Gujarat Fluorochemicals: A hidden fluorine story

[rupeshtatiya]

Q1 FY23

Few comments and TODO items based on Q1 results -

PTFE

PTFE capacity is roughly 1500 TPM (Value Added - 900 TPM and Regular 600 TPM). PTFE prices have gone up due to 900-950 rs due to various reasons. At 900rs, the monthly revenue potential comes to 135cr and annual revenue potential comes to 1620cr.
With 25% capacity addition by Q4 exit, capacity comes ~1900-2000 TPM and annual revenue potential goes to 2000cr.

SRF PTFE capacity, which is for regular grades, comes online by Oct’22. We need to track PTFE prices, especially in domestic market when that happens. Also management claims of developing various specialised grades for PTFE and hence some sort of competitive advantage will be put to test from FY24.

We also need to keep tracking PTFE prices in global market with export restrictions on HaloPolymer.
TODO - Look at market sales and realisation trends of HaloPolymer and also Dongyue in PTFE. We need to see if HaloPolymer does dumping in Indian market (although there is ADD on it).

Overall, PTFE will remain 2000cr +/- 200cr type of business for GFL from FY24. How much to analyze this segment other than sharp drop in PTFE prices is one’s own call.

New Age FP

New Age FP capacity was 700 TPM at the start of FY22 - out of which 250 TPM was micro powder PTFE. Micro powder PTFE should really be counted in PTFE itself but nonetheless, real new age FP capacity is 550 TPM.
This 700 TPM capacity has gone to 1100 TPM at the beginning of FY23 and will be 1500 TPM by the exit of FY23.

TODO - Try to find out how much is micro powder PTFE capacity out of new 800 TPM capacity that comes online, mostly all the new capacity is towards PVDF, FKM etc. but it would be good to go through EC etc. and ask management.

New Age FP have 50% more realisation than PTFE. So at 18$ average realization, revenue potential for FY24 comes to 1500 * 18$ * 78 * 12 = 2525cr. So ~ 2500cr of entire new segment is going to be created which is going to have higher margins.

TODO - Find out the new age FP capacity by FY24 exit (should be another 400-500 TPM).

Another thing in this segment is incoming forward and backward integration which can lead to margin expansion -

• PVDF binder is slightly more complex product than plain vanilla PVDF. Sales of PVDF binder have not started yet. PVDF sells at 18-20$ currently. I am hoping PVDF binder sells at at least 25$ and that is one lever for margin expansion (forward integration).
• Similar is the case for PVDF films which is also a sort of forward integration.
• Another thing is that company has already backward integrated till R-142B in PVDF/FKM chain. There is one more step of backward integration coming up with VDC - hopefully by FY23 exit.

TODO

• We need to map PVDF current capacities and expansion of few big players like - Arkema, Solvay, Dongyue etc. We need to map how much of this capacity is in Europe, China and Rest of the world. This will help us clearly get market formation in PVDF and potential early hints about PVDF pricing trends.

Overall, a very strong 2500cr segment with margins better than company average is coming in revenues. How much of this is factored in valuations is one’s individual call.

Battery Chemicals

In Q1 call, company stated ambition of creating another segment of battery chemicals (LiPF6, additives etc.) which will be of size 2000cr in medium term. Initial capacity would be 2000 TPM and initially sales will be to export markets and then towards domestic markets.

TODO - We need to find out realisation of LiPF6 and margins that other players make. We need to understand the chemistry chain and how much backward integration can GFL do. We need to have some estimate of ROCE in this segment. If globally some player has achieved some sort of competitive advantage (LG Chemicals ?), we need to understand the source of that competitive advantage.

Another item in TODO -
Find out capacity of R-142B and VDC and how much will be used captively and how much will be sold in open market. (I think in Q3/Q4 concall, this info was given - need to look up).

Disc - Invested and extremely biased. No transactions in last 30 days. Not a buy/sell reco.

[T11]

@rupeshtatiya

Try to find out how much is micro powder PTFE capacity out of new 800 TPM capacity that comes online,

As per previous plans, Micro Power was to be increased from 250 TPM to 375 TPM. Not sure, if the same has been changed in recent times.

@rupeshtatiya

TODO - We need to find out realisation of LiPF6

Here is some info from Q4’22:
Prices for PFA/FEP/ LiPF6 for the quarter stood at US$25/25/70 per kg respectively.

