Gujarat Fluoro shares hit all-time high; should you buy the stock?

The strong investor confidence comes at the back of an encouraging outlook by analysts.

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ICICI Securities has initiated coverage on shares of Gujarat Fluoro with a ‘buy’ rating and sees room for a sharp up move in the stock.

The brokerage has set a target price of Rs 3,086 which implies a 21.5 percent upside from today's all-time high.

"GFL (Gujarat Fluoro) is in a sweet spot with its presence in fluoropolymers, demand for which is increasing, driven by new-age verticals of battery, solar panel and green hydrogen," ICICI Securities said in a note to clients.

The company is in the process of expanding its capacity in fluoropolymers which provides visibility on growth, and the chemical maker is also expanding into other fluorine derivatives which expands the company's addressable market and provides a vista of sustained growth, the domestic brokerage added.

Despite the strong earnings outlook, Gujarat Fluoro is trading at a reasonable P/E multiple as compared to Navin Fluorine and SRF, pointed out ICICI Securities.

Meanwhile, B&K Securities has also maintained its ‘buy’ recommendation on the stock with a 3-year target price of Rs 2,680 which means an over 5 percent upside from today's all-time high.

"Gujarat Fluorochemicals comes across as a yet to be fully discovered/known story in the chemicals space and that too is so-called speciality chemicals having deep exposure to fluorine chain (likes of SRF, Navin Fluorine and Laxmi Organics)," B&K Securities said.

Unlike its peers in the fluorine chain, the company has rich experience in manufacturing various fluoropolymers which are increasingly being used in electric vehicle batteries, solar panels and hydrogen fuel cells. Additionally, it is also a major supplier of fluoropolymers to Europe and the US which are seeing exponential growth in battery manufacturing capacities, the brokerage added.

Like ICICI Securities, B&K Securities also believes that valuations are comforting as compared to peers.

The chemical company's consolidated revenue grew 6 percent sequentially and 56 percent Year-on-Year (YoY) to Rs 964 crore in Q2 FY22. Consolidated net profit jumped 36 percent sequentially and 159 percent YoY to Rs 205 crore in Q2 FY22.

The company has three manufacturing facilities in India, Fluorspar mine in Morocco, offices and warehouses in Europe and US.

The Noida-based chemical manufacturer had said its return on capital employed should improve significantly taking into account its expansion plans, new age products, debt reduction and reduction in the working capital cycle.