India Equity Institutional Research II Result Update – Q3FY24 II 14th February, 2024 Page 1

Gujarat Fluorochemicals Ltd.

Gujarat
Fluorochemicals Ltd

Result update
RESEARCH ANALYST
Karan Kamdar, [email protected]
14th February 2024
Phone: +91-22-6696 5555
www.devenchoksey.com
 India Equity Institutional Research II Result Update – Q3FY24 II 14th February, 2024 Page 2

Gujarat Fluorochemicals Ltd. On the path to recovery; promising entry into the EV segment

CMP* Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 3,575 INR 3,884 8.6% INR 3,86,892 ACCUMULATE Specialty Chemicals

Result Highlights of Q3FY24:

• For Q3FY24, FLUOROCHEM’s revenue was INR 9,917 Mn, registering a decline of 30.1% YoY and a growth of 4.7% QoQ. The sequential revenue growth
was driven by the fluorochemicals vertical which was offset by a decline in fluoropolymers. Revenue for 9MFY24 declined by 25.3% YoY to INR 31,478 Mn.
• EBITDA came in at INR 2,062 Mn registering a decline of 60.6% YoY and a growth of 26.4% QoQ. This growth was due to lower cost of materials consumed,
power and fuel expenses, other expenses and higher operating leverage. EBITDA margin of 20.8% contracted by 1,611 bps YoY and expanded by 357 bps
QoQ. EBITDA for 9MFY24 declined by 52.7% YoY while EBITDA margin contracted by 1,324 bps YoY, respectively.
• PAT for Q3FY24 saw a decline of 75.8% YoY and an increase of 51.9% QoQ to INR 801 Mn. For 9MFY24, PAT came in at 3,340 Mn, declining by 66.3% YoY;
PAT margin contracted by 1,292 bps YoY.
• In our view, the strategic capex outlay of INR 60,000 Mn over the next 4-5 years to foray into the EV/ESS space to drive the Company's medium to long-term
growth and profitability
MARKET DATA KEY FINANCIALS
INR Millions FY21 FY22 FY23 FY24E FY25E FY26E
Shares outs (Mn) 110
Revenue 26,505 39,536 56,847 45,337 57,578 68,806
Equity Cap (INR Mn) 55,207
EBITDA 5,959 11,685 19,653 11,254 20,127 25,167
Mkt Cap (INR Mn) 3,86,892
EBITDA
22.48% 29.56% 34.57% 24.82% 34.96% 36.58%
52 Wk H/L (INR) 3,920 / 2,537 margin (%)

136 PAT -2,215 7,759 13,230 4,588 10,776 13,996

Volume Avg (3m K)
PAT margin
Face Value (INR) 1.0 -8.4% 19.6% 23.3% 10.1% 18.7% 20.3%
(%)
Bloomberg Code FLUOROCH IN Diluted EPS -20.16 70.63 120.44 41.75 98.05 127.35
Source: Company, DevenChoksey Research

SHARE PRICE PERFORMANCE Healthy revenue growth, macro challenges subsiding

Gujarat Fluorochemicals exhibited signs of recovery, reporting a revenue of INR 9,917 Mn, reflecting a YoY
750 decline of 30.1% and a QoQ growth of 4.7%. The fluorochemical segment contributed INR 2,460 Mn (-29%
YoY/+33% QoQ), driven by increased volumes from the preceding quarter amid stagnant prices. Persistent
650 Chinese dumping is impacting the specialty chemicals sector, while the refrigerant gas segment is anticipated
550 to rebound in Q4FY24E. Bulk chemicals recorded a revenue of INR 1,780 Mn (-38% YoY/+5% QoQ) due to
subdued prices for caustic soda/MDC, expected to have reached their nadir though. Fluoropolymer revenue
450 stood at INR 5,450 Mn (-29% YoY/-5% QoQ) due to muted prices and lower volumes during the international
350 holiday season. Management anticipates growth in fluoropolymers, attributing it to belief that destocking is
largely over and the departure of legacy players, poised to drive future growth.
250 Margins stronger than expected; further enhancement expected
150 In Q3FY24, EBITDA stood at INR 2,062 Mn, reflecting a YoY decline of 60.6% but a QoQ increase of 26.4%.
The EBITDA margin was 20.8%, witnessing a YoY decrease of 1,611 bps but a QoQ improvement of 357
50
bps. Anticipated margin enhancement is foreseen with the upswing in the fluoropolymer business. The
Feb-21 Feb-22 Feb-23 Feb-24
management projects the EBITDA for FY25E to be at par with figures in FY23.
FLUOROCHEM Sensex Charging ahead: Strong push in EV/ESS battery supply chain
GFCL EV, a wholly-owned subsidiary of GFL, has announced the commissioning of its initial LiPF6 capacity
at Jolva in Q3FY24. Since commissioning and commercial production commenced before March 31, 2024,
GFCL EV is eligible for a concessional 15% income tax slab. Additionally, the LFP project is expected to be
MARKET INFO operational by Q3CY24, catering to 40% of the Lithium-ion battery (LiB) value. GFCL's current portfolio
encompasses electrolyte salts (LiPF6), additives, electrolyte formulations, cathode active materials like LFP,
SENSEX 71,555 and cathode binders such as PVDF and PTFE. It also offers specialized products like NaPF6 for sodium-ion
batteries and proprietary additives for fast charging. GFCL EV aims for an asset turnover ratio of 2 times the
NIFTY 21,743 CAPEX and an EBITDA margin exceeding 25%, establishing the promise of a robust profitability and return
profile in the coming years, as the company reaches optimal utilization levels.