@rupeshtatiya

Another item in TODO -
Find out capacity of R-142B

Something from my notes (must be from one of the research reports, need to look for source ):
We understand GFL’s recently-commissioned R142b capacity can potentially service ~1000 tonnes per month of PVDF output at peak (~10x from current levels of ~100 tonnes per month output).

Thanks,
Tarun

[ram1984]

@rupeshtatiya

although there is ADD on it

Sir Originally there was ADD on import of PTFE both from China and Russia. But from 22.10.2021, it is removed insofar as Russia is concerned. It continues to remain for China.

csadd62-2021.pdf (286.0 KB)

[barathmukhi]

Bit dated but insightful video on the PVDF market.

2022 PVDF Market Update: Metal Roofing and Electric Vehicle Batteries

[spatel]

Interesting announcement on PVDF by GFL -

Source: https://www.gfl.co.in/assets/pdf/GFL%20-%20Company%20Announcement.pdf

• To announce fresh investments into expansion of PVDF capacities in integrated manufacturing facility
• The expansion plan will see additional emulsion PTFE capacity to be operational in 2023
• An approximate 10,000 tons battery grade PVDF capacity during the next 2-3 years
• Focusing on servicing future requirements of PVDF in EV battery and FCEV technologies

Battery grade PVDF trades at 300,000 to 450,000 yuan per ton based on grade as per few public domain articles. Assuming this 45-65 USD per kg unit price sustains, then 10,000 ton translates to roughly 4,000 Cr revenue.

R142b is key raw material for PVDF. It is in short supply globally currently. GFL is backward integrated to R142b for PVDF. This timely new capability of captive production of R142b should help secure new customer wins and improve margin.

Management expects strong demand of battery grade PVDF and the demand going up fairly at a very good pace.

Source: Q2 FY22 earnings conf call transcript

Disc: Invested

[ram1984]

The Director General of Trade Remedies had recommended Anti dumping duty on PTFE imports from China vide Notification dated 26.04.2022. But the Central Government has not accepted the recommendations as per Office Memorandum dated 18.07.2022. Therefore, there does not seem to be ADD on PTFE from China. GFL is likely to challenge this in my view.

Will keep posted any developments.
FF PTFE NCV Signed.pdf (872.6 KB)

OM dated 18July2022 (1).pdf (325.0 KB)

[spatel]

The resilience myth: fatal flaws in the push to secure chip supply chains

Source: https://www.ft.com/content/f76534bf-b501-4cbf-9a46-80be9feb670c

An interesting article. About chip making and fluoropolymers connection. Long article; snippet relevant to GFL thread pasted below.

---

“If you want a resilient chip supply chain, you not only need chip plants, you also need a whole string of suppliers from critical chemicals and precision components all coming along,”

TSMC is in the midst of a $100bn expansion. But the Taiwanese giant has found its own supply chains to be plagued by bottlenecks, affecting items that range from high precision lenses to apparently mundane valves and tubes made of special plastics called fluoropolymers.

Follow the supply chain upstream, and chokepoints emerge with regard to the fluoropolymers from which these components are made. One such material, known as PFA, is only supplied by Chemours of the US and Daikin Industries of Japan. It requires extensive knowhow to process, and no competitors are on the horizon.

Other key fluoropolymer material makers include Solvay of Belgium, 3M of the US, Gujarat Fluorochemicals of India and HaloPolymer of Russia. But not all of them are qualified to build semiconductor-grade materials and they must supply to a wide range of other industries beyond the tech sector. Sources from Russia have dropped away due to the disruption and sanctions caused by its war in Ukraine.

TSMC and rival chipmaker Micron Technology, told Nikkei that “sources of fluoropolymers are constrained” and there have been “demand hikes from both the chip and battery industries, driven by the electric vehicle boom”.

[ram1984]

6 months ending 30.06.2022 results of Dongyuechem

f2dbf14c-c3fd-4094-98b3-500d9cbe338a.pdf (159.2 KB)

During the period under review, the segment results of fluoropolymers significantly increased due to the rise in year-on-year demand for PVDF resulting from the emergence of the domestic lithium battery industry since last year. The related product price also significantly increased as compared with the same period of last year. The market of such product continued the momentum from the second half of last year with some shortages. Therefore, the Group has plans to expand the production capacity of such product during the year and in the future, with an overall estimate to reach total production capacity of 55,000 tons/year by 2025

[ram1984]

Exports from India PVDF, PTFE for Q1 23
https://www.dgft.gov.in/CP/?opt=trade-statistics

[Rokrdude]

Good Data Point. I believe HS 39046990 includes other Fluoropolymers like FKM, PFA as well and not only PVDF

FKM https://www.volza.com/p/fkm/export/hsn-code-39046990

PFA https://www.volza.com/p/perfluoroalkoxy/import/import-in-india/hsn-code-3904

[nikhil090]

Key snippets from the AR FY 22.

