Gu­jarat Flu­o­ro­chem­i­cals Ltd

(BSE Code: 500173) (CMP: Rs.909.80) (FV: Re.1)

Money Times - - Press Release Bull’s Eye - By Pratit Nayan Pa­tel

Com­pany Back­ground: Gu­jarat Flu­o­ro­chem­i­cals Ltd (GFL) be­long­ing to the multi-bil­lion dol­lar Inox group was in­cor­po­rated in 1987 af­ter set­ting up In­dia’s largest re­frig­er­ant plant at Ran­jit­na­gar in Gu­jarat. It pri­mar­ily sup­plied chlo­roflu­o­ro­car­bon (CFC) and hy­dro-chlo­roflu­o­ro­car­bon (HCFC) to more than 75 coun­tries across the globe. Af­ter CFC and HCFC phased out un­der the Mon­treal Pro­to­col in 2007, GFL for­ward in­te­grated into poly tetra flu­oro eth­yl­ene (PTFE) by set­ting up an in­te­grated and tech­no­log­i­cally ad­vanced PTFE fa­cil­ity at Da­hej in Gu­jarat. The ma­jor mar­kets that it ex­ports to are the Mid­dle East, South Asia and Ja­pan. It ex­ports PTFE largely to Eu­rope and USA. Ex­ports con­sti­tute around 75% of the to­tal sales.

GFL man­u­fac­tures HCFC22 at its Ran­jit­na­gar fa­cil­ity. HCFC22 is a re­frig­er­ant used as a cool­ing agent in air-con­di­tion­ing and re­frig­er­at­ing ap­pli­ca­tions and also as a feed­stock in the man­u­fac­ture of PTFE. GFL man­u­fac­tures spe­cial grade HCFC22 with over 99.999% pu­rity for the man­u­fac­ture of spe­cial­ity chem­i­cals and flu­o­ropoly­mers. It also has an

an­hy­drous hy­dro­gen flu­o­ride (AHF) plant at the fa­cil­ity, which is used to man­u­fac­ture HCFC22. For its flu­o­rospe­cial­ity busi­ness, it is set­ting up multi-pur­pose plants within the fa­cil­ity.

GFL man­u­fac­tures a wide range of prod­ucts at its Da­hej plant, which in­cludes gran­u­lar vir­gin and mod­i­fied PTFE resins, fine pow­der vir­gin and mod­i­fied PTFE resins, PTFE based aque­ous dis­per­sions and PTFE mi­cro pow­ders. It is the largest man­u­fac­turer of chloro­meth­anes, HCFC and var­i­ous grades of PTFE in In­dia. PTFE also pro­vides longevity to GFL’s re­frig­er­ant busi­ness, and pro­vides a plat­form for GFL to en­ter into the newage of re­frig­er­ants. Its Da­hej plant owns fa­cil­i­ties to man­u­fac­ture a host of other Flu­ooropoly­mers such as PFA, FEP, PVDF and Flu­o­roe­las­tomers such as FKM. The other plants cover VDF, Re­frig­er­ant Gases, and R-125, among oth­ers. There is a fa­cil­ity for pro­duc­ing PTFE mi­crop­ow­ders and FKM blends go­ing as ad­di­tives. The fa­cil­ity is deeply back­ward in­te­grated into pro­duc­ing HCFC22, AHF, chloro­meth­anes and caus­tic soda / chlo­rine. The for­ward and back­ward in­te­gra­tion not only di­ver­si­fies our prod­uct port­fo­lio, but also makes them amongst one of the most cost com­pet­i­tive pro­duc­ers of these chem­i­cals glob­ally.

Fi­nan­cials: With an eq­uity cap­i­tal of Rs.10.99 crore and re­serves of Rs.5306 crore, GFL’s share book value works out to Rs.542.53. The pro­mot­ers hold 68.33% of the eq­uity cap­i­tal, Mu­tual Funds hold 1.7% and FPIs hold 4.11%, which leaves 25.86% stake with the in­vest­ing pub­lic, of which well-known in­vestor Akash Bhansali holds 1.23% stake.

Per­for­mance Re­view: For Q2FY19, GFL re­ported

684% higher PAT of Rs.468.3 crore on 69% higher in­come of Rs.1479.45 crore and an EPS of Rs.42.6.

Dur­ing the quar­ter, it got tax re­fund of Rs.271.5 crore as against Rs.25.4 crore of tax paid in Q2FY18. For H1FY19, it re­ported 420% higher

PAT of Rs.615.45 crore on 45% higher in­come of Rs.2839.2 crore and an EPS of Rs.56. It paid 350% div­i­dend for FY18.

In­dus­try Over­view: Ac­cord­ing to Mar­kets and Mar­kets, a global re­search firm, the mar­ket size of high per­for­mance flu­o­ropoly­mers is es­ti­mated to grow at 6.6% CAGR from $3.69 bil­lion in 2017 to $5.08 bil­lion by 2022. The global PTFE mar­ket is fore­cast to grow at 4.6% CAGR over 201624 to $3.57 bil­lion by 2024, up from $1.87 bil­lion in 2015. Asia Pa­cific is an­tic­i­pated to be the fastest-grow­ing mar­ket for flu­o­ropoly­mers. The de­mand for flu­o­ropoly­mer ma­te­ri­als in this re­gion is es­ti­mated to be pri­mar­ily driven by a swift rise in con­sump­tion of flu­o­ropoly­mers in In­dia and China. The de­mand for PTFE is also ris­ing due to the con­tin­u­ous in­dus­trial ex­pan­sion in the Asia-Pa­cific re­gion. Over the next few years, the de­mand for PTFE in USA and Eu­rope is ex­pected to rise sig­nif­i­cantly. The ris­ing pur­chas­ing power in de­vel­op­ing coun­tries and the need for high-per­for­mance prod­ucts will boost the de­mand for PTFE in fu­ture.

Con­clu­sion: GFL has in­vested in a joint ven­ture in Mo­rocco to strengthen its sup­ply chain of crit­i­cal raw ma­te­ri­als. It has in­cor­po­rated two sub­sidiaries to strengthen its pres­ence in the in­ter­na­tional mar­kets – i) Gu­jarat Flu­o­ro­chem­i­cals Amer­i­cas LLC and ii) Gu­jarat Flu­o­ro­chem­i­cals GmbH.

GFL is poised to ben­e­fit from the in­creas­ing ca­pac­ity utiliza­tion, which will re­sult in bet­ter op­er­at­ing lever­age, higher op­er­at­ing mar­gins and bet­ter re­turn ra­tios. Its grad­ual shift to value-added prod­ucts will boost its mar­gins and also lead to more stable pric­ing for its prod­ucts. Cur­rently, the stock trades at a P/E of 14x and looks at­trac­tive based on its per­for­mance pa­ram­e­ters. In­vestors can ac­cu­mu­late the stock be­tween Rs.900-860 with a stop loss of Rs.810 for a price tar­get of Rs.1175-1200 in the next 15-18 months. The stock’s 52-week high/low is Rs.958/722. Its mar­ket cap stands at Rs.9994.15 crore.

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