GFL is engaged in manufacturing and trading of bulk chemicals, fluorochemicals, fluoropolymers and allied activities.

GFL’s operating performance was subdued in fiscal 2024 with operating revenue of Rs 4,281 crore and earnings before interest, tax, depreciation and amortisation (Ebitda) margin of 21 per cent compared with Rs 5,685 crore and 36 per cent, respectively, for fiscal 2023. This is due to significant moderation in realisations in the fluorochemicals and bulk chemicals segments compared with above-average realisations in fiscal 2023.

Moreover, destocking of fluoropolymers (FPs) in the major markets of the US and Europe led to decline in both volume and realisations, impacting the overall profitability.

In the first quarter April to June quarter of FY25 (Q1FY25), GFL’s earnings missed analysts’ estimates. The Fluoropolymers vertical showcased Y-o-Y growth with the Bulk Chemicals segment up marginally. The Fluorochemicals segment lagged due to headwinds from Chinese competition. However, the management is confident about the coming quarters and expects a better performance in the second half of the current financial year (H2FY25E). The company also anticipates gaining market share in the high-value segment and has also highlighted that de-stocking is now behind. In terms of pricing, FLUOROCH expects an improvement in pricing from January 2025.

With a strategic vision to propel industrial manufacturing by 2030, the government initiatives place a sharp focus on critical sectors, such as electronics, renewable energy equipment, electric vehicles (EVs), energy storage system (ESS), fuel cell membranes and green hydrogen.

Notably, all these industries are reliant on fluoropolymers as their essential performance raw materials significantly ramping up the growth of the market. This synergy of government support and industrial demand sets the stage for an accelerated growth of the Indian fluoropolymer market in the coming years, GFL said in its FY24 annual report.

GFL is strategically poised for global dominance in the battery materials sector through GFCL EV, wholly-owned subsidiary. GFCL EV is involved in the manufacturing of critical intermediate materials for lithium-ion batteries. The EV segment is anticipated to tap significant opportunities within the electric vehicles and energy storage systems worldwide in the coming decades. The fully integrated battery materials complex in Jolva, Gujarat has already established its initial capacity.

Thus far in the month of October, the stock has outperformed the market by surging 10 per cent after CRISIL Ratings reaffirmed its ‘CRISIL AA+/Stable/CRISIL A1+’ ratings on the bank facilities and Rs 50 crore non-convertible debentures of GFL. In comparison, the BSE Sensex was down 3 per cent during the same period.

The rating reaffirmation reflects expectation of significant recovery in operating performance in fiscal 2025, this will be monitorable. GFL saw sequential recovery in operating performance as indicated by Ebitda margin of 21.6 per cent in Q1FY25 and over 20 per cent in Q4FY24 compared with ~16 per cent in Q2FY24.

While the fluorochemicals and bulk chemicals segment are expected to remain flattish in fiscal 2025, CRISIL Ratings believes the recovery will be driven by the FP segment as the destocking bottoms out and the exit of a few legacy players leads to better demand. Furthermore, certain new FPs, including EV battery chemicals, are in sampling stages with customers with commercialisation expected from the second half of fiscal 2025.

The new FP segment includes salts such as Lipf6, binders such as polyvinylidene fluoride (PVDF) and electrolytes such as lithium iron phosphate (LFP), which have end-use applications in high-growth sectors such as EV batteries, hydrogen fuel cells and semiconductors. GFL is well positioned to cater to these segments with expertise in fluorine chemistry, significant investments already undertaken and the China+1 sourcing strategy of end users. Hence, this segment will drive revenue growth over the medium term. Plus, improvement in the product mix will lead to lower volatility and sustenance of strong operating margin. This ramp-up in new age FPs will remain monitorable, the rating agency said.

First Published: Oct 10 2024 | 2:18 PM IST