Gujarat Fluorochemicals - Riding On Fluorochemicals Expertise With Value Addition Focus: ICICI Direct

ICICI Direct Report

Gujarat Fluorochemicals Ltd.’s share price has grown at 121.3% compound annual growth rate over the past three years. We believe the firm is well-poised to develop into newer and more complicated areas by building on its vertically integrated model and an ability to exploit opportunities at every stage. We initiate coverage with a 'Buy' rating and a target price of Rs 4000.

Key triggers for future price performance:

• Gujarat Fluorochemicals continues to build on the advantage of being an early entrant in fluoropolymers with persistent addition. Capacity expansion in monomer and polymer capacities to cater to the growing demand for fluoropolymers and fluoroelastomers.

• Targeting new age verticals, notably battery chemicals (LiPF6), solar panels, hydrogen fuel cells, 5G besides legacy businesses to exploit new growth avenues. LiPF6 plant is likely to get commissioned by Q1 FY24.

• Focused expansion based on vertically integrated model to maximise addition and to mitigate the risk of raw material price volatility. Gujarat Fluorochemicals' vertical integration is expected to drive profit margins and return ratios.

• Progress on the PFAS-free technology, which is expected to prevail in future market applications.

About the stock:

Incorporated in 1987, Gujarat Fluorochemicals started as a refrigerants manufacturer and, thereafter, diversified into other areas like speciality chemicals, fluoropolymers, new fluoropolymers and bulk chemicals like caustic soda and chloromethane.

FY23 segmental mix: Bulk chemicals ~19%, fluorochemicals ~27%, fluoropolymers ~52% and others ~2%.

FY22 Geography mix: India ~49%, Europe ~22%, U.S. ~12%, rest of world ~16%.

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