Reduce Gujarat Fluorochemicals Ltd For Target Rs. 3,541 - Prabhudas Liladhar Capital Ltd
Fluoropolymers to grow at 25% in FY26
Quick Pointers:
* The LPF plant has achieved mechanical completion, with trial production expected to commence next month, while electrolyte, PVDF, and PTFE binder grades are in the advanced stages of customer validation
* In FY26, total capex is expected to be Rs16bn, with 12bn for EV business largely to increase current capacity while balance Rs4bn for Fluoropolymers and Refrigerants business
Gujarat Fluorochemicals reported consolidated revenue from operations of Rs12.3bn, marking an 8.1% YoY and 6.7% QoQ increase. This growth was primarily driven by an 11% YoY rise in the Fluoropolymers segment, attributed to volume growth in new fluoropolymers. Prices in this segment remained stable during the quarter. For FY26, management has guided 25% growth, supported by new capex and volume growth due to the exit of a key competitor from the market. The Fluorochemicals segment registered 8% YoY growth, aided by a modest rise in R-22 prices. Management expects further price appreciation due to global production quota reductions. The management expects R-32 commercial sales to start from H2FY26. The Specialty Chemicals division remained stable, with further improvements in volumes and margins anticipated. Conversely, the Bulk Chemicals segment underperformed, impacted by an incident at the Dahej plant in Dec’24 and weaker MDC prices. Caustic soda prices were largely flat. The Battery Chemicals segment is expected to contribute meaningfully from H2FY26, with product validations currently in advanced stages. Looking ahead, strong growth is expected from Fluoropolymers, rising refrigerant prices, and the commencement of the Battery Chemicals business. However, stock appears richly valued at current levels and is currently trading at 62x FY27 EPS. We maintain “REDUCE” rating on the stock, with target price of Rs3,541.
* Revenue growth driven by Fluoropolymers segment: Consolidated revenue stood at Rs12.3bn, 8.1% YoY / 6.7% QoQ (PLe: Rs12.4bn, Consensus: Rs12.4bn), largely driven by volume growth in Fluoropolymers segment and slight increase in R-22 realization. FY25 revenue at Rs47bn an increase of 10.7%. Gross profit margin stood at 66.3% (vs 65.3% in Q4FY24 and 72.2% in Q3FY25), declined sequentially due to higher raw material costs.
* EBITDAM improves 400bps YoY: EBITDA stood at Rs3bn; 28.8% YoY/ 4.1% QoQ. The EBITDA margin came at 25% (PLe: 28%) vs 21% in Q4FY24 and 25.6% in Q3FY25. The decrease in operating costs negated higher RM cost, leading to stable EBITDAM QoQ. Reported PAT stood at Rs1.9bn (89.2% YoY/ 51.6% QoQ) due to the lower tax rate. while margins were at 15.6% in Q4FY25 vs 8.9% & 11% in Q4FY24 & Q3FY25 respectively.
* Concall takeaways: (1) 25% growth is expected in Fluoropolymers in FY26. (2) Expect revenue from EV business from H2FY26 and pick up in FY27. (3) Annual saving for power and fuel costs will be ~Rs1.2-1.5bn. (4) In FY26, total capex is expected to be Rs16bn, with Rs12 bn for the EV business funded through external sources and the remaining Rs4bn for the Fluoropolymers and Refrigerants business. (5) Capex for R-32, with an initial investment of Rs1.5bn, as the quota for R-32 is set to end by FY27, with the first phase expected by the end of Q4FY26. (6) Fluoropolymers and battery chemicals inventory increased to build additional pipeline, led to an increase in working capital, expected to be normalized in the next few quarters. (7) R-22 prices increased during the quarter; further increase is expected with global cuts in production quota. (8) MDC prices declined due to new capacity addition domestically. (9) In the battery chemical segment LiPF6 production has stabilized, phase 2 is expected to be commissioned by Q2FY26 while phase 3 by H2FY26. (10) LPF plant has completed mechanical completion, trial production expected to commence by next month, focus will be exports for LFP.
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