Fluorine is so reactive and difficult to handle that scientists call it 'Lucifer' or the 'element from hell'. Yet the yellow, unstable gas has become a part of our lives, finding uses in everything from medicines and pesticides to refrigeration and EVs. A select group of Indian firms is riding this red-hot market.
The lightest member of the halogen family has lifted the chemical business of companies including Navin Fluorine Ltd., SRF Ltd., and Gujarat Fluorochemicals Ltd.
The global fluorochemicals industry, according to estimates by Navin Fluorine, is valued at around $21.6 billion. It's expected to grow at an annualised rate 5.2% to about $25.1 billion in 2026.
Fluorine's ability to aid absorption and distribution makes it useful in pesticides and pharmaceuticals.
Up to 20% of pharmaceutical and 50% of agrochemical molecules developed recently contain the fluorine atom. One in every three new active pharmaceutical ingredients has it. According to a McKinsey report, the Indian Pharmaceutical Alliance is projecting double-digit growth for the sector in the coming years.
Low toxicity and flammability make it an ideal refrigerant. And regulatory pressure to switch from ozone-depleting R22, or chlorodifluoromethane, to cleaner R32, or difluoromethane.
Demand stemming from the myriad uses of fluorine is reflected in the earnings of specialty chemical makers.
The share of fluorine-based pharmaceutical and agrochemical products in the portfolio of companies like Navin Fluorine has been rising. These high-margin products improve operating profitability.
Earnings Boost
The fluorochemicals contributed to the growth of Navin Fluorine, SRF and Gujarat Fluorochemicals
In case of Navin Fluorine, the contract development manufacturing segment grew 131% year-on-year in Q4FY23, while specialty chemicals grew 28% for the same period. They cater to the pharma and agrochemical sectors.
SRF's operating performance was muted, primarily led by a steep decline in EBIT of technical textile and packaging. However, the chemicals business recorded a 47% year-on-year EBIT growth, again driven by strong demand in specialty and fluorochemicals as well as higher realisation in refrigeration gas.
“Despite weakness in our technical textiles and packaging films businesses due to cyclical reasons, we have seen the chemicals deliver outstanding results," Ashish Bharat Ram, chairman and managing director at SRF, said.
The trend holds true for Gujarat Fluorochemicals as well.
What Analysts Have To Say
ICICI Direct on SRF
Buy with a target price of Rs 3,000 and an upside potential of 17%.
Capex towards specialty chemicals on the back of higher consumption of fluoro compounds to support strong business performance.
HDFC Securities on Navin Fluorine
Buy with a target price of Rs 5,520 and an upside potential of 16.25%.
Expects earnings visibility due to long-term contracts.
high-margin, high- businesses to drive growth.
ICICI Securities on Gujarat Fluorochemicals
Buy with a target price of Rs 3,950, down from Rs 4,250, with upside potential of 16.41%.
Expects normalisation of realisations in refrigeration gas or fluoropolymers in FY24, which will likely restrict growth.
New capacities commissioned over the next few quarters should aid faster EPS growth for FY25E.
While Navin Fluorine and SRF have gained 12% and 10% so far this year, Gujarat Fluorochemicals is up about 2%. By comparison, the benchmark Nifty 50 has risen 2% year to date.
Expanding Capex
Specialty chemicals makers are investing heavily in expanding fluoro capacity to address the rising demand, which is also contributed by electric vehicles, solar power, and other sectors.
The increased acceptance of fluorine shows that Indian companies are winning more business. Laxmi Organics Industries Ltd. acquired Miteni SpA's business to enter unique fluorine products, followed by Astec Lifesciences Ltd. for agrochemical molecules. Anupam Rasayan, through the acquisition of a 24% shareholding in Tanfac Industries Ltd., has forayed into making the basic building blocks of such chemicals—hydrofluoric acid.
Key Risks
Low availability of fluorospar, the raw material for fluorochemicals, can affect the business of these companies.
The sector is highly regulated, posing a risk to fluorine companies. For example, R22 gas is being phased out, and companies are migrating to the cleaner R32 for refrigeration.
As a Subscriber you get
Stories
RECOMMENDED FOR YOU
Indian IT Sector To Face 2nd Year Of Muted Revenue Growth: Crisil
Apr 24, 2024
Buy On Dips During Market Lows As Economy Looking Strong: Emkay Global's Nirav Sheth
Apr 19, 2024
Specialty Chemicals Results Preview - Weak Q4 Estimates Imply FY25E EPS May Be At Risk: ICICI Securities
Apr 10, 2024
CMD Of Gujarat Ambuja Exports Limited Reveals Growth Outlook For FY25 | NDTV Profit
Mar 21, 2024
POPULAR