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ICICI Securities
Gujarat Fluorochemicals (Buy)
Target: ₹3,086
CMP: ₹2,316.6
We initiate coverage on Gujarat Fluorochemicals (GFL) with a Buy rating and target price of ₹3,086. GFL is in a sweet spot with its presence in fluoropolymers, demand for which is increasing 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-FY24). 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 ₹2,500 crore over the next three years.
It is likely to see its earnings grow at 45.9 per cent CAGR over FY21-FY24 (on low base though), and RoCE (post-tax) improve from 6.7 per cent to 18 per cent 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. We like GFL as it is the only company in India with a large portfolio of fluoropolymers that can capture the growing demand. SRF is expected start manufacturing fluoropolymers in FY23/FY24 with certain commodity grade PTFE. It would take multiple years for SRF to scale GFL’s level in fluoropolymers.
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