Gujarat Fluorochemicals: A hidden fluorine story

Collaborators Corner
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I have trimmed my position in GFL in last few weeks and the key reasons are as follows:
Until Q1 it was generally the commodity side of the business that got impacted but now I see that pressure has started building in the FP business as well. I still believe GFL is one of the best chemical businesses in India with very little domestic/Chinese competition but the general slowdown in Europe has started impacting it and the recovery could take a few quarters.

There is also a possibility that I could be wrong in trimming my position since some parts of the business like Caustic/Chloromethane etc. have started bouncing back and company’s EV plans (LiPF6, LFP) etc. are just around the corner. One can expect US to release CFC quotas in Q3 for ref gases and that business too can pick up and also with Pharma picking up FSC performance may also pick up.

This is just an FYI since I had initiated the post should not be construed as investment advice.

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Prabhudas Lilladher research report on fluorochemicals. can be access by trendlyne login.
covers Navin, SRF, GFL.

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Although they haven’t yet officially launched their website but they have started promoting their ev products… recently they put up a stall at the battery show india exhibition…See this on linkedin:

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https://www.bseindia.com/xml-data/corpfiling/AttachLive/24d22d12-505d-4f35-81dd-5c09c7388557.pdf

Results for second quarter FY24

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Atrocious results with a very downbeat commentary in the investor presentation. Views?

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  1. Another subdued quarter with significant reduction in revenue, margins and profitability. Overall revenue down 35%, EBIDTA down 70% and PAT down 85% YoY.

  2. Revenue for Fluorochemicals segment was hut most with decine of more than 50% YoY.

  3. Bulk Chemicals: Caustic soda/MDC prices were impacted further during the quarter but expected to have bottomed out. Expecting better H2 as compared to H1

  4. Fluorochemicals: Volume and prices are impacted significantly due to weak demand in US and domestic. China dumping resulting is significant lower price realisation. Ref Gas volumes are expected to improve going forward however may remain subdued compared to FY23 due to impact of phasing out in US and aggressive Chinese pricing.

  5. Flouropolymers: China dumping, lower demand particularly in Europe and destocking resulted in significant impact on the Business. H2FY24 is expected to be better due to expected phasing out of destocking, pickup in the demand in US and positive impact of exit of legacy players.

  6. Battery Chemicals: Expected to commission by 2024. Asset turnover expected to be 2x with capex of 600-800 cr. Margins expected be 30%

  7. Outlook: H2FY24 expected to be better than H1FY23 with recovery in key segment of Fluoropolymers . FY25 is expected to be better than FY23. Margins expected to be 30%+ in FY25.

  8. Market have not reacted very badly as it should had been due to sharp fall in all matrices. This may be due to FY2025 with revenue and profitability expected to be better than FY2023. Important to see sequencial recovery from Q3 onwards

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GFCL EV announces commencement of LiPF6 Project
A groundbreaking investment of INR 6000 Crores for over 4-5 years (650 already invested till 31.12.23)

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Screenshot 2024-02-07 144118
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GFL entered the EV space. EBITDA margin above 25%

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I recently got an opportunity to interact with a middle management person from Gujarat Fluorochem. Below is a summary of the brief discussion. It was a casual conversation and not an interview. I am recalling the conversation in form of Q&As only for the sake of clarity.

Disclaimer: Invested. Please do your own due diligence before investing anywhere.This post should be treated only as informational and should not form the SOLE BASIS for investment.

In what capacity did you work with the company
I was General manager (technical sales) looking after South East Asia region and handling the polymer division of the company.

How has been your experience in the company
It was a good experience. Company has a “take it easy” culture. There is no sense of urgency within the company and very little pressures to meet sales targets. Management seems confident in their decisions and does not interferes with the day to day workings which helps maintaining a relaxed environment. Most people who join the company stay for a very long time. Firings are very less. Compensations are acceptable but not very high and the promotions are mostly like in government organizations.

