Gujarat Fluorochemicals Limited — Q3 FY25 earnings call

Call held 29 Jan 2025

Management summary

Gujarat Fluorochemicals reported strong Q3 FY25 results, driven by improved fluoropolymer performance and a favorable product mix. The EV battery chemicals segment is poised for significant growth, backed by substantial capex. While higher depreciation and interest charges impacted PAT, the company expects these to reverse as EV revenues ramp up, and anticipates significant power cost savings from FY26.

Highlights

  • Revenue grew 16% YoY to ₹1,148 crores, driven by fluoropolymers and better product mix.

  • EBITDA increased 43% YoY to ₹294 crores, with EBITDA margin expanding to 26% from 21% in Q3 FY24.

  • Successful development and qualification of higher-grade fluoropolymers, with commercial sales expected from Q4 FY25.

  • EV battery chemicals business is ramping up significantly, supported by robust demand and large-scale battery manufacturing capacities.

  • Expected power cost reduction of 10-12% (approx. ₹100 crores) from next financial year due to new power purchase agreements.

Concerns

  • Fluoropolymer volumes declined QoQ due to year-end holidays in key export markets.

  • Commodity grade PTFE continued to face pricing pressures from low-cost suppliers from China.

  • PAT was impacted by higher depreciation and interest charges associated with significant capex deployment in the battery materials business.

Key financials

  1. Revenue ₹1,148 Cr +16%YoY
  2. EBITDA ₹294 Cr +43%YoY
  3. EBITDA Margin 26%
  4. PAT ₹126 Cr +58%YoY

What they filed

Q1 FY27: revenue up 10.9%, net profit up 8.6% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,199 1,123 1,158 1,174 1,131 −6%1,026 −9%1,211 +5%1,302 +11%
EBITDA298 307 287 333 360 +21%286 −7%335 +17%365 +10%
Net profit144 153 167 185 195 +35%127 −17%171 +2%201 +9%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex ₹6,000 Cr
    • Battery material business ₹6,000 Cr
    • R-32 capacity expansion (initial) ₹150 Cr
    • AHF capacity expansion
    • Salt production capacity expansion
    We are committed to our cumulative capex plan of INR6,000 crores by FY '28, as we had indicated earlier.
  • Liquidity Liquidity disclosed INR 1,000 crores raised earlier for EV capex; advanced stage discussions with sovereign funds for further funding.
    if you remember in the last quarter, we have told everyone about the INR1,000 crores raise that we have already done. So that money is very much available for, say, our capex for the period of next 12 months. We are also in the advanced stage of discussion with various large international sovereign funds.

Guidance & targets

Capacity

  • Fluoropolymers full capacity utilization Capacity · by end of FY '26 · High confidence Full capacity utilization
    we expect our full capacity utilization to be there by the end of FY '26, yes.

    — Bir Kapoor

  • R-32 capacity Capacity · High confidence 30,000 tons
    we are looking at almost setting up a capacity of 30,000 tons, okay?

    — Bir Kapoor

  • R-32 first phase operational Capacity · by end of Q4 FY '26 · High confidence 20,000 tons
    Initially, around 20,000 tons... By the end of maybe quarter 4 of next financial year, we'll probably be there.

    — Bir Kapoor

Market Dynamics

  • Fluorochemicals pricing and demand Market Dynamics · from Q4 FY '25 · High confidence Improved pricing and demand
    fluorochemicals will see improved pricing and demand from Q4 FY '25.

    — Bir Kapoor

Business Growth

  • EV Battery Material ramp-up Business Growth · going forward · High confidence Ramp up significantly
    The EV battery material business is expected to ramp up significantly going forward.

    — Bir Kapoor

Profitability

  • EV business asset turnover Profitability · at optimal utilization level · High confidence 2x
    At optimal utilization level, this business is expected to achieve around 2x asset turnover

    — Bir Kapoor

  • EV business EBITDA margins Profitability · at optimal utilization level · High confidence 25%
    and approximately 25% EBITDA margins.

    — Bir Kapoor

Cost Reduction

  • Power cost reduction Cost Reduction · from next financial year · High confidence 10-12%
    we expect a reduction of 10% to 12% reduction. That is around INR100 crores.