SHARE HOLDING PATTERN (%)

Particulars Dec-23 Sep-23 Jun-23

Promoters 63.8 63.8 63.8

FIIs 4.6 4.8 6.4

6.6% 1.9%
DIIs 8.6 7.7 5.9

Others 23.0 23.7 23.9 Revenue CAGR between PAT CAGR between FY23
Total 100 100 100 FY23 and FY26E and FY26E

* based on previous day’s closing price

RESEARCH ANALYST Phone: +91-22-6696 5555

Karan Kamdar, [email protected] www.devenchoksey.com
 India Equity Institutional Research II Result Update – Q3FY24 II 14th February, 2024 Page 3

Gujarat Fluorochemicals Ltd.

Key Concall and special call Highlights:

• GFL experienced a 4.7% QoQ increase in revenue, accompanied by a QoQ growth of 26.4% in EBITDA and 51.9% in PAT. With the rise in fluoropolymer
business, gross margin is expected to reach the levels of ~66.0%.
• The Company is witnessing signs of bottoming out and expects growth going forward. The bulk chemicals and fluorochemicals verticals saw a marginal
growth QoQ while Fluoropolymer saw a marginal QoQ decline.
• Of the INR 15,000 Mn in capex announced for FY24E, ~INR 11,000 Mn will be spent this year while the rest will be pushed forward to FY25E. Going forward
major capex outlay is expected in the battery chemicals vertical.
• The working capital days have increased due to lower sales but is expected to normalize and improve further as the revenue improves. Signs of recovery are
being observed and the management anticipates QoQ growth going forward.
• GFCL EV, a wholly owned subsidiary of GFL, announced the commissioning of the first phase of its integrated battery materials manufacturing facility. The
Company aims to leverage demand from the U.S. market, fueled by the Inflation Reduction Act, and seeks to penetrate European markets through the China
+ 1 strategy. Additionally, GFCL EV seeks to capitalize on PLI-driven demand in the Indian market.
• According to the company's research, the global battery market is anticipated to reach 6 terawatt hours by FY 31E and the demand for battery materials is
expected to grow at a CAGR of 25% to 30% over the next 5 to 6 years.
• GFCL EV is back-integrated to captive fluorspar mines in Morocco and is looking to manufacture battery material intermediates like battery grade,
hydrofluoric acid and lithium fluoride at this new facility.
• The Company also announced a long-term plan for GFCL EV which will include a capex outlay of INR 60,000 Mn over the next 4-5 years. Of this total capex
INR 32,000 Mn is expected to be spent over the next 3 years.
• GFL aims to raise external capital from private equity to fund the EV business for the next 2-3 years until the business starts generating its own cashflows.
The dilution is expected to be in the single digits.

Valuation and view:

Gujarat Fluorochem registered a strong quarter with revenue and margins expanding on a QoQ basis after three consecutive quarters of deceleration Q-o-Q.
Although fluoropolymers saw a decline, the growth in fluorochemicals and bulk chemicals was promising, in our view. We believe that the destocking from China
is largely over, which should lead to strong top-line growth over the next couple of years. Furthermore, the Company’s expansion in EV/ESS battery segment
comes at a right time as the industry is expected to grow at an astronomical rate. We remain positive on the long-term prospects of the Company. Currently, the
stock is trading at 85.6x/ 36.5x/28.1x FY24E/FY25E/FY26E EPS, respectively. We introduce FY26E EPS of INR 127.4 and assign a PE multiple of 30.5x
to arrive at a target price of INR 3,884 (INR 2,988 previously). Given the 8.6% upside from current levels, we retain our “ACCUMULATE” rating on
Gujarat Fluorochemicals.

