Investments in new ventures & high growth potential in the coming years

Moneylife Digital Team

Gujarat Fluorochemicals Ltd (GFL) operates in two business segments—chemicals and power. In the power segment, GFL has built a capacity of over 65MW and plans to scale up to over 2,000MW over the next three years. The chemicals business includes products such as refrigerant gases, anhydrous hydrochloric acid, caustic soda, chloromethane, polytetrafluoroethylene (PTFE) and post-treated PTFE.  

GFL is the preferred supplier of refrigerants to all the major OEMs (original equipment manufacturers) in the air-conditioning and refrigeration sectors. PTFE is an advanced engineering polymer with multiple applications across industries due to its chemical resistance, heat resistance, insulation, low friction and non-sticking properties. The company has set up a chemicals complex at Dahej (Gujarat). GFL’s subsidiary companies include Inox Leisure Ltd, which runs 26 multiplex cinema theatres across 21 cities. Another subsidiary, Inox Wind, has manufacturing facilities to build wind turbines at Una (Himachal Pradesh) and Bawla (Gujarat). GFL also has a joint venture interest of 33.77% in Xuancheng Heng Yuan Chemical Technology Company Ltd, China. The JV company manufactures anhydrous hydrogen fluoride and allied products.

For the financial year ended 31 March 2011, the company’s standalone net profit fell 21% to Rs263.63 crore. Segment-wise, standalone revenues from the chemicals division stood at Rs981.55 crore for FY10-11, a growth of 9.75%. During the same period, revenues from the power division declined 8.58% to Rs218.70 crore. For FY10-11, the company’s standalone revenues increased 6% to Rs1,264.92 crore and its consolidated net profit decreased 22.73% to Rs270.54 crore from Rs350.11 crore for FY09-10. The company has paid an interim dividend of Re1 per share and has recommended a final dividend of Rs2.50 per share (250%). For FY10-11, the company has commissioned 2x18.5MW combined circle gas turbine for the Dahej complex. The company has also enhanced the capacity of its caustic alkali plant from 150MT in July 2010 to 335MT in December 2010. For the June 2011 quarter, net profit zoomed 280% to Rs159.59 crore, compared to Rs41.96 crore for the corresponding period last year. In the same period, segment-wise revenues from the chemicals division surged 241.59% to Rs504.25 crore, but revenues from the power division fell 32% to Rs51.31 crore.

According to the company, the wind energy business in India is still nascent and there is a good opportunity for creating value by identifying viable sites, cost-effective equipment manufacturing strategy and raising capital efficiently. The key threat in this business is increasing costs, due to supply constraints of components, wind uncertainty and regulatory restrictions leading to inability to sell the power generated at viable tariffs. Over the past five quarters, GFL has reported an average growth in revenues and operating profit of 38% and 63%, respectively. Its average operating margin is 35% and return on net worth is 15%. Its market-cap to revenues is 2.79, while its market-cap to operating profit is 5.71 times. The stock is an attractive buy at the current market price.