Midcap mania: Gujarat Fluorochemicals improves margin on the basis of new value-added products

Over the years, the company has evolved from a commoditised player in chemicals business to a more diversified and integrated player in speciality chemicals business. Caustic chlorine and chloromethane were the mainstay of GFLC until 2007. The main products were caustic soda and refrigerant gases.

The company has leveraged its fluoride and chloromethane domain expertise to emerge as a formidable player in PTFE segment globally. Today, GFLC is a leading player in PTFE market and operates one of the largest facilities in the world, accounting for 10 percent of the global PTFE capacity.

Over the past few years, the margins have improved from late teens to the late twenties and standalone revenues have grown by at a CAGR of 16 percent over the past four years. The revenue growth has been far more rapidly in the refrigerants, PTFE and value added products business which have grown at a faster clip.

The company has started FY19 on a strong note with an operating profit of Rs 212 crore in the first quarter which is more than double on a year-on-year basis.

Introduction of new value-added products.

Commercialisation of specialty fluoropolymers.

Efficient utilisation of production capacity.

Integrated manufacturing operations starting from basic raw materials.

Most of the capital expenditure has already been incurred.

High entry barriers.

Valuation-wise, things could be interesting if the company delivers a FY19 EBITDA of Rs 900 crore. At 10x ev/ebitda, the company can be valued at Rs 9,000 crore while some peers from the chemicals space such as SRF Ltd get a 15x ev/ebitda which could value it at Rs 13,500 crore.

Key triggers for the company to achieve the Rs 1,000-crore plus operating profit mark are ramping up of PTFE plant from 16,800 tonnes per annum (tpa) to 21,600 tpa, Increase in the contribution of value added products and unlock the value of group companies like inox leisure and inox wind.