Gujarat Fluorochemicals: A hidden fluorine story

My key takeaways from Q1 FY 25 conf call. This is not exhaustive. I have grouped together statements, segments wise.

Notes:

• Actively engaged with 20 plus potential customers across EV ecosystem in US, Japan, Korea, EU and India.

• LiPF6, Electrolyte salt and PVDF binder:

  • Many customers (India & Global) have audited us for LiPF6, Electrolyte salt and PVDF binder manf. facilities and have approved it.
  • Contracts are being finalized. Supplies to commence in Q4FY25!

• LFP Plant commissioning in Q3FY25.

• New FPs continue to see strong fundamental growths in Semicon industry and products related to emissions in Auto industry.

• PVDF plant for solar: commissioning done, validation is in progress.

• Battery materials sector: we are fully backward integrated, credible player/partner for customers. Large auto and battery OEMs are in discussion with us on long term pricing contracts.

• On EV: first mover advantage, backward integration and a supply chain not dependent on China is a strategic advantage.

• De-stocking is behind us for FP’s (based on Chemours volume growth QoQ).

• FluoroPolymers (FP):

  • Legacy player [3M] will be out of end of 2025. They were also in high value added [VA] segments, so as they vacate, we will be picking those up. Plan to have a good market share by the time they exit.
  • Opportunities for high growth is due to:
    • void left by 3M and
    • also the growth inherent in the segment.
  • FP biz will grow this year itself. Perf. will improve QoQ over the next 3-4 quarters.
  • We are reaching an inflection point, going to see growth in this FY.
  • FKM: Fuel mix going to positively impact us Q4FY25/Q1FY26 (India/domestic demand)- approvals for the grades are happening as we speak, and a few approvals are already in place. Waiting for the event to happen.
    • This is happening in India for the first time. Volume/ numbers are not easy to predict. We will know 3Qs from now.
  • Semiconductor sector is one of the primary sectors driving growth (PFA benefit)

• Battery chemicals: contracts are happening right now and are mostly global. LiPF6 and Electrolyte front runners.

  • LFP plant close to commissioning = Q3FY25.
  • Electrolyte is focused for Indian markets
  • PVDF (battery grade): as qualifications and validations happen, simultaneously pricing on contracts happen.
  • Captive consumption – will be mostly for electrolytes. What ever we are going to be using for LiPF6 will be domestic and what ever is for global sales, will be in the form of Salt.

• Red Sea issue:

  • Sales are getting deferred. We ship to our warehouses in US and Europe.
  • 15 Days additional time to go around cape of good hope. It’s an inherent adv for us as we are integrated and dont need to import raw materials.
  • Rough # of 70-80 cr not booked due to Red Sea issue this quarter.

• Ref gas: don’t expect too much in next qtr, but next 2 qtrs will be better (q3 and q4) – seasonality.

  • Our biz focus is not too much in ref gases and we are limited to R22.

• Capex:
  – only funding through external fundings. Capex reduced from 800 to 700 cr. > mgmt: we have not cut any projects. 4-5 product lines are still there and their capacities are being setup.

  • If need to add more capacities/reactors we will take a look at it the FY end or post Q1FY26.
  • We are almost there in terms of capacity from 2 years ago. We have put up less reactors and spent on adding for monomers.

• On Chinese competition:

  • Targeting: US markets. Chinese players can’t play here due to IRA compliance. We need to look out capacities outside China (for competition analysis perspective?).
  • We are strongly backward integrated till Fluorspar. Chinese capacities may not really impact us as they are not in value added (VA) segments.
  • Growth in FP is in VA (high value and high purity) segments.
  • We prefer to stay away from Chinese area of competition and get into high purity segments for areas like aerospace, EV, automotive, semiconductors – these have long approval cycles and customers will compensate us based on the value add we do.

• Plant in Oman: Free trade agreement (FTA) with US. Our focus is on the US market. Can’t disclose on constitutes – but its for battery in EV segment.

• Planning to save cost of energy by investing in Wind or solar power. Roughly savings will be to the tune of 100 cr over next 2-3 years.

• Mgmts. confidence on robust/firm growth in EBITDA is due to:

  • Customers indications; due to approvals they have in place.
  • Legacy players leaving a void.

(from Closing comments)

• FP: Quality of growth we are seeing in FP will be robust and stable going forward.
• EV: fundamentals are very strong; we are highly credible partners who can deliver on battery chemicals.
• Our supply chain is independent of China.