Reduce Gujarat Fluorochemicals Ltd for the Target Rs.3,505 by JM Financial Services Ltd.
GFL’s 3QFY26 performance came in below our and consensus estimates due to lower-thananticipated top line and gross margin contraction. This was driven by a subdued performance in the fluorochemicals segment amid softer demand and prices for R-22 and a dip in R-125 export realisation in the wake of US tariff. The fluoropolymers segment suffered a decline on account of demand deferment due to tariff impact. Going ahead, sales of R-32 from the capacity commissioned in Feb’26 and its ramp-up in CY26 is likely to drive fluorochemicals sales. In fluoropolymers, tariff reduction bodes well with healthy growth likely over FY26E–28E. For battery chemicals, approval risk looms—that could take longer amid industry uncertainty, which could push volume off-take. These delays could be the key downside risk, particularly in FY28E when the company is aiming for full utilisation of its battery chemicals capacities. Considering the ramp-up risk in battery chemicals, we maintain REDUCE on GFL with a revised SotP-based Mar’27E TP of INR 3,505 (earlier Dec’26E TP of INR 3,650)
? EBITDA miss due to lower-than-expected sales and gross margin: 3QFY26 consolidated gross profit came 14% below JMFe at INR 7.6bn (down 12% QoQ/8% YoY) as revenue came in 9% below JMFe and consensus at INR 11.4bn (down 6% QoQ/1% YoY) and gross margin was lower than anticipated at 66.8% (versus JMFe of 71.2% and 71.2% in 2QFY26). During the quarter, other expenses were slightly lower at ~INR 3.6bn (JMFe of INR 3.8bn and INR 3.7bn in 2QFY26). As a result, EBITDA came in 27%/23% below JMFe/consensus at ~INR 2.8bn (down 24% QoQ/6% YoY). Furthermore, PAT was 51%/44% below JMFe/consensus at INR 1bn (down 43% QoQ/19% YoY). During the quarter, there was an exceptional item of INR 170mn pertaining to a one-time provision stemming from the new labour code.
? Sales miss mainly driven by lower-than-expected fluorochemicals sales: In 3QFY26, fluoropolymers revenue came in ~5% below JMFe and stood at ~INR 7.4bn (JMFe of ~INR 7.8bn; down 3% QoQ/up 14% YoY). The company is expecting growth in fluoropolymer volume enabled by the India-US trade agreement, going ahead. Also, fluorochemicals sales came in ~28% below JMFe and stood at ~INR 2bn (JMFe ~INR 2.7bn; down 24% QoQ/33% YoY). Sales declined mainly due to lower R-22 sales as a result of the phase-down under Montreal Protocol, seasonality and downward price revisions while R-125 export realisation was affected by US tariffs. Also, production at the new R-32 capacity commenced in Feb'26. Bulk chemicals sales stood at ~INR 1.7bn (JMFe of ~INR 1.6bn; up 6% QoQ/down 8% YoY). A sovereign fund is set to invest ~USD 82mn in the company's battery materials business with the documentation in process currently; this is likely to be executed soon. Moreover, the company is in the process of setting up a state-of-the-art greenfield battery materials plant in Oman for Li-ion batteries at an investment of ~USD 216mn.
? Estimates lowered; maintain REDUCE: Factoring in the 3QFY26 performance and management commentary, we are revising down FY26E–28E EBITDA by 3–13% and EPS by 6–20%. Over FY26–28, we estimate GFL would register a 28% sales CAGR factoring in: i) 18%/23% sales CAGR from fluorochemicals/fluoropolymers segments; and ii) INR 12bn revenue from the battery chemicals business in FY28E. Furthermore, we estimate ~30%/34% EBITDA/EPS CAGR over the same period. A key downside risk to our estimates pertains to potential delays in the EV battery chemicals ramp-up. We are rolling forward the valuation to Mar’28E earnings; maintain REDUCE with a revised SotP-based Mar'27E TP of INR 3,505 (earlier Dec’26E TP of INR 3,650).
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SEBI Registration Number is INM000010361
