Hello VP members
Have been reading a lot on VP since last month & this is my first post in the forum.
I am extremely grateful to the forum and members for the learning I have had in such short duration and the breadth and depth of analysis that takes place on a thread is amazing to say the very least.
Also, I am relatively new to the world of self investing (since 2020) so forgive my ignorance on otherwise obvious matters.
Coming to the company, a lot has already been discussed in the thread covering several dimensions of the company and I will try to limit my discussion to the points where I am unable to understand what is actually happening. Senior VP members may please delete the post if they feel that there is a lot of repeatability and little value addition.
It is clear that the company makes a range of products (caustic, chloromethanes, Ref gas, PTFE, FPs & FSCs) which are mostly fluorine related chemicals & polymers. A significant portion (~50%) of the revenue comes from exports to US and Europe. Originally the company was mainly into ref. gases & chemicals. Later it ventured into PTFE and from 2007 into FPs. As has been shown by @Anant sir at the start of the thread as one of the key concerns, this followed a period of roughly 10y where significant CapEx was done for not so impressive sales growth. However, as a chemical engineer working in an even complex (although unrelated) industry, I know that for a greenfield project it can easily take anywhere between 3 y to 5y for first product routing from the moment the first dime of capex is spent on the project. Fine tuning of the product takes few more years.
After that initial period of slow growth, the company picked up its pace & since then the R&D has churned out product after product that have turned out to be very profitable for the company. From the chart below it can be seen that the company has had both strategic intent and ability to continue to develop products that make sales and further increase future sales potential
Note: other products include FEP, FKM, PFA, PVDF & FSCs.
With an intent of Identifying new product lines to increase future sales potential the company planned fresh capex (600 cr FY22, 1150 cr FY23 & 1000 cr FY24) towards the “new age products” which are battery chemicals (LiPF6, PVDF for cathode binder) & PVDF for solar panel back films. Some of that (~300 cr) will be used for backward integration. Further, technology development for PEM & some other products is in progress but it will take time & lets not get into that at this point.
Most of this is already known as it has been discussed in the thread in quite detail. However, this background was necessary for the question i want to ask and the answer to which I have but am unsure of and want the valuable opinion of VP members
What i want to understand is what will make the “new age products” sell. Those for which the capex is being done and which are being identified as the next lever of growth for 5-10y.
As @sahil_vi sir mentioned a few posts back that it might be difficult for GFL to break into USA due to localization requirements and also in europe as there are bigger players with better products available.
The answer can not be “technically superior” product as again due to my chemical industry background i know that most of the chemical research work (industrial or otherwise) in India is derivative in nature. Our production plant & R&D labs are set up by foreign licensors and the tech is sometimes (or mostly?) outdated before it reaches us.
Therefore I have no doubt in believing that Arkema (for eg) will almost always have a better product that GFL for the similar use scenario (at what cost though?).
GFL itself has said in the concalls that it was never competing with china (overlap with china was 10-15% of generic grade PTFE only) and it was seeing significant potential in sales of battery chemicals as other western major players are not expanding capacity which is not entirely true (as a lot of them are expanding capacities. See @sahil_vi sir post). The market in india will only come after H2CY24 -2025
Could the answer be that the newly formed capacity of all companies combined will still be lower than the demand? That can be a scenario where GFL can get its share of the EV market. However is it really possible for us to predict the future demand to such accuracy as to map it against the capacities coming up. Maybe for someone who is working in the industry and having in depth knowledge. However most of these people will be working at very high posts in one of these companies itself and will be inaccessible to an average investor like me.
It is at this point that I realize that the complexity in analyzing GFL as a potential investment lies in my inability to properly understand the sales organization of the company and its sector.
So what has made me invest in GFL even after all the doubts i have just listed (& some more)
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I believe that even today the company has products (exclluding new age products) that have sales potential for several years to come. Considering that additional capacities are coming in these new products; the company can continue to utilize the current sales channel (which i have no idea about however sales are still occuring).
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I believe that these new age products (battery chemicals, PVDF, FSCs) will provide additional sales and not only in india but in US and Europe also. Their product may be inferior to solvay’s or arkema’s latest invention however it will still get the job done. Not everyone (customer) is looking for the best product; some are looking to cut the costs and with huge margins (>30%), low labor costs and less severe environment control norms, GFL can provide products at cheaper costs (i may be wrong and more financial analysis may be required.) The products may sell for entirely different reasons which I am not aware of. But I think the management has done its homework before foraying into these new products.
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Even in the past, GFL has been able to capture market share for its products in US & EU markets even though western & chinese players were present. Understanding its limitations, it steered away from direct competition with china. Initially GFL had generic PTFE but gradually shifted to 60:40 mix of value added grade to generic realizing that china had huge capacities for commodity grade PTFE. How it managed to capture market share from western players i am not sure. Might be cost or better sales service or something entirely else but it did manage to carve out a piece for itself. I am betting that even in the future, it will be able to do so provided management does not make a blunder.
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Management has almost always been able to walk the talk in concalls and ARs. Most capex implementations since demerger have been on time (except FSCs capacity expansion where in the project was initially delayed from target of Q4FY22 to Q2FY23 and was further delayed due to fire incident). Management has reasonably good cost analysis and accounting controls for individual products (they were quick to identify that 2 of the 11 FSCs developed were not going to give enough margin and decided to stop the production). They have been successfully able to identify future growth products and have shown timely commercialization of products (note that commercial channels are vaguely established even before production of new products start).
I believe that as long as the current management is present and a blunder is not committed through a fault of their own, plans are in place for decent amount of growth for several years. The price has corrected the previous highs of ~4000 and the valuations have become attractive (although not as attractive as were 2 y back when the thread was started) & it is a good company to hold for mid-long term.
Comments and criticism are highly solicited.
Disclosure: Invested. Transaction in last 30 days
Please do your own due diligence before investing
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