Another very strong qtr by Guj Fluoro. This is one company where management has been giving a very clear growth outlook and every qtr the numbers have been validating the managements comments. The growth has simply been robust even in such challenging environment.
Few quick points from the concall:
Capacity: Additional capacity will keep coming up for the new age polymers where the demand is robust so there should not been any problem ramping up the sales from the new capacity.
Current capacity of the new age polymers at 1000 ton (Utilisation at 75/80%, so further room from increase in utilisation) which will go up to 1500 ton by end of FY 23. And this will further go up the following year may be almost double is what I understand as and when the demand for EV Battery / Semi con application starts kicking in (expected from CY 25). So there is good visibility for growth in the coming years.
New product line under refrigerants is also being planned ( R32) with a capacity of 10k ton and an approx capex of 125 cr.
Speciality chemical was flat QoQ as the new capacity which was suppose to come up got delayed. This has gone live and should flow from Q3 onwards.
Management is in the process of looking for new land.
As per the management barely any new capacity for FKM / PTFE coming up in Europe / America. Hence Guj Fluoro is well positioned to capture the growing demand.
Margins: This qtr was very strong with EBITDA at 37%. The management expects the margin to be above the 30% mark in the long run which is quite healthy. This might be possible as there are barriers to entry for their products as mentioned by the MD along with the demand for their products being robust with not a lot of supply. They being an integrated player helps in RM stability which is a big plus for the company.
I feel the execution by the management has been excellent – for e.g. setting up R142b capacity in full scale ensures all their additional PVDF capacity will be taken care off. Till then due to high demand of 142b by itself all excess capacity is being exported. They will keeping adding PVDF reactors as demands keeps rising which I think is a great capital allocation strategy.
On the bulk chemical side – might see some softening as caustic soda prices currently are very strong partly due to the energy crisis in Europe so this might eventually cool off.
Related party transaction: The management has been constantly claiming to clear this by end of Fy 23. The fund raise by Inox winds looks like a step closer in this direction.
Management is working towards getting the energy prices lower. Full plan not yet disclosed but they expect the energy cost to come down.
The management is not much worried particularly about the crisis in Europe. As per them they are well diversified geographically. Hence if demand from a particular region goes down they should be able to replace it by supplying to a different geography. However one has to note there is no escape in case of a global slowdown.
All in all the the company continues to be in a strong growth phase with a lot of opportunities still lying ahead. Demand from EV batt yet to come up. The management is walking the talk.
Disc: Invested
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