FY22 Annual Report Analysis:
GFL is now among the top five global manufacturers of fluoropolymers. In line with our expansion plans, we have announced a capex of about Rs 2,750 crore during 2022-24 for battery chemicals, new fluoropolymers, PTFE, backward integration and allied infrastructure. Focus is on adding PVDF and FKM and backward integration to ensure raw material availability and optimise costs. Our major outlays of PVDF binders for EV batteries, PVDF Film for Solar Panels, Battery Chemicals for EV batteries and Proton Excahnge Membranes (PEM) for hydrogen electrolysers and fuel cells are promising products. For penetration in the EV space, the Company has commenced activities for its expansion of establishing dedicated plant for EV sector; The Company is also in process of setting up India’s first PVDF solar film project which will be commissioned in the next financial year with its own integrated PVDF manufacturing facilities. This plant will be ideally suited to cater to both domestic and international markets - Company is agressively targeting EV market
GFL aims to be a part of the ecosystem and is excited about penetrating the EV space that will open new avenues of growth. Having commenced operations for establishing a dedicated plant for the EV sector, we are hoping to establish ourselves as a major player in this space in India. In the specialty chemicals business we are particularly focusing on battery chemicals and we believe they will be the major growth drivers for the company
The fluoropolymer industry can be classified into oil & gas, semi-conductor, automotive, healthcare, electronics, construction and industrial processing. The growing use of Fluoropolymers in the above sectors will propel growth in the markets globally. The global arena is witnessing a paradigm shift in the automobile and telecom sectors with requirements of batteries for electric vehicles, semi-conductors and 5G networking for communication. Given this backdrop, it is anticipated that the consumption of Fluoropolymers will increase significantly.
During the year under review, we increased the capacity for Fluoroelastomers, VDF, PVDF, and R 142b. Polytetrafluoroethylene (PTFE) dispersions and polyvinylidene fluoride (PVDF) are developed with the Green NFPA standard. We believe our future growth trajectory will be led by fluoropolymers and fluorochemicals needed for EVs, solar power and green hydrogen – products, which currently are under various phases of development - Focus on Green Chemistry driven products
We have filed new patents Li based salt in lithium-ion battery, I-SAN and Non fluorinated Processing Aid (NFPA) for PVDF & other fluoropolymers. We have further expanded our patent portfolio this year and have entered into various countries, including USA, United Kingdom, European Union, China, Japan, Korea, Russia and Switzerland for Dispersion PTFE & PTFE Micropowders. We received patent approval for Non fluorinated surfactant last year. We have filed 18 patents and 67 trademarks till date.
We commissioned a new state-of-the-art piloting facility for fluoropolymers at the Dahej plant. In our Ranjitnagar R&D center, we introduce a new operation of R142b and successfully commercialized it, as well as modified the old operation technique with modern advanced technology equipment.
R&D Technology Transfers
“• GFL has made further investments incapacity expansion of fluoroelastomers grades for automotive and highperformance sealing application. Business volume is expected to increase further from Q3 2022-23.
• As a part of Make in India drive, a novel fluoroelastomers was developed to make o-rings & tight joints which is used in pressure regulator used in domestic LPG cylinders.
• GFL has successfully developed environment friendly new age surfactant system for polymerization of PTFE dispersion. Product is accepted globally and commercialized.
• GFL has developed PVDF based grades for battery binder application. Initial results are encouraging and gaining acceptance.
• GFL successfully developed PTFE micropowder based grade for water based coating formulation. Product is endorsed by key global companies.
• GFL-Ranjitnagar has made further investments in capacity expansion of R142b refrigerants grades used for thermostatic control switches, the intermediate of aerial propellant, and the important raw material for vinylidene fluoride. Business volume is expected to increase further from 2022-23.
• The new chemistry is developed in-house to cut down the job work and outsourcing techniques e.g., Balz- Schiemann, Photochlorination chemistry.
• GFL has successfully developed a greener route process for new API and Agro-based products like CFT, MTA, and 4-TFMA. The product is accepted by customers and ready for commercialization.
• GFL has more focus on the additives EV grade molecules which have great market demands e.g., FEC, VC.
• GFL successfully launched DCTFMA, BTF, 1,4 DFB, and EDFA which are commercialized and manufacture at the site to meet the customer’s orders.”
Lot of work happening on the new products. Good sign
Related Party Transactions
Receivable of 240+ Cr; Advances of ~875+ Cr and Corporate Guarantees of ~1800 Cr - All to Inox Wind, Inox Green Energy and Resco Global Wind Services - One concern Area which management needs to take care of

[ram1984]

The export growth month on month from India of Fluoropolymers is at double digits. Both realizations as well as volumes. Clear indicator that the demand is still strong.

