Gujarat Fluorochemicals: Growth To Come From New-Age Business, Say Analysts

Gujarat Fluorochemicals Ltd.'s growth in FY24 is likely to be supported through sales volumes, while the company is expected to face margin pressure due to softening prices, according to analysts.

The company had the highest Ebitda margin of 36% in FY23, led by pricing benefits and sales volumes.

Gujarat Fluorochemicals Q4 FY23 Highlights (YoY)

• Revenue rose 37.03% to Rs 1,471 crore.

• Ebitda increased 59.68% to Rs 529.27 crore.

• Net profit increased 51.9% to Rs 332 crore.

Two of the three brokerages that cover Gujarat Fluorochemicals recommend ‘buy’, while the third has a ‘sell’ on the stock.

While its March quarter results were in line with estimates by Centrum Broking Ltd. and Nuvama Institutional Equities, Incred Equities considered the earnings to be at a cyclical peak.

‘’With emerging sunrise sectors in energy transition space, we see a substantial opportunity for Fluoropolymers, Fluoro-materials and battery chemicals. We are well prepared in terms of the product portfolio, as well as capacity building to capture this growth opportunity,” said Bir Kapoor, chief executive officer at Gujarat Fluorochemicals.

Management has guided revenue growth of 20%+, with Ebitda margin expected to be 30%.

Other Highlights:

• Electric vehicle related products/battery chemicals will contribute to revenue from FY25.

• Solar panels plant to be commissioned by Q2 FY24. 

• Bulk chemical prices corrected during the quarter and are expected to remain subdued.

• Fluorochemicals are expected to contribute to increased revenue in the upcoming quarters, as plants are gradually ramping up production.

• Capex for FY24 of Rs 1,500 crore—including Rs 1,000 crore in fluoropolymers (FKM, FPA, PVDF) and battery chemicals.

Here is what brokerages have to say about the company:

• Maintains ‘buy’ rating, with a target price of Rs 4,535.

• Best ever performance in FY23.

• Fluoropolymers are likely to remain a growth driver for the company in FY24E, while new-age businesses to start contributing from FY25E.

• Maintains ‘buy’ rating, with target price of Rs 5,031.

• Expects moderation in earnings growth in FY24, due to softening of caustic soda and refrigerant gas prices, which may offset volume-led growth in fluoropolymers.

• Approvals from new-age applications (solar, battery) are key catalysts.

• Maintains ‘sell’, with a target price of Rs 1,946.

• Almost all products currently made by Gujarat Fluorochemicals fall in the category of per-and polyfluoroalkyl substances, which will get banned in Europe, followed by elsewhere.

Shares of the company ended 0.24% lower at Rs 3,314.35 apiece on Wednesday, as compared with a 0.14% gain in the benchmark Nifty 50.