Sell Gujarat Fluorochemicals Ltd for the Target Rs.3,600 By Emkay Global Financial Services Ltd
In-line quarter; we await battery material biz ramp-up
GFL’s Q2 SA EBITDA of Rs3.6bn (up 21% YoY; 8% QoQ) was in line with street/our estimates. YoY growth was led by better volume performance in the fluoropolymers vertical and margin improvement owing to better product mix and impact of cost control. Overall revenue moderated sequentially on account of i) US tariff impact on the fluoropolymers vertical, ii) decline in R-22 sales due to reduction of quota and seasonality, and iii) lower R125 sales due to muted demand and impact of tariff. The lower revenue was offset by better cost control, leading to absolute EBITDA growth of 8% QoQ. The R32 plant is shut down due to a gas leak, and is expected to ramp up operations within a few months. GFL has plans to invest Rs12bn in the battery chemicals entity in FY26 and ~Rs15bn in FY27, and expects meaningful revenue progress from FY27 – we await ramp-up in the business before taking a constructive view on the stock. Our estimates are unchanged; we maintain SELL and TP of Rs3,600.
Fluoropolymers business impacted by US tariffs
GFL’s fluoropolymers business grew 8% YoY to Rs7.6bn (-4% QoQ) in Q2, led by volume growth on a lower base and better mix of value-added products. However, the sequential decline was due to the impact of US tariffs. During the quarter, GFL commenced supplies of high-purity grades used in automotive, semiconductor, aerospace, and EV/ESS segments. The tariff impact has led to slower growth of new fluoropolymers which may impact its 25% revenue growth guidance for fluoropolymers. We build ~20% growth in FY26, to factor in the growth in PTFE (benefits owing to the exit of a legacy player) and steady volume in new fluoropolymers. GFL expects positive benefits to accrue from ADD on PTFE as an import substitution play (capture 50-60% share). GFL has sufficient monomer capacities, and will also put up polymer capacities.
Fluorochemicals saw lower R22 sales; bulk chemicals steady
The fluorochemicals business de-grew 15% YoY/QoQ to Rs2.6bn. The sequential decline was largely due to lower R-22 sales owing to reduction of quota and seasonality. R-125 sales to the US were impacted by tariffs and muted market demand. GFL expects R32 capacity of 20ktpa to be commissioned by end-FY26; we expect a gradual ramp-up over the next couple of months (built in our numbers). GFL will focus on strengthening the safety systems to avert mishaps. Bulk chemicals revenue improved 3% YoY/7%QoQ, given better prices and volumes for CMS, after a planned shutdown of the plant in Q2.
GFCL’s EV business to see meaningful revenue only from FY27E
GFL’s battery materials segment reported PAT loss of Rs190mn in Q2FY26 (Rs310mn in H1) due to operating overheads and limited revenue from operations. The management reiterated its capex guidance of Rs12bn for FY26, and guided for Rs15bn in FY27 (Rs2.8bn spent in H1). We await a visible ramp-up in the business, while the company expects to start logging revenue from Q4FY26. We value the EV entity at Rs96bn (96% stake/60% holdco discount on Rs25bn), given the limited visibility on ramp-up in FY26.
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