Gujarat Fluorochemicals Limited (FLUOROCHEM) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Gujarat Fluorochemicals Limited Q1 FY '27 Earnings Conference Call hosted by 360 ONE Capital Market Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Rohit Nagraj from 360 ONE Capital Private Limited. Thank you, and over to you, sir.

Thanks, Pari. We thank Gujarat Fluorochemicals management for providing us the opportunity to host their 1Q FY '27 conference call. We have with us Dr. Bir Kapoor, CEO and Deputy Managing Director, along with the senior members of the management team from Gujarat Fluorochemicals. I would like to hand over the call now to Dr. Bir sir for his opening remarks, post which we'll have a Q&A session. Thanks, and over to you, sir.

Thanks, Rohit. Good afternoon, everyone, and a very warm welcome to all of you for GFL's Quarter 1 FY '27 Earnings Call. For this call, I have with me my colleagues, Mr. Manoj Agrawal, who is CFO of GFL; Mr. Kapil Malhotra, who is Business Head of Fluoropolymers; and Mr. Rajiv Rao, who is the Business Head of Battery Materials. The company announced its quarter 1 FY '27 results at the Board meeting held today. The results, along with the earnings presentations are already available on the stock exchanges and on our website. I'll briefly take you through the key financial highlights, followed by an update on our business performance, demand environment and outlook. The global business environment remains challenging with ongoing supply chain disruptions, commodity price volatility and an increasingly complex operating landscape. At the same time, the businesses are adapting to these evolving conditions, creating both challenges and opportunities across market for us. Despite these specific -- market-specific challenges, GFL has delivered a strong start to FY '27. Healthy demand across key product categories, disciplined execution and improving operating leverage enabled us to deliver broad-based growth across our core chemical businesses. On a year-on-year basis, revenue from our Chemical segment increased 23% to INR 1,574 crores compared to INR 1,281 crores in quarter 1 FY '26. Chemical segment EBITDA grew 29% to INR 458 crores from INR 354 crores, while segment PAT increased 33%, INR 261 crores. This performance was primarily driven by strong growth in fluoropolymers and fluorochemical businesses. At the consolidated level, revenue from operations grew 24% year-on-year to INR 1,588 crores. EBITDA increased 24% to INR 428 crores, while consolidated PAT stood at INR 219 crores, representing 19% growth over the same period last year. Our performance was even stronger on a sequential basis. Within the Chemical segment, revenue grew 16% quarter-on-quarter to INR 1,574 crores, while EBITDA increased 30% to INR 458 crores. EBITDA margin improved from 26% in quarter 4 FY '26 to 19% (sic) [ 29% ] in quarter 1 FY '27, reflecting the benefits of higher volumes and improved product mix and operating leverage. Segment PAT increased 56% sequentially to INR 261 crores with PAT margins expanding from 12% to 17%. At the consolidated level, revenue increased 16% quarter-on-quarter to INR 1,588 crores, while EBITDA grew 39% to INR 428 crores. EBITDA margin also expanded from 22% to 27% and consolidated PAT more than doubled to INR 219 crores, resulting in a PAT margin improvement from 7% to 14%. We also continue to make progress on key return and efficiency metrices during the quarter. ROCE improved by 258 basis points to 16.6% in quarter 1 FY '27 compared to 14% in FY '26, while ROE improved by 301 basis points to 15.18% from 12.17% in FY '26. Our focus on working capital efficiency has also yielded strong results with working capital days reducing by 43 days to 149 days as of quarter 1 FY '27 compared to 192 days as of quarter 4 FY '26. These improvements reflect not only the segment strength of our operating performance, but also our continued focus on capital efficiency, cash generation and disciplined execution across the organization. Let me now take you through the performance and outlook of our key businesses. Starting with fluoropolymers, we continue to see encouraging demand trends across the portfolio, supported by improving volumes across fluoropolymers. The expansion of new age applications is creating attractive growth opportunities, particularly in areas such as semiconductors, data centers, electronics, automotive, green hydrogen and advanced industrial applications. We are also seeing a gradual improvement in product mix, supported by increasing contributions from higher-value trades. Reflecting these trends, fluoropolymer revenue grew 15% year-on-year and 8% sequentially during the quarter. This growth achieved despite a challenging global environment. Moving to fluorochemicals. The business delivered an exceptionally strong quarter. Revenue increased 52% on year-on-year and 44% quarter-on-quarter, driven primarily by R32 refrigerant sales, along with healthy growth across our refrigerant portfolio. As previously communicated, we are expanding our R32 capacity, which is expected to be commissioned in Q2 FY '27. With existing capacity utilization already at peak levels, this expansion will enhance our ability to participate in growing global R32 market and support future demand growth. In parallel, we continue to expand our refrigerant portfolio. Our R134A project remains on track and is expected to be commissioned in this financial year. Combined with our integrated manufacturing capabilities, established global marketing network and long-standing customer relationships, this will further strengthen our ability to serve growing refrigerant demand across both domestic and international markets. A more complete bouquet of products will enable us to leverage our strong brands that we built over the last 3 decades globally. Turning to bulk chemicals. The segment delivered a steady performance during the quarter with revenue increasing 11% year-on-year and 1% sequentially, primarily driven by improved realizations. Moving on to battery materials. We continue to make steady progress in building a differentiated and integrated platform. In LiPF6 salt, we are advancing both capacity expansion and customer commercialization efforts with leading global electrolyte manufacturers. In electrolytes, qualification activities and sample development with Indian cell manufacturers are also progressing well, supported by customer audits and plant visits. Across LFP cathode active materials and PVDF binders, our focus remains on product consistency, customer qualification and commercial scale-up. While these businesses are at different stage of qualification and commercialization, we remain encouraged by the long-term opportunity driven by growing EV adoption, increasing deployment of battery energy storage system and the ongoing localization of battery supply chain. As we look ahead, FY '27 is shaping up to be an important year in GFL's growth journey. Our established fluorochemical and fluoropolymer businesses continue to generate healthy growth and strong cash flows, while battery materials provide multiple avenues for the next phase of growth for GFL. Our priorities remain clear: executing our capacity expansion projects, deepening customer engagement, accelerating qualification and commercialization of new products and scaling our emerging platforms in line with market demand. At the same time, we remain committed to disciplined capital allocation and a strong focus on returns. While the external environment remains dynamic, we are confident in the underlying fundamentals of our business. With a diversified portfolio, integrated manufacturing capabilities, strong customer relationships and exposure to multiple long-term growth themes, we believe GFL is well positioned to deliver sustainable growth and create long-term value for all stakeholders. With that, I would like to thank all our stakeholders, customers, employees and partners for their continued support. We will now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Sanjesh from ICICI Securities.

