Spotting opportunities from demergers - GHCL Textiles Ltd

GHCL Textiles is the demerged entity from GHCL Ltd which got listed on 12 June 2023. Since the listing, the stock has been reeling under selling pressure due to investors of GHCL Ltd, who got GHCL Textiles shares, not being interested in owning the spinning textiles company out of their investment mandate.

We are currently positive on the textile sector since the sector is facing severe demand and raw material side headwinds; hence, the valuations have come off steeply over the last 1-1.5 years. We are patient long-term investors who prefer to buy cyclical companies at throw-away prices when the sector is not doing well and we are willing to wait for cycles to turn from negative to positive.

Below is the valuation comparison for GHCL Textiles Vs other spinning companies (as on 16 June 2023):

As shown, GHCL Textiles is available at median valuations on various valuation parameters and at a much lower valuation on P/Bv basis. It seems highly probable that market participants have not yet taken note of this discrepancy considering 1) it is just a few days since its listing and textile as a sector is generally been avoided due to headwinds to this sector 2) it is small in size and hence can go unnoticed for some more time and 3) the stock is not going up which would make it not appear in many momentum screens.

Disclaimer: we may or may not own GHCL Textiles Ltd. We advise our readers to do their own diligence before choosing to invest in the company.