Gujarat Fluorochemicals Ltd. share price target

Gujarat Fluorochemicals (GFL) is at the cusp of inflection in earnings growth with revenue / EBITDA / PAT CAGR estimated at 20.4%/ 33.4%/ 46% over FY25-27E.

GFL highlighted its growth plans at the group level under InoxGFL group which include the chemicals and wind energy businesses. Management expects the group’s EBITDA to quadruple over coming 3 years led by ramp up in both, battery chemicals and renewable energy businesses.

GFL’s Q4 EBITDA fell 54% YoY to Rs2.4bn (+15% QoQ) on sluggish
performance in the bulk and fluorochemicals businesses. Fluoropolymers
business is seeing sequential recovery in volumes on a lower base.

Gujarat Fluorochemicals’ (GFL) Q2FY24 EBITDA at INR 1.6bn and EBITDA margin at 17.2% indicate dismal performance. Earnings were impacted by compression in gross margin, and lower absorption of fixed cost. However, we continue to like its business on two counts – 1) rising opportunity in fluoropolymers where change in industry structure can provide huge benefits for GFL; and 2) battery solutions where company is planning to cater demand of 30-40% cell producers with integrated electrolyte facility, cathode active material and PVDF blinder.

Gujarat Fluorochemicals’ (GFL) Q1FY24 EBITDA at INR 3.5bn was down 24% YoY. It was impacted by: 1) lower realisation for bulk chemicals where entire revenue loss flows down to PBT, and 2) lower fluoropolymers volumes which led to under-absorption of fixed costs.

Gujarat Fluorochemicals’ (GFL) Q4FY23 EBITDA at Rs5.3bn, up 60% YoY, was broadly in line with our estimates and was impacted by lower realisation across businesses – bulk chemicals, ref-gas and fluoropolymers. Revenue / EBITDA benefited from rise in volumes for R-125, and new fluoropolymers.

Gujarat Fluorochemicals’ (GFL) Q3FY23 EBITDA at Rs5.2bn, up 64% YoY, was broadly in line with our estimates. We particularly like the decline in bulk chemical contribution to 20.1% of total revenues, and we believe this would further decline in tandem with increasing revenues from fluoropolymers and battery chemicals, which have durable high-growth potential over the next few years.

Fluoropolymers business is likely to undergo a major shake-up from rising regulatory concerns due to use of PFAS class products. This could potentially lead to a huge opportunity for Gujarat Fluorochemicals (GFL) and address one of the key concerns on the company about durability of growth in fluoropolymers business.

Gujarat Fluorochemicals’ (GFL) stock price has corrected 21% in the past one-month,
and 25% in the past three months while fundamentals remain robust with opportunities expanding.

Gujarat Fluorochemicals’ (GFL) Q2FY23 EBITDA at Rs5.4bn, up 16.8% QoQ / 81% YoY, was 7% above our estimates.

We hosted Gujarat Fluorochemicals (GFL) management for an investor meet in Mumbai.

We initiate coverage on Gujarat Fluorochemicals (GFL) with a BUY rating and target price of Rs3,086 (upside 50% from CMP). GFL is in a sweet spot with its presence in fluoropolymers, demand for which is increasing driven by the new-age verticals of battery, solar panel and green hydrogen.