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