Buy Gujarat Fluorochemicals; target of Rs 3570: ICICI Securities

ICICI Securities research report on Gujarat Fluorochemicals

Gujarat Fluorochemicals’ (GFL) Q1FY24 EBITDA at INR 3.5bn was down 24% YoY. It was impacted by: 1) lower realisation for bulk chemicals where entire revenue loss flows down to PBT, and 2) lower fluoropolymers volumes which led to under-absorption of fixed costs. Company expects fluoropolymers volumes to normalise in Q4FY24 and ref-gas revenue to recover in H2FY24 on revival of R-125 exports to the US (while bulk chemicals price recovery may take more time due to excess capacity). Q1FY24 reflects underlying EBITDA for the company excluding the benefit of higher pricing of bulk chemicals. GFL has emphasised incremental growth to be driven by applications in new-age industries including battery chemicals, solar, green hydrogen and semi-conductors.

Outlook

Company has stalled capex by a few quarters for new fluoropolymers and PTFE on weak demand and modular capex flexibility, and has put R-32 capex on hold. We have cut our EPS estimates for FY24E / FY25E by 10-27% factoring-in lower realisation for bulk chemicals and cut in ref-gas volumes. Accordingly, we have reduced our target price to INR 3,570 (earlier: INR 3,950) - unchanged FY25E P/E multiple at 25x. Maintain BUY.