A couple of questions from my side. First, on the fluoropolymer, a 15% growth is good, but I think there was a price increase also in the segment by some of our Chinese peers. Have we seen those price increases being taken by GFL as well? And what would be the blended price increase, if at all, we have taken?

Yes, Sanjesh, thank you for your question. I'm requesting Kapil to answer this question. Kapil, please.

Sanjesh, thanks for your question. See, first of all, we have been also making this commentary from last few quarters that we are trying to move up the value-added chain into the fluoropolymer products. And hence, we do not have much of a competition with Chinese people. And so our moving to the high value-added chain has given us these additional revenues and profit, which we are talking about. So Chinese were much anyway on a different scale of prices. So that doesn't -- we don't compete with them in those segments.

But the price increase, what has gone into commodity, equivalent doesn't show in specialty because the margins or probably the prices are already better in those segments. That's the way to look at it?

Yes, Sanjesh, so this is going to reflect in the subsequent quarters.

There is -- no, no, so I'm not getting it. So is there a price increase or there is no price increase?

There has been a marginal price increase to come back with whatever input prices have taken place. But however, whatever price increases, small, we have taken, it's going to reflect and the value-added products, which we have taken where we are going for newer applications, that will start reflecting in subsequent quarters also.

Got it. Got it. The second on the capacity expansion, which we also spoke in the previous quarter on the fluoropolymer side, Kapil. Where are the opportunity we are seeing within the fluoropolymer? And what are the capacities are we looking at, probably product-wise, in this new wave of growth in the fluoropolymer side?

