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Fluoropolymer opportunities shaping up well

Gujarat Fluorochemicals Ltd (GFCL) will likely benefit from rising demand / realisation for fluoropolymers. Company is backward-integrated for most products, which enables it to expand capacity faster than global peers. PTFE price increase is being reflected in export realisatons; PVDF and FKM product developments are moving in the right direction. Company also sees opportunities arising from supplying R-142B to global peers as part of China+1 strategy. GFCL started production of R-125 and R-142B in Q4FY22, and revenue booking should start from next quarter. Our assessment suggests significant upside risk to our estimates. Maintain BUY; GFCL is among our top picks in the chemicals space

Ref-gas: GFCL to manufacture R-125 through TFE route

SRF was the sole manufacturer of R-125 in India (it bought technology and plant on slump sale from Mexichem for US$10mn in FY18). It has capacity of 6-7ktpa for R-125, which it manufactures through the TCE route

Though GFCL built R-125 capacity a few years back through the TFE route, it did not continue production due to uneconomical realisation (

GFCL has 5ktpa capacity for R-125, and it is in the process of securing licence for exporting HFCs based on revised regulation by GoI. The imminent revenue from R-125 is not built in our estimates (peak revenue from R-125 could be Rs2.5bn-3bn for GFCL).

PTFE: Price increase showing up in realisation

PTFE finds application in auto and aerospace sectors, which are facing challenging times. However, alternative applications have been growing fast – including electrical, electronics, semi-conductor, chemicals, pharmaceuticals, etc.

Company saw strong volume growth in 9MFY22. India’s PTFE exports increased by 50.7% YoY to 11.5kte from 7.6kte in 9MFY21, which is largely from GFCL. Export realisation has improved by 13.6% during the same period to Rs780/kg

GFCL increased prices of PTFE in Jan'22 by 15-20% to pass on rising RM inflation. Refgas prices (intermediate product, R-22) have seen significant rise driven by rise in chloroform prices. Export realisation increased by 13.7% in Jan'22 to Rs939/kg, which is in line with company guidance.

GFCL has ~18ktpa capacity for PTFE, and is in the process of expanding capacity by 25% by Jan'23. Capex spend is estimated at Rs2.5bn for PTFE and TFE-3 plant.

We factor-in 5% price increase for PTFE in FY23E. If we assume 15% increase, then PTFE revenue estimate will be higher by Rs1.5bn, which will largely flow to EBITDA.

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