GUJARAT FLUOROCHEMICALS
In my view, the Operating Margins(OPM) has "PEAKED"
From OPM of 26% to 37%(which is 11% ⬆️)
As a result, Stock RE-RATED from Rs.700 to Rs.4100
I will explain
1.Why did Investors historically ignored this stock?
2.Why i feel MARGINS PEAKED ?
🧵👇1/19
In my view, the Operating Margins(OPM) has "PEAKED"
From OPM of 26% to 37%(which is 11% ⬆️)
As a result, Stock RE-RATED from Rs.700 to Rs.4100
I will explain
1.Why did Investors historically ignored this stock?
2.Why i feel MARGINS PEAKED ?
🧵👇1/19
2/19
3.What is the Future Ahead ?
Answering to 1st Question,
Why did Investors historically ignored this stock ?
I will answer with 3 reasons
Reason 1 : If u observe the Companies which has FLUROINATION Expertise in India,there are 3 Companies
1.Navin Fluorine
3.What is the Future Ahead ?
Answering to 1st Question,
Why did Investors historically ignored this stock ?
I will answer with 3 reasons
Reason 1 : If u observe the Companies which has FLUROINATION Expertise in India,there are 3 Companies
1.Navin Fluorine
3/19
2.SRF
3.Gujarat Fluorochemicals(GFL)
The Simple answer why Investors hasn't invested in Gujarat Fluorochemicals(GFL) is that they have invested in either Navin or SRF,so if they invested in Navin/SRF already they have idea about Fluorine Expertise businesses
2.SRF
3.Gujarat Fluorochemicals(GFL)
The Simple answer why Investors hasn't invested in Gujarat Fluorochemicals(GFL) is that they have invested in either Navin or SRF,so if they invested in Navin/SRF already they have idea about Fluorine Expertise businesses
4/19
Reason 2 : ISSUES of CAPITAL MISALLOCATION
In my view,many Investors stayed away from GFL is that GFL has some capital misallocations with Group Company INOX Group(INOX Wind).
Recently Mgmt said they will recover the Amount of Rs.800 crs from INOX by FY 23(Lets see🤞)
Reason 2 : ISSUES of CAPITAL MISALLOCATION
In my view,many Investors stayed away from GFL is that GFL has some capital misallocations with Group Company INOX Group(INOX Wind).
Recently Mgmt said they will recover the Amount of Rs.800 crs from INOX by FY 23(Lets see🤞)
5/19
Reason 3 : HIGH BULK CHEMICALS REVENUES
In past,GFL has 50% revenues coming from BULK Chemicals(Ex :Caustic Soda etc etc )
Bulk business is a SPOT MARKET business where prices change everyday.
So a result if Prices of Bulk chemicals⬇️,the MARGINS will DISAPPER in No time
Reason 3 : HIGH BULK CHEMICALS REVENUES
In past,GFL has 50% revenues coming from BULK Chemicals(Ex :Caustic Soda etc etc )
Bulk business is a SPOT MARKET business where prices change everyday.
So a result if Prices of Bulk chemicals⬇️,the MARGINS will DISAPPER in No time
6/19
So once again, unpredictable realisations of Bulk chemicals will lead to Unpreditable EARNINGS GROWTH because Bulk business is a not a LONG TERM CONTRACT business,mostly on Spot basis sale.
Apart from Bulk Chemicals, Even their PTFE products suffered.
So once again, unpredictable realisations of Bulk chemicals will lead to Unpreditable EARNINGS GROWTH because Bulk business is a not a LONG TERM CONTRACT business,mostly on Spot basis sale.
Apart from Bulk Chemicals, Even their PTFE products suffered.