Financial Performance
Revenue (INR Mn) Gross Margin (INR in Mn)
73.2% 73.0%
16,000 12,000 72.6%
71.4%
14,000 10,000
12,000
8,000
10,000 64.3% 64.5%
6,000
8,000
4,000
6,000
2,000
4,000

2,000 0
Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24
0
Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 Gross Profit Gross Margin

EBITDA Trend (INR in Mn) Profitability trend (INR in Mn)

6,000 37.0% 36.9% 36.0% 4,000
24.4%
3,500 23.3% 22.6%
5,000
29.0%
3,000
4,000
2,500 15.7%
20.8%
3,000 17.2% 2,000

1,500
2,000 8.1%
5.6%
1,000
1,000
500

0 0
Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24 Q2FY23 Q3FY23 Q4FY23 Q1FY24 Q2FY24 Q3FY24

EBITDA EBITDA % PAT PAT %

Source: Company, DevenChoksey Research

RESEARCH ANALYST Phone: +91-22-6696 5555

Karan Kamdar, [email protected] www.devenchoksey.com
 India Equity Institutional Research II Result Update – Q3FY24 II 14th February, 2024 Page 4

Gujarat Fluorochemicals Ltd.

KEY FINANCIALS
Exhibit 1: Profit & Loss Statement

INR Mn FY 21 FY 22 FY 23 FY 24E FY 25E FY26E

Revenues 26,505 39,536 56,847 45,337 57,578 68,806

COGS 8,976 11,957 18,493 16,911 20,152 23,050

Gross profit 17,947 27,665 41,423 30,295 42,295 50,625

Employee cost 2,179 2,655 3,221 3,400 4,030 4,472

Other expenses 5,065 6,311 8,713 7,254 8,061 8,945

Power & fuel 4,419 6,740 9,554 8,161 9,788 11,697

Material extraction 325 275 281 227 288 344

EBITDA 5,959 11,685 19,653 11,254 20,127 25,167

EBITDA Margin 22.5% 29.6% 34.6% 24.8% 35.0% 36.6%

Depreciation & amortization 2,021 2,054 2,361 2,608 2,998 4,267

EBIT 3,938 9,630 17,292 8,646 17,129 20,900

Interest expense 1,126 784 1,168 2,920 3,504 2,978

Other income 2,011 1,606 1,723 517 1,137 1,251

PBT 4,823 10,452 17,847 6,243 14,762 19,173

Tax 7,039 2,693 4,617 1,654 3,986 5,177

PAT -2,215 7,759 13,230 4,588 10,776 13,996

Diluted EPS (INR) -20.2 70.6 120.4 41.7 98.1 127.4

Source: Company, Deven Choksey Research

Exhibit 2: Cash Flow Statement

INR Mn FY 21 FY 22 FY 23 FY 24E FY 25E FY26E

Net Cash Generated From Operations 6,164 7,413 7,389 12,026 16,383 18,313

Net Cash Flow from/(used in) Investing Activities (3,734) (5,838) (4,765) (13,018) (18,987) (16,754)

Net Cash Flow from Financing Activities (2,480) (1,435) (2,641) 1,254 2,708 (1,587)

Net Inc/Dec in cash equivalents (50) 140 (17) 263 104 (27)

Opening Balance 166 116 256 238 503 608

Closing Balance Cash and Cash Equivalents 116 256 238 503 608 580
Source: Company, DevenChoksey Research

Exhibit 3: Ratio Analysis

Key Ratio FY 21 FY 22 FY 23 FY 24E FY 25E FY26E

EBITDA Margins (%) 22.5% 29.6% 34.6% 24.8% 35.0% 36.6%

Net Profit Margin (%) -8.4% 19.6% 23.3% 10.1% 18.7% 20.3%
RoE (%) -6.3% 18.2% 24.0% 7.7% 14.3% 15.6%
RoCE (%) -4.7% 16.5% 23.2% 7.3% 13.5% 14.8%
RoA (%) -3.7% 11.3% 15.8% 5.0% 9.6% 10.7%
Debt/Equity 0.11 0.10 0.03 0.06 0.06 0.06
Source: Company, DevenChoksey Research

RESEARCH ANALYST Phone: +91-22-6696 5555

Karan Kamdar, [email protected] www.devenchoksey.com
 India Equity Institutional Research II Result Update – Q3FY24 II 14th February, 2024 Page 5

Gujarat Fluorochemicals Ltd.