    — Manoj Agrawal

  • Weighted average power cost Cost Reduction · High confidence ₹4.5/unit
    the weighted average will be in the range of around INR4.5.

    — Akhil Jindal

  • Net savings from power purchase agreements Cost Reduction · High confidence ₹150 crores per year
    it would be in the range of around INR150 crores per year roughly.

    — Akhil Jindal

What to watch in Q4 FY25

Fluoropolymer commercial sales ramp-up

Q4 FY25 onwards
Current Qualifications received, awaiting commercial sales
Target Commercial sales starting

Why it matters

Indicates the realization of benefits from a competitor's exit and new product qualifications, driving revenue growth.

we expect now that into commercial sales in quarter 4 onwards.

Risks & concerns

  • Commodity PTFE pricing pressure from China

    medium

    Commodity grade PTFE continued to face pricing pressures from low-cost suppliers from China.

    Management acknowledged

  • Higher depreciation and interest charges impacting PAT

    medium

    Profitability continues to be impacted by higher depreciation and interest charges due to high capex deployment, but expected to reverse with EV revenue.

    Management acknowledged

  • Potential revocation of IRA subsidy in the US for EV

    medium

    Announcement of IRA subsidy potentially going away, but management confident in plans based on customer interactions, expecting minor impact.

    Analyst acknowledged

  • Muted MDC prices due to additional capacities in India

    low

    MDC prices improved during the quarter but are expected to be muted in the near term due to additional capacities being commissioned in India.

    Management acknowledged

Q&A highlights

6 direct, 1 evasive
Fluoropolymer growth post 3M plant shutdown and value-added grades commercialization. Direct
As we understand, the plant is shut down in December last year, which is December '24. So that is already shut. We have already gone through the qualifications on various grades. We have received qualifications, and we expect now that into commercial sales in quarter 4 onwards.

Clarifies the timeline for GFL to capitalize on the market opportunity created by a competitor's exit in value-added fluoropolymers, indicating a near-term revenue driver.

Asked by Sanjesh Jain

R-32 capacity addition, capex, and quota utilization given past hesitations and market dynamics. Direct
We are looking at investing in R-32 now because we see a business potential going forward. And our capacity plan, of course, will come into phases, but we are looking at almost setting up a capacity of 30,000 tons... By the end of maybe quarter 4 of next financial year, we'll probably be there.

Provides specific capacity and timeline for a new investment in the fluorochemicals segment, addressing past hesitations and current favorable market dynamics.

Asked by Sanjesh Jain

Impact of potential IRA subsidy changes in the US on GFL's EV capex plans and confidence. Partial
what gives us this confidence is our continuous interaction with our customers... based on their investment and their capacities, we fairly we have a visibility that at least in the next 3 to 5 years, the plan that we had given is going to be intact... There might be some minor impact because, of course, the subsidy, we'll have to wait and see what happens to the policies because these -- there are several policies, which are intricately they are closely linked, okay?

Addresses a significant macro risk to the EV business, indicating management's confidence based on customer interactions despite potential policy changes, but acknowledges minor impact.

Asked by Sanjesh Jain

Rationale for R-32 capex decision based on current pricing, and the risk of price volatility. Evasive
what we are our position right now is the price of R-32 going up is closely linked to certain quota reductions, okay? And there's a demand-supply situation, and we expect it to continue. That's what our projections are internal. And that's how we are taking the business decisions to invest in capex for this.

Analyst challenges management's timing for R-32 capex, questioning the sustainability of current high prices, and management reiterates internal projections without fully addressing the volatility concern.

Asked by Aatur

China's ban on critical tech/mineral export for EV and GFL's potential benefit as a non-Chinese supplier. Direct
as far as we are concerned today, we have LiPF6 plant set up. Our LFP plant would be set up in another several few weeks... So we are not that much concerned about that... if that is to come in picture and new plants were sets up in India also, GFL is going to be benefiting because we are everything... We have a first-mover advantage. We are far ahead.

Highlights GFL's strategic advantage and first-mover status in EV battery chemicals, positioning it to benefit from geopolitical shifts and supply chain diversification away from China.