What was your job
I was responsible for handling sales and collections from polymer division in south east asia. My job was to understand polymer market requirements, push the products to various buyers, provide technical sales support and expand sales avenues. During my short stay of 2 years with the company, I very rarely had to explore other new buyers. The company has a well established supply chain such for the polymer division. The products are easily absorbed by the market. So much so that my job was effectively reduced to rationing the products across buyers and look after after sales technical support.

why did you quit
personal reasons, have been living in Mumbai for 15 years and wanted to shift back. also wanted to move back to oil industry (chemical engineer with ~20 years experience (Chevron, UOP, BPCL etc) in oil industry in various roles). Life in Fluorochem was quite stagnant and decision making flexibility is less. Essentially, it is a family run business and they take most decisions together with a few people in senior management.

The company claims that most of its products (PTFE, PFA, PVDF etc) are specialty of grade and they have very little exposure to commodity products. How much of it is true
Within my limited experience, i can say that it is fairly accurate. The customers are mostly fixed and a big reason for this is the proprietary nature of polymers. Their competition is mostly with big players like 3M, Chemours etc. However, one often gets to hear that many of the same products are manufactured by China also but most of their capacity is absorbed within the country. These materials are very specialized in nature and any customer can not change vendors readily which creates a stickiness in the industry. Further, while china is super efficient in manufacturing, they provide very little after sales support which is a must for these specialized polymers.

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My key takeaways from Q1 FY 25 conf call. This is not exhaustive. I have grouped statements segments wise.

Notes:

  • Actively engaged with 20 plus potential customers across EV ecosystem in US, Japan, Korea, EU and India.

  • LiPF6, Electrolyte salt and PVDF binder:

    • Many customers (India & Global) have audited us for LiPF6, Electrolyte salt and PVDF binder manf. facilities and have approved it.
    • Contracts are being finalized. Supplies to commence in Q4FY25!

  • LFP Plant commissioning in Q3FY25.

  • New FPs continue to see strong fundamental growths in Semicon industry and products related to emissions in Auto industry.

  • PVDF plant for solar: commissioning done, validation is in progress.

  • Battery materials sector: we are fully backward integrated, credible player/partner for customers. Large auto and battery OEMs are in discussion with us on long term pricing contracts.

  • On EV: first mover advantage, backward integration and a supply chain not dependent on China is a strategic advantage.

  • De-stocking is behind us for FP’s (based on Chemours volume growth QoQ).

  • FluoroPolymers (FP):

    • Legacy player [3M] will be out of end of 2025. They were also in high value added [VA] segments, so as they vacate, we will be picking those up. Plan to have a good market share by the time they exit.
    • Opportunities for high growth is due to:
      • void left by 3M and
      • also the growth inherent in the segment.
    • FP biz will grow this year itself. Perf. will improve QoQ over the next 3-4 quarters.
    • We are reaching an inflection point, going to see growth in this FY.
    • FKM: Fuel mix going to positively impact us Q4FY25/Q1FY26 (India/domestic demand)- approvals for the grades are happening as we speak, and a few approvals are already in place. Waiting for the event to happen.
      • This is happening in India for the first time. Volume/ numbers are not easy to predict. We will know 3Qs from now.
    • Semiconductor sector is one of the primary sectors driving growth (PFA benefit)

  • Battery chemicals: contracts are happening right now and are mostly global. LiPF6 and Electrolyte front runners.

    • LFP plant close to commissioning = Q3FY25.
    • Electrolyte is focused for Indian markets
    • PVDF (battery grade): as qualifications and validations happen, simultaneously pricing on contracts happen.
    • Captive consumption - will be mostly for electrolytes. What ever we are going to be using for LiPF6 will be domestic and what ever is for global sales, will be in the form of Salt.

  • Red Sea issue:

    • Sales are getting deferred. We ship to our warehouses in US and Europe.
    • 15 Days additional time to go around cape of good hope. It’s an inherent adv for us as we are integrated and dont need to import raw materials.
    • Rough # of 70-80 cr not booked due to Red Sea issue this quarter.