So Sanjesh, coming back to the opportunities, if you recall, we have always been saying that there are emerging opportunity from the sunrise sectors, whether these are batteries or semicon. So we'll be adding capacities going forward, mostly in new set of fluoropolymers, which we have categorized it earlier. So we will continue to add capacity, but specific, which we will focus on, I think I would like to keep that confidential from our standpoint. But there's a tremendous growth opportunity there, Sanjesh, okay? And as I had said it earlier also that we had put the capacities on new fluoropolymers, which is almost to the point of now getting fully utilized, so we'll be making investments in adding more capacities in these fluoropolymers, which will be catering to these new opportunities, okay? So clearly, wherever we'll be adding, it will all be at a very high-end product range.

So earlier, we were targeting a 20% kind of a growth. That's now visible for this year and the year after this?

Absolutely visible. Absolutely.

Got it. Second, on the ref gas side, now when is this R134 expected to get commercialized? And what is the revenue size we are looking at with this expanded base of capacity in the refrigerant gas for us?

Sanjesh, we are expecting to have this capacity by the end of this financial year. In fact, we are targeting earlier than that. We have not yet announced capacities yet because, as you know, we'll have -- because we have a refrigerant -- multiple products, it's a bouquet. And depending upon the product mix, we'll probably be going to the market. But we have not announced the capacity yet and probably next few quarters, we'll share that, okay?

Got it. Got it. One last on the battery chemical side. Where are we exactly in the cycle of commercial supplies? Because right now, what we see is a INR 20 crores, INR 30 crores of revenue, while the capacity, what we have put, appears to be a much larger capacity. So when are we looking or expecting a step-up jump in the revenue from the battery chemical side? And what are the segments which will contribute to this growth?

So let me take step by step, okay? What we have always stated is that we are -- initially, we build certain capacities for qualifications and then subsequently, capacity addition is done to grow. And if we talk about the significant growth, we probably will be seeing towards the end of this financial year and FY '28, okay? You'll see a significant traction because the capacity that we have added, if you look at our gross block, which has been capitalized, is still not that very large, okay? While we are making investment in terms of building capacity, but the capacity which has come on ground and which are actually being commercialized is still -- because there's a long gestation period in building and setting up capacities, okay? So to answer your question, we'll see a ramp-up. In fact, unfortunately, the numbers -- this quarter also, we had dispatches, but because some of them are not reflecting in our revenue numbers because those are all CIF terms, so they will probably reflect in the next quarter. And so the journey will continue. You will see significant growth quarter-by-quarter in the revenue as we go along. Clearly, the first and the foremost in this is growth in LiPF6, which we started very early, if you recall, and that now has almost finished qualification, it's going through its growth phase. The second one is LFP and PVDF. PVDF is very close to getting finalized, its qualification. We'll see revenue coming from it. And finally, the cathode active material, I think that will -- probably we'll see maybe towards the end of this financial year. But the full potential, if you're talking about the investment that we are making, it will start reflecting from FY '28 onwards and -- because there is almost a 1.5 year, I can say, in stabilization and getting the qualification done. This is the nature of this industry.

And will that same apply for the incremental INR 2,300 crores of CapEx or that ramp-up will be faster because the qualification round is over?

That is expected to be faster, Sanjesh, because once we have qualified, so the initial plan is for qualification, stabilization, establishing our supply chain and credibility with the customer. And then the next phase is -- because the batteries market itself has a strong growth potential, okay? And initially, we were talking globally, and we were talking about reaching almost 1,800 gigawatt hour by 2030. But now when we look at our domestic market itself, domestic market also, we are -- because of the -- driven by -- primarily by BESS, is almost looking at 220 to 250 gigawatt hour by 2030. So we are seeing a huge market potential, which I think we will capture as we go along primarily in '28, '29. And of course, that is much faster than the rate that we have seen now so far.

[Operator Instructions] The next question is from the line of Arun from Avendus Spark.