Asked by Ketan Gandhi

Expansion of salt production capacity and its role in the EV ecosystem. Direct
we are doing, what we meant when we said we are going for the expansion because we initially started set up our salt plant, which is the minimum commercial scale capacity to establish the proof-of-concept... So everything is fine now. So we are adding multiples of that. And that is again based on the our business requirements and the contracts that we have with our customers to supply in the near future.

Confirms expansion of a critical raw material for EV battery chemicals, indicating progress in backward integration and customer-backed demand.

Asked by Dhruv Muchhal

Reason for fluoropolymer volume decline and drivers of gross margin improvement. Direct
the volume that we talked about is typically the seasonal impact because quarter 3... always been slightly lower because there is a holiday season in U.S... And when coming back to margin improvement, margin improvement is purely by product mix, as our overall fraction of our value-added products and the new polymers are increasing, the margins would keep on going up.

Clarifies that the QoQ volume decline in fluoropolymers was seasonal, while gross margin improvement was driven by a favorable product mix towards higher-value products.

Asked by Dhruv Muchhal

Quantification of power cost savings from new power purchase agreements. Direct
our power cost stood at around INR800 crores. So we expect a reduction of 10% to 12% reduction. That is around INR100 crores... net savings. I think just as a first cut, it would be in the range of around INR150 crores per year roughly.

Quantifies significant cost savings expected from renewable energy initiatives, which will positively impact profitability from the next financial year.

Asked by Hansal Thacker

2 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Gujarat Fluorochemicals Limited reported a robust Q3 FY25, with revenue from operations reaching INR 1,148 crores, marking a 16% increase year-on-year. EBITDA surged by 43% YoY to INR 294 crores, leading to an expanded EBITDA margin of 26%, up from 21% in the prior year. Consolidated PAT also demonstrated strong growth, increasing by 58% YoY to INR 126 crores, primarily driven by sustained improvements in the fluoropolymers vertical and a favorable product mix.

Fluoropolymers Business Outlook and Strategy

Fluoropolymer volumes experienced a quarter-on-quarter decline due to year-end holidays in key export markets, though prices remained stable. However, the company anticipates significant revenue and profitability growth from Q4 FY25 onwards, driven by the exit of a legacy player and successful qualification of higher-grade fluoropolymers. Full capacity utilization for fluoropolymers is targeted by the end of FY26, leveraging opportunities in automotive, semiconductors, and EV sectors.

Fluorochemicals and Speciality Chemicals Performance

The fluorochemicals segment saw improved pricing for R-22 refrigerant gas, with further pickup expected. While R-125 experienced seasonal weakness, both prices and volumes are projected to improve. The company is proceeding with a capex of INR 150 crores for R-32, aiming for 30,000 tons of capacity, with the first phase of 20,000 tons expected to be operational by Q4 FY26. Speciality Chemicals remained flat but are expected to see volume pickup from Q4 FY25, while MDC prices are anticipated to be muted due to new capacities in India.

EV Battery Chemicals Growth Strategy and Capex

The EV battery chemicals business is a key growth driver, with GFL positioning itself as a global supplier outside China. Demand is robust from both EV and ESS segments, supported by large-scale battery manufacturing capacities. The company is committed to a cumulative capex plan of INR 6,000 crores by FY28 for this segment, expecting to achieve approximately 2x asset turnover and 25% EBITDA margins at optimal utilization. INR 1,000 crores have already been raised for EV capex, with further discussions underway with sovereign funds.

Capital Expenditure and Funding

GFL's strategic capex plan includes INR 6,000 crores for the battery materials business by FY28. This encompasses an initial INR 150 crores for R-32 capacity expansion to 30,000 tons, with the first phase of 20,000 tons expected by Q4 FY26. The company is also expanding its salt production capacity based on customer requirements. While high capex deployment currently impacts PAT through increased depreciation and interest, this is expected to reverse as EV revenue contributions begin.

Power Cost Optimization Initiatives

The company anticipates significant cost savings from its power optimization initiatives. By aggregating its wind assets, GFL expects a 10-12% reduction in power costs, translating to approximately INR 100 crores in savings from the next financial year. The weighted average power cost is projected to be around INR 4.5 per unit, leading to net savings of approximately INR 150 crores per year from the new power purchase agreements.

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