  • Ref gas: don’t expect too much in next qtr, but next 2 qtrs will be better (q3 and q4) - seasonality.

    • Our biz focus is not too much in ref gases and we are limited to R22.

  • Capex:
    - only funding through external fundings. Capex reduced from 800 to 700 cr. > mgmt: we have not cut any projects. 4-5 product lines are still there and their capacities are being setup.

    • If need to add more capacities/reactors we will take a look at it the FY end or post Q1FY26.
    • We are almost there in terms of capacity from 2 years ago. We have put up less reactors and spent on adding for monomers.

  • On Chinese competition:

    • Targeting: US markets. Chinese players can’t play here due to IRA compliance. We need to look out capacities outside China (for competition analysis perspective?).
    • We are strongly backward integrated till Fluorspar. Chinese capacities may not really impact us as they are not in value added (VA) segments.
    • Growth in FP is in VA (high value and high purity) segments.
    • We prefer to stay away from Chinese area of competition and get into high purity segments for areas like aerospace, EV, automotive, semiconductors - these have long approval cycles and customers will compensate us based on the value add we do.

  • Plant in Oman: Free trade agreement (FTA) with US. Our focus is on the US market. Can’t disclose on constitutes - but its for battery in EV segment.

  • Planning to save cost of energy by investing in Wind or solar power. Roughly savings will be to the tune of 100 cr over next 2-3 years.

  • Mgmts. confidence on robust/firm growth in EBITDA is due to:

    • Customers indications; due to approvals they have in place.
    • Legacy players leaving a void.

(from Closing comments)

  • FP: Quality of growth we are seeing in FP will be robust and stable going forward.
  • EV: fundamentals are very strong; we are highly credible partners who can deliver on battery chemicals.
  • Our supply chain is independent of China.
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Hi Everyone,

A quick question to those tracking this counter closely. Are there any new developments? Wondering what’s behind the sudden jump stock prices with significant volume last week? Is it just market euphoria or some news? From the last concall, I am unable to make out any immediate triggers. This was always a long term story due to play out through 2025 to 2028. Then what happened suddenly?

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Very Good Future Plans for GFL EV

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Inox Group had their vision day on 2 dec, 24. This is applicable across GFL thread, Inox wind and Inox Green threads. Sharing relevant notes that correspond for this thread

Their presentation: https://www.bseindia.com/xml-data/corpfiling/AttachHis/a76d4539-16b1-4a20-ab68-d5260cd24b2c.pdf

For Gujarat Fluorochem:

