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Fluorine-containing sophisticated compounds will see a massive upcycle

Based on our interactions with several global experts in fluorine chemistry, the structural shift in fluoro-agrochemicals and fluoro-pharmaceuticals will be more skewed towards sophisticated molecules. Sophisticated molecules are more heterocyclic, possibly, with a pyrazole or pyridine ring attached to them. Companies that already have basic building blocks in place and are integrated across the value chain will be able to penetrate such molecules much faster. De-risking the key raw material (RM)/building block will be crucial for companies, going ahead. We believe some Indian companies have such capabilities and are well-positioned to capitalize on these opportunities.

Chinese companies have scaled up capacities, but largely for commodities

The past five years have seen aggressive capacity expansions by Chinese players in fluorine chemicals. Such expansions have been largely skewed towards commodity-grade fluorine chemicals. China has ~65% share of the global hydrofluoric acid (HF) capacity. Chinese players have increased their overall refrigerant-gases capacity by 50% over FY18-20 and nearly doubled their fluoropolymers capacity over FY21-23. They have also pushed up their fluorine containing fine-chemical capacities by ~2x, a large part of which is towards commodities or basic building blocks. China’s self-sufficiency in refrigerants, fluoropolymers and fluorine fine chemicals is over 200%. Policies related to the protection of fluorspar resources are gradually tightening in China, and supervision is increasing.

Indian companies stand to benefit from growing innovator interests

Navin Fluorine (NFIL), SRF, and Gujarat Fluorochemicals (GFL) have developed competencies in fluorine chemistry over the past few decades. Anupam Rasayan (Anupam) with its strategic acquisition of Tanfac has secured access to the key RMs and is gradually ramping up its fluorination capabilities. Most of these players have announced huge capex plans, totaling ~Rs200bn over the next 5 years, especially in their fluorine business, indicating a long growth runway. We believe contract manufacturers with established fluorine building blocks, integrated value chains, and expertise in synthesis at all scales will be in a sweet spot to capture such opportunities. We initiate coverage on the sector with a BUY on SRF/Anupam, HOLD on NFIL, and SELL on GFL.

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