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Farfetched guidance and modest recovery; maintain SELL

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. Management expects to report FY25E EBITDA at Rs18-19bn, which we believe is farfetched; we factor-in ~Rs14bn in our estimates. FY25 outlook too remains subdued on flattish guidance for the bulk and fluorochemicals businesses YoY, driven by steady realizations in bulk chemicals and duty cuts in ref gases in US. Though the fluoropolymers business is recovering, contribution from battery chemicals is still some time away. We believe possible ramp-up in the battery chemicals business has already been factored into the CMP. We cut FY25E/26E earnings by 10%/9% to factor in the sluggish fluorochemicals business outlook. We retain SELL and TP of Rs2,800 (rollover basis, at 30x Mar-26E EPS).

Fluoropolymers business headwinds are passing by, with green shoots in sight

GFL’s fluoropolymers business declined 11% YoY to Rs6.5bn (+18% QoQ) on improved volumes in advanced grades, whereas pricing was stable. Management expects to fare better in FY25, on gradual unwinding of the destocking phenomena, and expects positive effect from the exit of legacy players in FY25. GFL has planned capex of Rs5bn in new fluoropolymers in FY25, to create sufficient capacities for growth over the next few quarters. We believe ramp-up in this capacity will take 1.5-2 years to be completely utilized, depending on the grades getting qualified at the customer-end. VCM to VDC plan is kept on hold due to subdued R142b prices.

Fluorochemicals and bulk chemicals businesses to uphold FY24 levels

GFL’s fluorochemicals business fell 37% YoY to Rs3bn (+23% QoQ on a lower base). Ref gas volumes picked up in Q4, on higher R410a export sales; however, pricing is still under pressure. Duty cuts on ref gases in US are likely to further pressurize prices. The specialty chemical vertical remained subdued in Q4 due to low-cost imports from China which are impacting both, revenue and margins (products are commoditized building blocks). The bulk chemicals segment declined 26% YoY to Rs1.8bn (flat QoQ) due to lower realizations and higher volumes (plant running at full capacity). Caustic soda/MDC prices witnessed an upmove in early April, while remaining subdued in Q4.

Battery chemicals still a FY27 & beyond story

GFL’s EV subsidiary announced capex plan of Rs60bn over the next 4-5 years, of which Rs8bn has been invested till date; Company has planned capex of another Rs8bn in FY25. The company targets raising Rs8bn in coming months, and has appointed an investment banker to identify potential investors, also keeping open other alternatives. GFL expects 2x asset turns along with 25% EBITDA margin in this business. Commercial sales of LiPF6 will start from H2FY25, following customer approvals. However, we have modelled-in capex to be funded through debt, till we get clear visibility and guidance.

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