Renewable Energy And EV Demand Will Boost Fluoropolymer And Battery Material Segments

Key Takeaways

• GFL expects higher revenues and profitability from fluoropolymer and EV battery materials driven by market demand and new product development.
  
• Renewable energy projects and strategic market expansions aim to cut costs and boost net margins in the growing Indian market.
  
• Fluoropolymers face Chinese pricing pressures, while high CapEx and uncertain policy changes challenge Battery Materials growth, threatening revenue and profitability across segments.

Catalysts

Engages in the manufacture and trading of bulk chemicals, refrigerant gases, fluorochemicals, fluoropolymers, and allied activities in India, Europe, the United States, and internationally.

• GFL's fluoropolymer segment is expected to see significant revenue and profitability increases due to the exit of a legacy player and successful development of higher-grade products. This will impact future revenues and margins positively.
  
• The EV battery materials business is anticipated to ramp up significantly as global demand from EV and energy storage systems (ESS) increases, driven by the energy transition. This will support revenue growth and improve earnings.
  
• Expansion in India's ethanol-blended vehicle market requiring FKM is projected to boost the fluoropolymer business, enhancing revenues and margins in future quarters.
  
• Rising refrigerant gas prices, particularly for R-22 and R-32, along with resumed CapEx for R-32, suggest improved future revenues and profitability as demand and market dynamics evolve.
  
• GFL's renewable energy initiatives, such as aggregating wind assets, are poised to reduce power costs by 10-12% from FY '26. This is expected to enhance net margins by significantly reducing operating expenses.

Gujarat Fluorochemicals Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Gujarat Fluorochemicals's revenue will grow by 31.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.1% today to 16.6% in 3 years time.
• Analysts expect earnings to reach ₹16.7 billion (and earnings per share of ₹153.04) by about January 2028, up from ₹4.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₹12.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.3x on those 2028 earnings, down from 94.8x today. This future PE is greater than the current PE for the IN Chemicals industry at 26.9x.
• Analysts expect the number of shares outstanding to decline by 0.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.24%, as per the Simply Wall St company report.

Gujarat Fluorochemicals Future Earnings Per Share Growth

Risks

• The fluoropolymers segment faces pricing pressures from low-cost suppliers in China, which could impact revenue and margins if the company is unable to secure a competitive advantage or drive higher value product sales.
  
• Continued high CapEx investments, especially in the Battery Materials business, may strain financials due to increased depreciation and interest charges, potentially impacting net margins and earnings until new revenue streams fully materialize.
  
• The potential changes or removal of the U.S. IRA subsidy could impact the growth outlook for the EV market, which is a key area of strategic expansion and investment for GFL's Battery Materials business, thereby affecting projected revenue.
  
• Market dynamics for certain products like R-125 show seasonal weaknesses, and if anticipated improvements in pricing and volume do not materialize, it could negatively impact future revenues and profits.
  
• Additional supply from new capacity in India could mute MDC prices, potentially impacting revenue and profitability for this segment, despite expectations of improved market conditions.

Valuation

• The analysts have a consensus price target of ₹4160.0 for Gujarat Fluorochemicals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹5210.0, and the most bearish reporting a price target of just ₹2940.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹100.8 billion, earnings will come to ₹16.7 billion, and it would be trading on a PE ratio of 39.3x, assuming you use a discount rate of 13.2%.
  
• Given the current share price of ₹3536.9, the analyst's price target of ₹4160.0 is 15.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.