[barathmukhi]

@rupeshtatiya

In Q1 call, company stated ambition of creating another segment of battery chemicals (LiPF6, additives etc.) which will be of size 2000cr in medium term. Initial capacity would be 2000 TPM and initially sales will be to export markets and then towards domestic markets.

One of the questions that were asked to GFL’s management, on one of the last 2-3 concalls was pertaining to a Chinese LiPF6 manufacturer called Tinci Materials.

And here’s a press release on LipF6 by the same co. The original content is in Chinese but I have translated it using Chrome.

Tianci Materials: Quantitative increase, growth and realization, and profitability stability is highlighted
Release time: 2022-09-02
Source: Changjiang Securities | Researchers: Ma Jun, Wu Bohua, Si Hongli
Event description

The company released the 2022 interim report. In the first half of the year, it achieved revenue of 10.4 billion yuan, a year-on-year increase of 180%; net profit attributable to shareholders of the parent company was 2.91 billion yuan, a year-on-year increase of 271%. It fell within the range of the previous performance forecast.

event comment

The company achieved high growth in both revenue and profit in the first half of the year, mainly benefiting from the lithium battery material sector: 1) The revenue of lithium battery materials in the first half of the year was 9.6 billion yuan, a year-on-year increase of 206%. With the rapid price increase in the electrolyte industry chain since last year, it is expected that the average price of electrolyte in the first half of the year will increase significantly year-on-year, contributing to a high growth in revenue. At the same time, benefiting from the price increase in the industrial chain, the company’s gross profit margin of lithium battery materials reached 44% in the first half of the year, an increase of about 8pct year-on-year, helping to further accelerate profit growth. 2) The daily chemical business achieved revenue of 540 million yuan in the first half of the year, a year-on-year increase of 18%, and the overall growth rate remained stable; the daily chemical business gross profit margin in the first half of the year was 28%, a year-on-year decrease of 7.5pct.

From the perspective of the second quarter alone, the company achieved revenue of 5.2 billion yuan in 2022Q2, maintaining a high growth rate of more than doubling year-on-year, and basically flat month-on-month. It is expected that the main reason is that the electric vehicle industry chain, especially the downstream terminals, was affected by the epidemic in the second quarter. The goods were generally flat Q1, and due to the impact of the epidemic on demand, the price of the electrolyte industry chain (such as the price of 6F calculated by third-party platforms) has declined. Specifically, in 2022Q2, the company achieved a gross profit margin of 42%, a significant year-on-year increase, and a decrease of about 2pct from Q1. The overall decline was relatively limited and significantly lower than the 6F price drop reported by third-party platforms. We believe that to a certain extent, 6F bulk orders have been verified. Lower prices have less impact on the company’s actual profitability.

In other financial aspects, the company’s net operating cash flow in 2022Q2 was 1.86 billion yuan, a significant increase from the previous month, and the overall operating quality was relatively high; the company’s capital expenditure in 2022Q2 was about 870 million yuan, a significant increase year-on-year and month-on-month, reflecting the company’s accelerated production capacity construction. Specifically, the company currently owns Guangzhou, Jiujiang, Ningde, Yichun, Chizhou, Taizhou, Liyang, Quzhou, Fuding (under construction), Fogang (under construction), Yichang (under construction), Sichuan Meishan (under construction), Jiangmen (under construction), Nantong (under construction), Europe (under construction) and other supply bases, a national and key international regional strategic supply system has been established. The electrolyte production capacity, 6F production capacity, and LiFSI production capacity related to the electrolyte industry chain are all planned to be relatively large, and new production capacity will continue to be released this year and in the future, and the company also plans a large production capacity in terms of the cathode material iron phosphate precursor, which is expected to support in the future. The high growth of the company’s cathode material shipments.

Looking forward to the follow-up, the prosperity of the electric vehicle industry chain has continued to rise since Q3.

In the second half of the year, with the release of the company’s 6F and LiFSI technological transformation and new production capacity, it is expected that shipments are expected to grow faster than the previous month.