Sir, my first question is on the 134A plant announcement. Earlier in the call, you said that capacity had not been announced, but in our late June filing, we have indicated we are going to add on 134A capacity. Can you just clarify this point, please, first?

Arun, capacity, we have not announced yet, okay? But we will have -- whatever our plans are, we will have this capacity by this financial year. That's what we have stated. And that's what I think we said in our -- the release also, the press release or what we communicated earlier. So 134A, we are setting up the capacity. And just to -- I think we have said this last time also that with these, we'll probably be utilizing our entire entitlement quota with R32,134A, R22, R125. So we have a very large bouquet of products that we'll have by the end of this financial year to offer to our customers.

What is the reason for entering 134A so late in our journey into the HFCs? Is it [indiscernible] that the quotas will be allocated on a pro rata basis on the capacity held by the players? Is that the basic push?

No. The decision is the strong market opportunity that it faces. And I think as you know, that refrigerants towards end of their cycle, it becomes a valuable business proposition. So we see an opportunity in getting into 134A for multiple reasons. And of course, these are -- some of them are strategic reasons which I cannot share. But we think it's a wonderful opportunity to be there. It's a space where the supply in the future would be restricted. We do not see several other supplies coming in. And demand is -- will continue to be there. It's a robust demand and the alternate to 134A are HFOs, which are -- which has a very high price point. So we see a strong market potential and opportunity for us to be there.

All right, fine. Understood. Secondly, [Audio Gap] in our new capacity...

Arun, we lost around 10 seconds. Could you repeat your question, please?

Right, sir. I was talking about the fluoropolymer business. Now that we are very close to our utilization levels, and so till we get our new capacities in place, probably in a year or so, our growth in this segment will be largely dependent only on the pricing-related actions that we will be taking? So we should not expect any volume growth or any mix change-led growth?

I'll request Kapil to take this, Arun. Please, Kapil.

Arun, it's a combination of both: price realization as well as some of the debottlenecking, which we keep on doing to enhance our capacities to match the market requirements. So that keeps on happening in these products, which is happening now also.

Any time line for the capacity debottlenecking?

It keeps on happening. Every second quarter, we keep on debottlenecking whenever we see that we are reaching our capacity utilization, then we balance our capacities accordingly to the market requirement. It's a continuous process.

Understood. One bookkeeping question to Manoj. We are seeing the difference between [Audio Gap] is increasing on a sequential [Audio Gap] growth.

Arun, could you -- again, your voice is breaking. Could you come up again? Manoj is here with me. Further question for Manoj, please?

Yes. The difference between the stand-alone and consol is increasing much higher than the EV segment top line growth. Is there anything else which is contributing to this increase?

No. See, stand-alone and consol also reflects our GFL EV, GFL USA LLC and GFL GmbH, where we do all our polymer business that are routed through the Germany subsidiary and the U.S. subsidiary. So that business doesn't reflect in the stand-alone, whereas in the consol business, it comes. That is also the reason, not only the EV.

Okay. But why in last 2 quarters, this is increasing, especially if it is coming from only fluoropolymer business?

Last quarter -- this quarter, that -- some of the CIF consignments were there and GIC earlier, which we have booked in Germany and LLC, instead of that, we have booked in stand-alone itself -- reversed in the stand-alone itself. So the gap between stand-alone and consol is higher on account of that.

The next question is from the line of Preet Jain from Niveshaay Investments.

Congratulations on good set of numbers. Basically, sir, I wanted to know on your R32 side expansion. So are you planning for any additional HF expansion on your side or AHF expansion on your side? Because R32 has immense demand, and your competitors are also increasing the capacity for R32, so are you planning for any additional R32 or additional backward integration HF plant?

Yes. I think we mentioned that last time as well, Preet, that we will be adding AHF capacities because as we are growing -- adding capacities in R32 as well as 134A, it will require, I mean, significant AHF for these refrigerants. And AHF is also required for our other products as well. So we will be adding capacity, and we have already announced that, I think, that capacity...

By what time that will be live?

It will be in different phases. The first set of capacities will be there probably by the end of this year or the third quarter. And then subsequently, every quarter, some capacity will be added because it will be matched with our refrigerant capacity being added.

