Sell Gujarat Fluorochemicals Ltd For Target Rs. 3,800 By Emkay Global Financial Services Ltd
Fluoropolymers business to see growth; already priced in
GFL’s Q4 standalone EBITDA of Rs2.9bn was below our/street estimates. EBITDA grew by 42% YoY (-7% QoQ) because of a lower base in FY24 and a rebound in volumes of new fluoropolymers. The sequential decline was on account of a shutdown in CMS-1 plant in the bulk chemicals segment, resulting in ~15% production loss. The management guided that (a) R32 capex will get commissioned in H2FY26; (b) fluoropolymers business will grow 25%+ in FY26; and (c) it plans to invest ~Rs12bn in a battery materials entity. We have already factored ~30% fluoropolymer growth in our FY26 numbers. We maintain SELL with a SoTP-based TP of Rs3,800, as we believe the CMP fairly reflects optionality from the battery business, which we believe is a longer gestation business, given that the battery ecosystem will take time to develop globally.
Fluoropolymers business volumes will continue to improve
GFL’s fluoropolymers business grew by 11% YoY to Rs7.1bn (+10% QoQ) in Q4, on the back of volume growth in new fluoropolymers, while prices remained stable. In new fluoropolymers, FKM volumes improved steadily QoQ, led by approvals in new projects. PFA volumes are growing steadily, led by approvals from semiconductor players. Given the qualifications, the company expects the fluoropolymers business to grow by 25% in FY26, led by increasing demand from automotive, semiconductor, EV, and ESS industries (we build in ~30% growth for this business). Along with the exit of a legacy player early this year, another competitor has relocated out of Germany.
Fluorochemicals growth to be led by R32; bulk chemicals steady
The fluorochemicals business grew by 8% YoY to Rs3.3bn (+11% QoQ). Refrigerant gas prices improved marginally in Q4, especially for R-22. The management expects a further price rise, led by further production quota cuts. R125 volumes rose along with higher blending volumes in R410a in Q4. Commercial sales of R32 are expected by H2FY26, driven by multiple options for preponement like retrofitting old assets (capex: Rs1.5bn). GFL plans to target export markets for R32 sales. The management expects specialty chemical margins and volumes to improve in FY26. Bulk chemicals revenue declined 9% YoY/12%QoQ, given the CMS-1 plant shutdown leading to a 15% production loss. Caustic soda prices were flat, while MDC volumes and pricing declined.
EV battery business could see revenue from H2FY26
The LiPF6 plant has stabilized, with Phase-2 expansion slated for completion by Q2FY26 and Phase-3 expected to finish in H2FY26. The LFP plant is expected to begin trial production by Q1FY26-end. At present, there are no commercial sales, which might start from H2FY26. The management has guided for Rs12bn capex for GFCL EV business in FY26. It plans to raise capital externally, rather than from the parent company. We value the entity at Rs168bn, factoring in the effective 96% stake and 40% holding company discount due to limited visibility of potential revenue from this business.
For More Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354