Exhibit 4: Balance Sheet
INR Mn FY 21 FY 22 FY 23 FY 24E FY 25E FY26E
Non-current assets
Property, plant and equipment (PPE) 22,888 24,474 29,627 38,018 52,020 61,753
Capital work-in-progress 4,001 6,798 11,424 14,851 16,336 17,970
Right of use assets 491 466 1,291 1,356 1,491 1,640
Investment property 99 64 34 37 41 45
Intangible assets 189 132 314 157 110 77
Investment accounted for using equity method 9 9 9 9 9 9

Financial assets
Other investments 186 0 0 0 0 0
Loans 9 4 1 1 1 1
Other non current financial assets 3,157 2,557 224 179 227 272
Deferred tax assets (net) 0 3 3 3 3 3
Other non current assets 9,423 9,892 5,809 4,534 4,894 5,849
Total non current assets 40,452 44,399 48,735 59,144 75,132 87,619
Current assets
Inventories 8,639 9,473 14,854 13,663 14,828 17,720
Financial assets
Investments 685 188 2 2 2 3
Trade receivables 6,671 7,781 11,068 10,558 13,409 16,023
Cash and cash equivalents 116 255 240 503 608 580
Bank balances other than (iii) above 101 1,274 1,370 1,370 1,370 1,370
Loans 395 370 276 332 365 401
Other current financial assets 1,742 3,176 3,794 3,174 3,843 4,816
Other current assets 886 1,863 3,374 2,700 2,160 1,728
Total current assets 19,235 24,381 34,979 32,301 36,585 42,642
TOTAL ASSETS 59,686 68,780 83,714 91,446 1,11,717 1,30,261

EQUITY AND LIABILITIES

Equity
Equity share capital 110 110 110 110 5,110 5,110
Other equity 34,818 42,441 55,097 59,686 70,462 84,458
Equity attributable to the equity shareholders 34,928 42,551 55,207 59,795 75,572 89,568
Non-controlling interests -139 -248 0 0 0 0
Total equity 34,789 42,303 55,207 59,795 75,572 89,568
Liabilities
Non-current liabilities
Financial liabilities
Borrowings 3,921 4,354 1,832 3,481 4,177 5,013
Other non-current financial liabilities 65 13 337 272 288 344
Provisions 286 329 395 317 288 344
Deferred tax liabilities (Net) 2,638 2,595 2,413 2,654 3,185 3,822
Income tax liabilities 100 123 140 182 274 411

Total non-current liabilities 7,010 7,414 5,118 6,907 8,212 9,934

Current liabilities
Financial liabilities
Borrowings 11,954 11,173 12,950 15,540 16,040 16,540
Trade payables 4,318 5,135 6,910 5,962 7,887 9,425
Other financial liabilities 1,026 1,676 2,250 1,813 2,303 2,752
Other current liabilities 203 269 316 272 317 378
Provisions 158 161 204 245 294 353
Current tax liabilities (Net) 229 650 758 910 1,092 1,310
Total current liabilities 17,888 19,064 23,389 24,743 27,933 30,759
Total liabilities 24,897 26,478 28,507 31,650 36,145 40,693
TOTAL EQUITY AND LIABILITIES 59,687 68,780 83,714 91,446 1,11,717 1,30,261
Source: Company, DevenChoksey Research

RESEARCH ANALYST Phone: +91-22-6696 5555

Karan Kamdar, [email protected] www.devenchoksey.com
 India Equity Institutional Research II Result Update – Q3FY24 II 14th February, 2024 Page 6

Gujarat Fluorochemicals Ltd.

Gujarat Fluorochemicals Ltd Rating Legend (Expected over a 12-month period)

CMP
Date TP (INR) Recommendation Our Rating Upside
(INR)
14-Feb-24 3,575 3,884 ACCUMULATE
Buy More than 15%
13-Nov-23 2,789 2,988 ACCUMULATE
08-Aug-23 2,786 5,050 BUY Accumulate 5% – 15%
06-May-23 3,394 5,050 BUY
Hold 0 – 5%
10-Feb-23 2,968 5,015 BUY
20-Oct-22 3,659 4,045 BUY Reduce -5% – 0
28-July-22 3,270 3,578 BUY
Sell Less than – 5%
16-May-22 2,495 3,215 BUY

ANALYST CERTIFICATION:

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also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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RESEARCH ANALYST Phone: +91-22-6696 5555

Karan Kamdar, [email protected] www.devenchoksey.com