And you will not sell HF or AHF outside, you will only use for internal purpose only.

Right now, our aim is to look at the captive because that's our purpose at the moment.

Okay. And one more question on the quota side. So the BESS players which are there will definitely get quota. But will the new players get quota or will we only gain quota? Can you give some clarity on that side? So the existing players which have produced R22 will get quota or will new players also be able to get quota from us or they will also able to participate? Because R32 has massive demand and supply is currently limited, if new players are not given quota -- because any new capacity is not coming.

So of course, I cannot comment on the -- who will get quota or not because that's a decision which is not resting with us. But all we can say is that the past precedents indicate that this is given based on the baseline, okay? There is a formula which is there. So we -- from our side, we know what is our entitlement and our expansion plan is based on that we will be utilizing at least whatever our entitlement is based on the GWP number that we have. And the formula you are already aware of. There were 2 components to it. So I cannot really comment on who in the new player will get quota or not because that's a decision which is resting with somewhere else. However, from our side, we are already adding capacities based on what we think is our entitlement based on the past precedents.

The next question is from the line of [ Omkar ] from Motilal Oswal Financial Services Limited.

I had a question on CapEx. So out of this CWIP of INR 1,900 crores, how much is expected to get capitalized in FY '27?

I think we'll probably -- we expect -- right now, our gross block is around INR 836 crores. And because the capitalization happens on -- there are 2 triggers to it, okay? The first trigger, of course, is when we start the plant. And second is when the plant is giving its product based on what the intent is for it to produce, which means it gets the right quality or so, okay? So while mechanical completion of the plant is in our hand, the quality stabilization often varies from plant to plant. But we expect, by the end of this year, these numbers to be around INR 1,200 crores.

So this would be the CWIP amount you're talking about?

Which amount? I'm sorry?

Capital work in progress, INR 1,200 crores?

Right. Right. Right.

So this will be inclusive of this INR 3,000 crores of CapEx also, right, which will be incurred in FY '27?

That will be added further, [ Omkar ], because, see, we have a plan of adding total what we have announced is INR 6,000 crores, okay? So today, there are certain CapEx which we have already capitalized, which is reflecting in our gross block, then we have CWIP. And then we have a plan to add more CapEx, as I had announced in the last quarter call, in next 2 years, okay? So this year, our CapEx spending plan in EV is INR 2,300 crores and in our chemical business, it's approximately INR 800 crores. That's what we had said earlier. And we are holding on to that CapEx plan as of now.

And what was the capitalization for these 2 CapEx?

Capitalization for these 2 will come later on because we also have CWIP from -- at this point from the earlier years, which will get capitalized going forward in this year because the CapEx spending and capitalization, there is a lag, as I indicated earlier, okay?

The next question is from the line of [ Tejas ] from [ Ansec ] Human Resources Private Limited.

Firstly, we had indicated about the CapEx of close to $216 million in Oman for setting up a battery materials project. So just wanted to understand what is the status of this project?

Yes. The Oman project right now, we have put on hold, okay? And we are -- in fact, what we are doing is that those CapEx is now -- we are bringing it to India and planning to add those capacities in India. And there are multiple reasons for it. There have been certain, of course, geopolitical reasons, which was causing certain delays in our project. And in view of that, we decided to move those capacities to India so that we can move faster and meet the customer commitment that we have given, okay? So Oman, I think, project, of course, we'll come back to it. But as of now, we have put that on hold.

Got it. But there was -- related to the Oman project, there was a funding of close to INR 1,200 crores, which was also expected to come from OIA. So with now the project shifting to India, does this funding round also get sort of canceled?

Yes, at least the funding that was from a sovereign fund that we had said earlier specific to the Oman project, that was approved for that particular project. So when we bring it to India, we will have to look at the separate funding, and we have those things in place. So I think we will -- but those funding, we'll not be taking for the Oman project. Those are again also on hold. Those are already approved, and we have it. But since we have relocated the project as of now to India, those -- at least the funding that was approved for the Oman project would not be available for the India project.