At the same time, the company continues to strengthen the vertical and horizontal layout of the industry chain, strengthen the cost advantage of the electrolyte industry chain, and develop new growth points (iron phosphate, battery recycling, binders and other new materials).

Source - 全景数据

[ram1984]

Inox GFL targets zero debt by fiscal end

[bhambani]

Positive news on INOX wind returning the 800 Cr taken from GFL earlier… Snippet copied below…

“Inox Wind has a net borrowing of ₹1,492 crore as on March 31, 2022. While the company will receive ₹370 crore from the offer for sale, the promoters will pump in ₹800 crore through non-convertible redeemable preference shares. Of this, Inox Wind will repay ₹800 crore it has taken from GFL for 100 MW wind power commissioning.”

Details in the article below…

Inox GFL targets zero debt by fiscal end

Disc: Holding long-term, from lower levels

[ram1984]

The New fluoropolymers growth in exports continues. Though there is some dip month on month but still good compared yoy

[hitesh2710]

Guj Fluoro came out with good numbers today for q2 fy 23.

Sales was 1461 cr for q2 fy 23 (vs 964 cr for q2 fy 22 and 1331 cr for q1 fy 23)

Net profit was 357 cr for q2 fy 23 ( vs 205 for q2 fy 22 and 303 cr for q1 fy 23)

Q2 FY 23 EPS at 33, H1 FY 23 EPS at 60. With new capexes coming on stream and further capex planned, things could improve going ahead, if demand for its products sustain. ( disc: invested as disclosed earlier. )

Concall tomorrow evening should provide more clarity on growth and capex.

fluorochem q2 fy 23.pdf (2.1 MB)

[sahil_bagaria]

Another very strong qtr by Guj Fluoro. This is one company where management has been giving a very clear growth outlook and every qtr the numbers have been validating the managements comments. The growth has simply been robust even in such challenging environment.

Few quick points from the concall:

Capacity: Additional capacity will keep coming up for the new age polymers where the demand is robust so there should not be any problem ramping up the sales from the new capacity.
Current capacity of the new age polymers at 1000 ton (Utilisation at 75/80%, so further room from increase in utilisation) which will go up to 1500 ton by end of FY 23. And this will further go up the following year may be almost double is what I understand as and when the demand for EV Battery / Semi con application starts kicking in (expected from CY 25). So there is good visibility for growth in the coming years.
New product line under refrigerants is also being planned ( R32) with a capacity of 10k ton and an approx capex of 125 cr.
Speciality chemical was flat QoQ as the new capacity which was suppose to come up got delayed. This has gone live and should flow from Q3 onwards.
Management is in the process of looking for new land.

As per the management barely any new capacity for FKM / PTFE coming up in Europe / America. Hence Guj Fluoro is well positioned to capture the growing demand.

Margins: This qtr was very strong with EBITDA at 37%. The management expects the margin to be above the 30% mark in the long run which is quite healthy. This might be possible as there are barriers to entry for their products as mentioned by the MD along with the demand for their products being robust with not a lot of supply. They being an integrated player helps in RM stability which is a big plus for the company.

I feel the execution by the management has been excellent - for e.g. setting up R142b capacity in full scale ensures all their additional PVDF capacity will be taken care of. Till then due to high demand of 142b by itself all excess capacity is being exported. They will keeping adding PVDF reactors as demand keeps rising which I think is a great capital allocation strategy.

On the bulk chemical side - might see some softening as caustic soda prices currently are very strong partly due to the energy crisis in Europe so this might eventually cool off.

Related party transaction: The management has been constantly claiming to clear this by end of Fy 23. The fund raise by Inox winds looks like a step closer in this direction.

Management is working towards getting the energy prices lower. Full plan not yet disclosed but they expect the energy cost to come down.

The management is not much worried particularly about the crisis in Europe. As per them they are well diversified geographically. Hence if demand from a particular region goes down they should be able to replace it by supplying to a different geography. However one has to note there is no escape in case of a global slowdown.

All in all the the company continues to be in a strong growth phase with a lot of opportunities still lying ahead. Demand from EV batt yet to come up. The management is walking the talk.

Disc: Invested

[ram1984]

https://www.solvay.com/en/press-release/solvay-third-quarter-and-nine-months-2022-results

Specialty polymers sales of Solvay up 50% yoy

[Anand6]

Guarantees given to related parties and recieveables have increased at end of H1 compared to March 2022. Management has guided to reverse all these till q4, but the trend is reverse. Hope they walk the talk.

9f202d22-c521-4be3-8712-898c0c57a08d.pdf