7/12
Due to Chinese competition in PTFE Realisations, the SELLING PRICE of GFLs PTFE products remain Volatile and added Volatality to Earnings
In short,
Bulk chemicals Revenues are Volatile
PTFE Revenues are Volatile
No Idea where the Revenues where headed next quarter
Due to Chinese competition in PTFE Realisations, the SELLING PRICE of GFLs PTFE products remain Volatile and added Volatality to Earnings
In short,
Bulk chemicals Revenues are Volatile
PTFE Revenues are Volatile
No Idea where the Revenues where headed next quarter
8/19
Q2.Why i feel margins are "PEAKED"?
Before answering this,I would like to answer what efforts made by Company to Increase OPM from 26% to 37% in 2 1/2 Years.
As mentioned Ealier,
Bulk Chemicals,PTFE Suffering Realisations issue becoz of Excess Supply into the market
Q2.Why i feel margins are "PEAKED"?
Before answering this,I would like to answer what efforts made by Company to Increase OPM from 26% to 37% in 2 1/2 Years.
As mentioned Ealier,
Bulk Chemicals,PTFE Suffering Realisations issue becoz of Excess Supply into the market
9/19
So the management of GFL decided to move from PTFE to PTFE Value Chain FLUOROPOLYMERS(FKM,PVDF,PFA etc)
Important thing to note is,GFL is only Company to manufacture FLUOROPOLYMERS in India
What has changed When Mgmt moved from PTFE to PTFE Value chain Fluoropolymers ?
So the management of GFL decided to move from PTFE to PTFE Value Chain FLUOROPOLYMERS(FKM,PVDF,PFA etc)
Important thing to note is,GFL is only Company to manufacture FLUOROPOLYMERS in India
What has changed When Mgmt moved from PTFE to PTFE Value chain Fluoropolymers ?
10/19
The Change in REALISATIONS has Happened
PTFE Realisations : $ 10/Kg
PTFE Value Chain FLUOROPOLYMERS Realisations
FKM -$ 28-32/Kg
PVDF-$30/Kg
PFA-$33-35/kg
On Average Fluoropolymers realisation has been in the range of $15-45/Kg which is MORE than PTFE($10/Kg) realisations
The Change in REALISATIONS has Happened
PTFE Realisations : $ 10/Kg
PTFE Value Chain FLUOROPOLYMERS Realisations
FKM -$ 28-32/Kg
PVDF-$30/Kg
PFA-$33-35/kg
On Average Fluoropolymers realisation has been in the range of $15-45/Kg which is MORE than PTFE($10/Kg) realisations
11/19
So the above is the one of the reason for Improvement in Margins.
Another reason is the
RISE IN THE PRICE OF BULK CHEMICALS
due to Russia-Ukraine Conflict,Shutdowns in China,Inflationary Issues,Mainly DEMAND-SUPPLY MISMATCH due to Supply chain disruptions etc etc
So the above is the one of the reason for Improvement in Margins.
Another reason is the
RISE IN THE PRICE OF BULK CHEMICALS
due to Russia-Ukraine Conflict,Shutdowns in China,Inflationary Issues,Mainly DEMAND-SUPPLY MISMATCH due to Supply chain disruptions etc etc
12/19
Not only GFL,many companies are experiencing high realisations in their Commodity Chemicals even now also.
When above mentioned issues solve,again the PRICE of BULK or Commodity Chemicals will ⬇️.
So this is SHORT TERM WINDFALL GAINS(Not a Sustainable Long term Price)
Not only GFL,many companies are experiencing high realisations in their Commodity Chemicals even now also.
When above mentioned issues solve,again the PRICE of BULK or Commodity Chemicals will ⬇️.
So this is SHORT TERM WINDFALL GAINS(Not a Sustainable Long term Price)
13/19
When this Issues will solve and prices of Commodity chemicals will fall in a big question.
Another reason is
⬆️in PTFE Realisations
In past,Chinese PTFE Manufacturers are reason for Over supply of PTFE into market and make PRICES fall which affected companies like GFL.
When this Issues will solve and prices of Commodity chemicals will fall in a big question.
