Shares of Gujarat Fluorochemicals (GFL) fell by 2.06% to ₹4,392.80 in early trading today, despite a positive outlook from Avendus Spark, which initiated coverage with an ‘Add’ rating. Avendus set a 1-year target price of ₹4,710 and a 3-year target price of ₹5,900, indicating a potential upside of 32%. The stock opened at ₹4,510.50, hit a high of ₹4,510.50, and reached a low of ₹4,353.00, with the previous close at ₹4,485.05.
Avendus Spark’s key takeaways:
- Fluoropolymers Revival: GFL is positioned for significant growth in its fluoropolymers business, particularly with the revival of PTFE volumes expected to increase by 50% by FY25, aided by reduced competition from 3M’s exit from the market.
- Battery Business Expansion: GFL’s expansion into the EV battery market, with products like PVDF binders and LFP cathode active materials, is expected to contribute 45% to its revenue by FY28. The company’s ₹32 billion capex until FY26 reflects its focus on capturing this high-growth market.
- New Fluoropolymer Growth: GFL’s new fluoropolymer products, including PVDF launched in 2020, are expected to contribute 25-30% of revenue in FY24, with EBITDA margins recovering to 29% by FY26.
- Challenges in LFP CAM Business: Avendus noted that GFL’s LFP cathode active material business may face delays in reaching full utilization, given sluggish domestic demand and competition.
Financial outlook:
- Revenue CAGR: 29% for FY24-28
- EBITDA Growth: 37% CAGR
- EPS Growth: 43% CAGR
- The battery business is expected to achieve EBITDA margins of 25% by FY28.
Valuation and risks:
Avendus has assigned a 15x multiple to the existing business and 30x to the battery business, leading to a 3-year target price of ₹5,900. However, potential risks include slower EV adoption, execution challenges, and competition from non-Chinese polymer players.
Despite today’s dip in stock price, Avendus remains optimistic about GFL’s long-term growth potential, particularly in the fluoropolymer and battery chemicals markets.
