Gujarat Fluorochemicals Stock Surges 17% After Extended Decline

Gujarat Fluorochemicals has experienced a significant recovery in its share price, rebounding from a five-month slump. As of September 23, 2023, the stock surged by 1% during intraday trading, reaching a four-month high of ₹ 3,928 per share. This increase marks the fifth consecutive session of gains, with an overall rise of 17.5% over the past 12 trading days. The stock’s performance in September alone has seen a notable increase of 14.23%, providing a welcome relief for investors following a prolonged downturn.

The recent positive trend in Gujarat Fluorochemicals’ shares is largely attributed to the improved outlook for fluoropolymers, particularly due to the imposition of an anti-dumping duty on imports of polytetrafluoroethylene (PTFE) from countries such as China and Russia. The Directorate General of Trade Remedies (DGTR) has recommended this duty for a period of five years, which is expected to benefit Gujarat Fluorochemicals, as the company controls approximately 40–45% of the domestic PTFE market.

Despite this encouraging news, analysts from JM Financial caution that the company’s momentum may face challenges. They highlight that increased competition in the market could limit the positive impact of the anti-dumping duty. In FY25, Gujarat Fluorochemicals operated at 70–72% of its PTFE production capacity, equating to sales of around 17,000–18,000 tonnes, with domestic sales estimated at 20-25% of that total.

Gujarat Fluorochemicals faces competition from SRF, which has a PTFE capacity of about 5,000 tonnes but has been operating at only 50% capacity. This means that SRF’s sales in FY25 were around 1,400–1,800 tonnes. As SRF ramps up its production, the competitive landscape for Gujarat Fluorochemicals may become more challenging, potentially reducing the gains expected from the anti-dumping duty.

According to JM Financial, if Gujarat Fluorochemicals receives a benefit of approximately USD 3–3.5 per kilogram on around 3,000 tonnes of sales, the company could see an additional revenue increase of ₹ 800 crore to ₹ 1,000 crore. The brokerage predicts an additional EBITDA benefit of ₹ 38 crore in FY26E, ₹ 88 crore in FY27E, and ₹ 110 crore in FY28E. These projections have led JM Financial to raise its EBITDA estimates for FY26–28 by about 3–4% and its earnings per share (EPS) estimates by 4–7%. They now forecast a compound annual growth rate (CAGR) of 29% in EBITDA and 30% in EPS over the period from FY25 to FY28E.

Based on these revisions, the target price for Gujarat Fluorochemicals has been updated to ₹ 3,780, an increase from the previous target of ₹ 3,645. Nevertheless, the brokerage notes that a portion of the projected EBITDA for FY27–28, estimated at around 6–14%, is expected to derive from EV battery chemicals, an area that may experience delays in ramp-up.

Additionally, a recent fire incident at one of Gujarat Fluorochemicals’ plants could further impact its earnings. Given these uncertainties, JM Financial has downgraded the stock rating from Hold to Reduce, indicating that the stock is likely to remain range-bound in the near term.

Investors are advised to approach this situation with caution. While the recent surge in share price is promising, the potential risks and market dynamics warrant careful consideration before making investment decisions. This analysis serves as a reminder for investors to consult certified experts when evaluating their options in the stock market.