After gaining 97.58 percent from a low of ₹2,112 apiece hit on May 12 to an all-time high of ₹4,173 on October 6, 2022, shares of Gujarat Fluorochemicals have been witnessing a downtrend, with the stock declining 11 percent in the last one month.
At this current juncture, the stock offers a good entry point, said ICICI Securities in its latest equity research report.
“The stock has traded at a reasonable P/E valuation of 19.5x FY24E and 13.2x FY24E EV/EBITDA, which makes the stock the most affordable Indian fluorine player by valuation,” the brokerage said.
Gujarat Fluorochemicals is a part of the INOX GFL Group. The company is a leading producer of fluoropolymers, fluoro-specialities, refrigerants, and chemicals for applications in various industries. The company caters to both domestic and international markets.
In the last three years, the stock has gained 423.16 percent, climbing from ₹600.50 apiece to the current level of ₹3,139.
The brokerage stated that the stock is among its top pick in the specialty chemical sector and retained its "buy" call on the stock with an unchanged target price of ₹4,270 apiece, which indicates a 40.50 percent increase over the stock's previous closing price.
The company offers a strong net profit CAGR of 41 percent over FY22-24E, and return ratios are healthy, with post-tax ROCE at 21 percent and ROE at 25.6 percent in FY24E, the brokerage noted.
Within fluorine chemistry, “we relatively prefer the fluoropolymers business as it is in a sweet spot to grow along with new-age industries such as batteries, solar panels, and green hydrogen,” said ICICI Securities.
"Integrated players are winning on reliability, and the rise in the cost of western peers is helping GFL expand margins," it added.
The new fluoropolymers export market has just opened up for GFL, as export revenue from new fluoropolymers has improved to ₹4.5 billion in FY23-TD compared to just ₹1 billion in FY20.
ICICI Securities noted that the new fluoropolymers will continue to grow exponentially for the next two years as GFL expands its new fluoropolymer capacity.
Meanwhile, earlier in July, brokerage firm Sharekhan stated that India’s specialty chemicals sector is well poised to capitalise on global tailwinds and expand its global market share to 7-8 percent in the next few years from 4 percent currently, mainly due to the China Plus One strategy.
Since China constitutes about 20 percent of the global speciality chemical industry ($800 billion), even a 5 percent shift in the market share from China to India can translate to an $8-billion opportunity for the Indian speciality chemical companies, the brokerage added.
On the fundamental side, the net profit of the company has been growing steadily over the last seven quarters. After posting a nearly 100 percent rise in its consolidated net profit for the first quarter of the current fiscal year, the company maintained the same momentum in the second quarter by posting a 74 percent YoY rise in the net profit to ₹361.2 crore compared to a net profit of ₹207.2 crore in the corresponding quarter of the last fiscal.
As per Trendlyne, the company's operating revenue of ₹1,485.6 crore in the September quarter was one of the highest in the industry.
Meanwhile, FIIs are bullish on the stock as they increased their stake to 5 percent in the September quarter from 3.4 percent in the September 2021 quarter. Promoters own 66.1 percent of the company, and retail shareholders hold 25 percent. In contrast, mutual funds owned 3.9 percent of GFL.
7 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.