHCL

GHCL Ltd is a leading producer of soda ash in India and is one of the country's largest manufacturers of soda ash at a single location.

GHCL’s soda ash manufacturing facility located at Sutrapada, Gujarat, is one of India’s leading producers of soda ash (anhydrous sodium carbonate) and has an annual production capacity of 1.2 million tonnes per annum.

It contributes to almost 25% to the country’s annual domestic demand. It has a clear competitive advantage due to its captive raw material sources. Its lignite mines located at Khadsaliya in the Bhavnagar district of Gujarat supply the raw material needed for the production of soda ash.

With the Indian government imposing an MIP on soda ash to curb cheaper imports, GHCL is well-positioned to benefit.

For the September 2024 quarter, GHCL's revenue saw a decline of 1.6% to ₹792.8 crore mainly on account of lower realisations. Meanwhile, the net profit increased 8.4% to ₹154.8 crore.

From FY20 to FY24, the company achieved a CAGR growth of 0.6% in sales, while its net profit saw a growth by 17.8%.

GHCL on 13 December 2024 received environmental clearance for its greenfield soda ash manufacturing plant in Mandvi taluka, Kutch. The Union Ministry of Environment, Forest, and Climate Change (MoEFCC) granted the approval.

As part of its MoU with the state govt in the Vibrant Gujarat Global Summit 2017, GHCL had committed an investment of ₹3,500 croreto set up a greenfield soda ash manufacturing complex with 11 lakh tonne per annum of soda ash capacity, with 5.5 lakh tonnes each in the first and second phases.

The upcoming greenfield project will almost double its production capacities.

#3 DCW

DCW Ltd is a chemical company that manufactures and sells soda ash and is known for its innovation and diverse product portfolio.

The company specialises in producing light and dense soda ash, which is used in industries such as detergents, glass, and chemicals. Over the years, DCW has established a strong presence in the soda ash market by focusing on operational efficiency and sustainable practices.

DCW operates a well-integrated production facility in Gujarat.

With the Indian government imposing an MIP on soda ash, DCW Ltd is well-positioned to benefit from the move.DCW can leverage its existing infrastructure and market reach to increase its share in the growing soda ash industry.

For the September 2024 quarter, DCW's revenue surged 18% to ₹490 crore. Its net loss narrowed to ₹1.25 crore from ₹270 crore.

From FY20 to FY24, the company achieved a CAGR growth of 6.7% in sales, while the company turned profitable over the years. The returns have been strong, with the RoE and RoCE averaging over 6.9% and 14.7%, respectively.

Going forward, DCW plans to expand its chlorinated polyvinyl chloride (CPVC) production capacity. The company plans to increase its production capacity by 30,000 metric tonnes (mt), taking the total capacity from 20,000 mt to 50,000 mt.

This phased expansion is set to be completed by FY26, with 20,000 mt expected to come online in the second half of Q2 FY26 and an additional 10,000 mt by the end of FY26.

#4 Gujarat Alkalies and Chemicals

Gujarat Alkalies is a state-owned chemical manufacturing company that produces soda ash and other chemicals. It’s also one of the country’s largest caustic soda manufacturers, commanding over 20% of the domestic market.

The company operates across four expansive complexes in Vadodara and Dahej, offering an extensive product portfolio of over 35 diverse products.

Although Gujarat Alkalies and Chemicals Ltd (GACL) primarily operates in the caustic soda segment, the imposition of a MIP on soda ash could indirectly benefit the company.

Industries such as glass and detergents, which rely heavily on soda ash, also utilise caustic soda in their production processes. An increase in soda ash demand, driven by the government’s protective measures, could positively impact caustic soda demand, benefiting GACL.

For the September 2024 quarter, the company reported a 2% YoY rise in revenue to ₹990 crore, up from ₹970 crore a year back. Meanwhile, net profit grew 1% to ₹18 crore.

From FY20 to FY24, the company achieved a CAGR growth of 0.6% in sales, while its net profit saw a fall. This growth has led to a strong RoCE and RoE, averaging 5.3% and 6.9% over the last five years.

Going forward, the company plans to increase its revenue.

#5 Chemfab Alkalis

The company offers products, including caustic soda lye, liquid chlorine, hydrogen gas, hydrochloric acid, sodium hypochlorite, bleach liquor, barium sulphate, hydrogen, sodium chlorate, and salt. Established in 1985, the company holds numerous patents and global recognition for its technological advancements.

While the company does not directly manufacture soda ash, the recent imposition of an MIP on soda ash could still create indirect benefits. Soda ash and caustic soda are often utilised together in various industries, including glass, detergents, and chemicals.

For the September 2024 quarter, the company reported a 2.9% YoY rise in revenue to ₹81.9 crore. Its net loss reduced to ₹53 lakh from ₹4.3 crore.

From FY20 to FY24, the company achieved a CAGR growth of 11.1% in sales, while its net profit saw a growth of 9.5%. This growth led to a RoCE and RoE averaging 8.7% and 12.1% over the last five years.

Going forward, it plans to increase the production capacity of its PVCO pipes plant in Sri City from two to four lines in FY25. The company also plans to add three more lines in FY26, increasing the capacity to seven lines by 2025-26.

Conclusion

According to IMARC Group, the soda ash industry is expected to reach 5.1 million tonnes by 2032, growing at a steady 1.4% CAGR from 2024 to 2032.

This growth is primarily driven by the increasing demand from key sectors such as soap and detergent manufacturing, as well as the glass industry, where soda ash is an essential material.

The Indian government's decision to impose an MIP on soda ash supports this growth by protecting domestic producers from cheaper imports, ensuring a more stable market.

As a result, companies within this sector are poised to benefit from these favourable market conditions, with increased demand, stronger market positioning, and enhanced profitability.

This policy shift, coupled with growing industry demand, creates a promising outlook for domestic soda ash manufacturers.

Investors should evaluate these companies’ fundamentals, corporate governance, and valuations of the stocks as key factors when conducting due diligence before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com