ICICI Securities Limited, one of the country's largest broking houses has placed a buy call on the stock of Gujarat Fluorochemicals Limited (GFL). The stock of Gujarat Fluorochemicals Limited (GFL) has soared over 300 percent in the last year, giving investors a fantastic return. The stock price has risen by about 330 percent in the last year, from Rs 577.75 to Rs 2.488. Gujarat Fluorochemicals Limited (GFL) is an Indian Chemicals Company with leading expertise in Fluoropolymers in the country.
The brokerage’s take on GFL
According to the research report of the brokerage "GFL is in a sweet spot with its presence in fluoropolymers, demand for which is increasingly driven by the new-age verticals of battery, solar panel and green hydrogen. GFL is in the process of expanding its capacity in fluoropolymers, which provides visibility on growth during our forecast period (FY21-FY24E). GFL is also expanding into other fluorine derivatives used in the new-age verticals, which expands the company's addressable market and provides a vista of sustained growth. GFL has laid out a bold CAPEX plan of Rs25bn over the next three years. It is likely to see its earnings grow at 45.9% CAGR over FY21-FY24E (on a low base though), and RoCE (post-tax) improve from 6.7% to 18% over the same period. Despite the strong earnings outlook, GFL is trading at a reasonable P/E multiple of 20x FY24 vs 42.1x for Navin Fluorine and 27.5x for SRF."
ICICI Securities has claimed that "Fluoropolymer revenues to grow at 32.9% CAGR over FY21-FY24E (58% of GFL revenues). GFL achieved full capacity utilisation in PTFE in Q2FY22 and is planning to expand capacity by 25% in FY23 with a planned CAPEX of Rs2.5bn. It already has enough capacity for R-22 and TFE; hence we expect a higher asset turnover of 1.5-1.6x. The new fluoropolymers segment has achieved only 65% capacity utilisation, and GFL expects it to hit full utilisation soon. The company is in the process of adding 57% capacity in new fluoropolymers including critical PVDF, FKM and micropowders. It is also introducing I-SAN, which finds application in flame retardants. This gives visibility on fluoropolymers' revenue growth, while the higher contribution from this portfolio should also aid margin expansion. GFL is also backward-integrating into R-142B, which should help scale PVDF in future."
The brokerage in its research report has claimed that "Gujarat Fluorochemicals (GFL), through its large portfolio of fluoropolymers, has a presence in materials which are used by new-age verticals like lithium-ion-battery, solar panels and hydrogen fuel cells. Fluoropolymers such as PVDF, PTFE and FEP would find good use in these verticals. Further, GFL is planning CAPEX targeting certain new fluorine derivatives, which could expand its addressable market in new age segments, in our view."
The brokerage has further stated that "We believe the entry into new-age verticals puts GFL ahead of its Indian peers in high-performance materials and could prove key for the longevity of the company's growth. Further, backward integration for most of these materials by GFL would prove to be a high entry barrier for others. Revenue contribution from the new-age verticals in our forecast period is very small, but successful execution and long-term contracts at least with India OEMs could prove to be an ice breaker, and would be key to watch."
Buy Gujarat Fluorochemicals Limited (GFL) with a target price of Rs. 3,086 (upside 50% from CMP)
According to the brokerage's call "We are initiating coverage on Gujarat Fluorochemicals with a BUY rating and target price of Rs3,086 valuing the stock at 30x FY24E EPS (P/E multiple). The 30x PE multiple is based on the market capitalisation weighted average PE multiple for other Indian fluorine companies. Our target prices imply an EV/EBITDA multiple of 18.7x FY24E."
The stock has been picked from the brokerage report of ICICI Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.