Another reason is
⬆️in PTFE Realisations
In past,Chinese PTFE Manufacturers are reason for Over supply of PTFE into market and make PRICES fall which affected companies like GFL.
14/19
But after COVID,Chinese PTFE Manufacturers are unable to supply the growing demand for PTFE in Electronic &Automobile Industries etc.
So as a result,there was a SUPPLY -DEMAND MISMATCH and PTFE Prices ⬆️ which benefitted GFL which has 10% market share in Global PTFE Market
But after COVID,Chinese PTFE Manufacturers are unable to supply the growing demand for PTFE in Electronic &Automobile Industries etc.
So as a result,there was a SUPPLY -DEMAND MISMATCH and PTFE Prices ⬆️ which benefitted GFL which has 10% market share in Global PTFE Market
15/19
In Short,
The Reasons for OPM ⬆️is due to
1.Better Realisations in FLUOROPOLYMERS
2.⬆️in Bulk Chemical prices
3.⬆️in PTFE Realisations
Now i feel Point 2& 3 reached a stage of maximum,so i feel OPM for GFL has peaked out because Prices cant keep going Up forever.
In Short,
The Reasons for OPM ⬆️is due to
1.Better Realisations in FLUOROPOLYMERS
2.⬆️in Bulk Chemical prices
3.⬆️in PTFE Realisations
Now i feel Point 2& 3 reached a stage of maximum,so i feel OPM for GFL has peaked out because Prices cant keep going Up forever.
16/19
Q3.FUTURE AHEAD ?
As mentioned Earlier,
FLUOROPOLYMERS is a STRUCTURAL GROWTH OPPORTNITY for GFL
NOW Mgmt shifted focus to " NEW AGE FLUOROPOLYMERS"
What does "New Age Fluoropolymers " mean ?
Fluoro Chemicals for
EV Battery
Solar Panels
Electrolyzers
Hydrogen Fuel Cells etc
Q3.FUTURE AHEAD ?
As mentioned Earlier,
FLUOROPOLYMERS is a STRUCTURAL GROWTH OPPORTNITY for GFL
NOW Mgmt shifted focus to " NEW AGE FLUOROPOLYMERS"
What does "New Age Fluoropolymers " mean ?
Fluoro Chemicals for
EV Battery
Solar Panels
Electrolyzers
Hydrogen Fuel Cells etc
17/19
Already GFL having revenues from the above,the above written are Incremental Opportunities(I mean till now Zero Sales,but Mgmt planned more than 2000 crs capex for both Fluoropolymers & New Age Fluoropolymers
In Future,Bulk revenues will reduce further.
Already GFL having revenues from the above,the above written are Incremental Opportunities(I mean till now Zero Sales,but Mgmt planned more than 2000 crs capex for both Fluoropolymers & New Age Fluoropolymers
In Future,Bulk revenues will reduce further.
18/19
The Company also has SPECIALTY FLUOROCHEMICALS Verticals.But this now a great focus area for the mgmt and has very little CAPEX planned for this and again this is very small in Revenue segment when Compared to Overall Consolidated Revenues.
The Company also has SPECIALTY FLUOROCHEMICALS Verticals.But this now a great focus area for the mgmt and has very little CAPEX planned for this and again this is very small in Revenue segment when Compared to Overall Consolidated Revenues.
19/19
In Short,
Bulk Chemicals,PTFE Prices may fall in Future,but dont know when
Fluoropolymers(PTFE Value Chain products) and New Age Fluoropolymers will drive the FUTURE GROWTH with BETTER REALISATIONS as the mgmt planned more than 2000 crs CAPEX in FY 23 & FY 24.
In Short,
Bulk Chemicals,PTFE Prices may fall in Future,but dont know when
Fluoropolymers(PTFE Value Chain products) and New Age Fluoropolymers will drive the FUTURE GROWTH with BETTER REALISATIONS as the mgmt planned more than 2000 crs CAPEX in FY 23 & FY 24.
Loading suggestions...