  1. FP is 60% of sales, it will go down to 35-45% in the future % wise of Sales. But the growth will be there - will double from current levels)
  2. Battery chemicals will be a major growth driver going forward.
  3. Pecking order of sales:
    1. Battery chemicals
    2. FP
    3. Bulk Chemicals
    4. Flurochemicals
  4. Pie will grow significantly but 3&4 will be shrink relative to the overall pie.
  5. Ebitda will quadruple - taking base of 2000 cr at the group level this year (FY24)- we plan to be at 8000 Cr EBITDA
  6. FKM: significant growth potential - due to vehicle’s 20% Ethanol blending
  7. PFA: Semicon industry - growth potential - new fabs - new plants across the globe
  8. Battery chemicals:
    1. Salt
    2. Additives
    3. formulations
  9. 4 parts of a battery: Cathode, Anode, Electrolyte, Separator
  10. We want to be present in:
    1. Electrolyte
    2. Binders - belong in both Cathode and Anode. - can be PTFE, PVDF depends on whether its a dry or wet battery
    3. Cathode Active Materials - will be present in LFP.
  11. Battery tech agnostic - NMC or LFP
  12. With all these products - we are planning to target 50% of the cost of a battery.
  13. In the Global Li battery demand - out of the 5160 GWH projected for FY30, 1 TWH capacity is expected to be in China. - 20% of world capacity.
  14. Battery material demand - most of it is in China currently, but for the future with 35% CAGR - we are well positioned - to grow from $8 Bn to $64 Bn.
  15. EV & ESS battery materials verticals:
    1. CAM - main area of focus is LFP - LFP is cheaper compared to NMC. Major growth in LFP segment. It’s preferred in Energy storage solutions too.
    2. Major chunk is going to mainly come from US (~50%) and China has a pretty
    3. Indian market is expected to reach a level of 200 to 250 GWH ( India as a country is behind on this ).
    4. Outside China - there is a significant gap in supply and demand - for Salts and electrolyte
    5. Salts, electrolyte, Binders - have commercial scale operational plants (ready).
    6. LFP - final stages of qualifications for the LFP plant - expected by end of this year and operational by before the end of this FY (march 2025)
    7. Raised 1000 cr at 25,000 Cr ($3B ) valuation for GFCL EV.
    8. Targeting creating a consortium for funding the working capital & debt - and reducing the cost outgo.
  16. 6,000 Cr capex - Topline asset turnover of about 2x (~12,000 Cr) - profitability goal of about 25% in next 2-3 years
    1. 1000 cr already pumped in from GFL, another 2000 cr from sovereign funds & PE being planned.
    2. This 6000 cr will be spent on two verticals primarily at 50:50 - LFP and electrolytes.
    3. Binders already has capacity exist and very little incremental capacity (reactors) needs to be added for adding more binder capacity.
  17. Will put up capacity even external to India for LFP ( FTA countries - helps protect any future duties that might be levied as we are in FTA based country)
  18. EV is irreversible - inspite of US president elect saying moving backward - apart from India and China, HF acid is not mfg else where - for mfg. LiPF6.
  19. LiPF6:
    1. 30,000 Ton by FY30
    2. Will be limited - due to HF capacity
  20. LFP:
    1. 2 Lac tons by FY30 - could be larger if ESS plays out well.
  21. Electrolytes:
    1. It’s largely for the Indian market.
    2. No plans to export.
    3. Has to be mfg. locally - Shelf life is limited - China being the only other place where it is mfg mostly. Logistical issues - refrigeration issues.
    4. We have salt, we have additives - so should help us have a larger share of Indian market for electrolytes.
  22. Discussions are ongoing with various customers - we invested first before the agreements/orders came in because - clients post going through initial quality check - they will not take samples for qualification from a pilot/lab plant - has to be a commercial plant which is the reason why we took time to invest first even though some plant capacities are idling at this point of time. [ prototype plants > Lab size plants > commercial scale plants ]
  23. We have signed our first PPAs for most of our products.

any mistakes above are truly mine.

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Gas leak kills 4 in Gujarat Fluorochem Dahej plant.

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Gujarat Fluorochemicals | Q3 Highlights

EV Business Update

Dur Salts, Electrolytes, PVDF and PTFE binder plants have fully stabilised and are awaiting customer validations to commence commercial sales.

We are going ahead with expansion of our Salt production capacity in view of the expected order pipeline.

We are witnessing significant increase in the number of visits and audits of potential customers from the US, EU, Korea, Japan & India with product sampling and validation underway.

LFP plant commissioning is progressing well and is expected to commence trial production within Q4FY25

Fluoropolymers Business & Outlook

a. Fluoropolymer volumes slightly declined QoQ due to year-end holidays in export markets.

b. Prices remained stable, though PTFE faced pressure from low-priced Chinese supplies.

c. With the exit of a legacy player and GFL’s new qualifications, revenue and margin growth is expected from FY26.

d. Strong demand in automotive, semiconductors, EV, and ESS sectors will drive higher revenues and margins for GFL.

Fluorochemicals Business & Outlook

Refrigerant gas prices, mainly R-22, improved slightly, with further increases expected.

R-125, primarily exported to the US, saw weaker Q3 performance, but both prices and volumes should rise ahead.

Specialty chemicals remained flat, but volumes are expected to improve from Q4FY25.

Bulk Chemicals

The bulk chemical segment operated at full capacity. Caustic prices improved in Q3 after several weak quarters.

MDC prices rose, but are expected to remain stable due to new capacities in India.

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