TREND: Gujarat Fluoro de-merger to unlock chemical play’s valuation

Wednesday, Nov 28

    By Nikita Periwal
    MUMBAI – Gujarat Fluorochemicals Ltd, India’s largest manufacturer of polytetrafluoroethylene, is set to carve out its chemical business from the rest, which will give investors a chance to own the pure-play speciality chemicals business.
    Demand for the speciality plastic is estimated to grow at a compounded annual rate of at least 6% for the next five years, a recent study by Market Research Future showed.
    Commonly referred to as ‘teflon‘, polytetrafluoroethylene finds application in non-stick cookware, aerospace, textiles, semi-conductors, healthcare and automotive industries.
    The manufacturing of polytetrafluoroethylene, abbreviated as PTFE, is typically a high-entry barrier market, and as one of few global producers, Gujarat Fluoro exports PTFE to over 75 countries.
    Noida-based Gujarat Fluoro gets about half its sales, a third of its operating profit, and nearly all its profits from the chemical business on a consolidated basis.
    Gujarat Fluoro owns majority stake in both Inox Leisure and Inox Wind, which forces its investors to additionally take ownerships of risks associated with these businesses.
    The decision to de-merge its chemicals business from the rest is expected to help investors participate in the likely volume growth story for chemicals independently, without taking into account the holding discount for the independently listed multiplex and wind businesses.
    “GFL believes that this scheme will provide better flexibility to investors to select investments which best suit their investment strategies and risk profile for each of the businesses…,” Deepak Asher, director and group head of corporate finance, said in a call after the company’s September quarter earnings.
    Subject to approvals from regulatory bodies, Gujarat Fluoro’s chemical operations will be de-merged with effect from Apr 1.
    The company’s sales from its chemical operations rose 43% in Apr-Sep, while profits surged 49% on year, adjusted for a one-time income tax refund. The operating margin expanded by 70 basis points on year.
    The board’s decision to de-merge its operations saw the stock hitting a lifetime high of 959.90 rupees on the National Stock Exchange earlier this month.
    PTFE contributes 40% to Gujarat Fluoro’s sales.
    The company’s plant in Dahej currently has capacity of 16,000 tn a year, or around 1,300 tn a month. Gujarat Fluoro plans to increase this capacity to 1,550-1,600 tn a month in 2019, and 1,750 tn a month in 2020.
    The largest producer of chloromethanes, refrigerants and poly tetrafluoroethylene in the country will also ramp up capacities in its fluoropolymers and fluorospeciality products.
    Gujarat Fluoro also owns the single-largest refrigerant plant in India, and will increase the capacity at its plant by more than 100%, with an investment of 1 bln rupees.
    Gujarat Fluoro’s plant at Ranjitnagar near Vadodara in Gujarat currently has the capacity to produce 22,320 tn of refrigerant and fluoro-specialty chemicals.
    The company plans to increase capacity to 46,800 tn per annum, with most of the capacity being added to produce difluoromethane, ethyl tetrafluoroethyl ether, and trifluoroacetic acid and its derivatives.
    Gujurat Fluoro secured the environmental clearance for this expansion project in October.
    The company has spent 1.5 bln rupees in the first half of the current financial year, and will spend 500-750 mln rupees in the second half.
    Today, shares of Gujarat Fluoro ended 0.3% lower at 881.20 rupees on the National Stock Exchange.  End

Edited by Maheswaran Parameswaran

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