Gujarat Fluorochemicals Limited (FLUOROCHEM) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to 2Q FY '26 Conference Call hosted by B&K Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rohit Nagraj from B&K Securities. Thank you, and over to you, sir.

Thanks, Manish. We thank the management of Gujarat Fluorochemicals Limited for providing us the opportunity to host the 2Q FY '26 post-results conference call. Today from the management, we have with us Dr. Bir Kapoor, the CEO and Deputy Managing Director of Gujarat Fluorochemicals. And along with him, the senior members of the management team. Without taking further time, I would like to hand over the call to Dr. Bir Kapoor for his initial remarks, post which we can proceed to Q&A session. Thanks, and over to you, sir.

Thank you, Rohit. Good afternoon, everyone, and a very warm welcome to all of you for GFL's Quarter 2 FY '26 Earnings Call. For this call, I have with me my colleagues, Mr. Akhil Jindal, who is Group CFO; Mr. Manoj Agrawal, who is CFO of GFL. And I also have with me Mr. Rajiv Rao, who is the Business Head of Battery Materials. The company announced its quarter 2 FY '26 results at its Board meeting held today. The results, along with earning presentations, are already available on the stock exchange and on our website. I'll briefly highlight the key financials and then give you an update on business operations and outlook. I'm pleased to share that we delivered a resilient performance amidst significant global challenges in quarter 2 FY '26, reflecting the inherent strength of our business. Revenue for the Chemicals segment for the quarter stood at INR 1,210 crores, increased by 2% on a year-on-year basis. The uncertainty emanating from the tariff imposed by U.S. impacted sales during the quarter, which we expect to see easing off going forward. EBITDA grew by 26% to INR 381 crores in quarter 2 FY '26 from INR 302 crores in quarter 2 FY '25. And EBITDA margin stood at 32%, expanding by 608 basis points on year-on-year basis. This improvement was driven by a better product mix and continued cost optimizations. Our EBITDA margins should further improve from the current levels on a long-term basis. The Chemicals segment reported a PAT of INR 198 crores, reflecting a 51% growth on a year-on-year basis. In our EV Materials business, expenses, interest and depreciation are being incurred, while revenue is expected to start flowing in from Q4 of this financial year. This will begin contributing to both the top line as well as the bottom line, improving the margins and profitability at consolidated levels. Let me now walk you through the performance of each business segments for the quarter. The Fluoropolymer segment revenue was up by 8% on a year-on-year basis. However, declined by 4% on a quarter-on-quarter basis. This was impacted due to imposition of higher U.S. tariffs. However, I believe that the second half of the year, especially Q4 and onwards, should witness significant pickup in sales. In our Fluorochemicals business, the revenue declined by 15% on year-on-year, mainly on account of reduction in sales of R22 to quota reduction and seasonality. Further, R125 sales also got impacted due to market conditions and U.S. tariffs. The Specialty Chemicals segment remained stable during the quarter and is expected to see steady improvement going forward. Our Bulk Chemicals segment saw increase in revenue, mainly due to higher prices of chloromethanes, while the quarter-on-quarter growth was supported by both price and volume increase in chloromethanes. In our Battery Materials business, LiPF6 prices have significantly moved upwards from around USD 10 per kg to USD 17 per kg, leading to a positive impact on our business outlook. We remain uniquely positioned as one of the only non-China integrated LiPF6 producers and are further expanding our capacities to capitalize on this opportunity. Our LFP CAM facility in India has been successfully commissioned. And post stabilization, we will begin sending samples for customer approvals from the commercial plant. The qualification process for our binders is progressing well, with commercial sales is expected to commence in the second half of calendar year '26. In electrolyte, we are actively engaging with emerging cell manufacturers across EV and BESS applications, supporting evaluations and qualifications through customized samples from our commercial plant. At GFCL EV, we are strategically positioned to emerge as a global leader in the battery materials space. With our established capacities, ongoing qualifications and early customer approvals, we have built a strong platform for growth. This marks a defining phase for our battery materials business and we remain confident in our ability to capitalize on the expanding global opportunity. The Battery Materials segment is very promising given the recent surge in demand for ESS, which only augments the demand from the EV space. Many growth drivers, the likes of data centers, AI, transition to renewable power are driving the demand manyfold for the best business in the coming years. Overall, we are well placed to capture growth across our business segments, largely driven by the surge in demand for Fluoropolymers, Battery Materials and R32. We remain confident of delivering sustained growth and creating long-term value for our stakeholders. Thank you. And I now open the floor for questions.

[Operator Instructions] Our first question comes from the line of Sanjesh Jain from ICICI Securities.

Few of them. First on the Fluoropolymer business in India. Now that there is an ADD on PTFE. How do you see competitive landscape in India? There's another competitor who has come in domestically. From that background, how do you see domestic business shaping up some player? And should that help in the second half of this year in terms of scaling of the Fluoropolymer business?

Okay. Do you want me to answer? Or you said you have several questions, you want -- shall I?

So I will ask one by one.

Okay. So thanks, Sanjesh. Now in Fluoropolymers, there has been anti-dumping duty has been recommended by DGTR. We expect it to be implemented. And that should have a positive impact on the business, okay? Because -- and we are very well positioned to capture it because we have a very wide range of grades in PTFE. And we expect to see a positive impact of it, okay? As far as competition is concerned, I think should not have much impact because of our large product portfolio in PTFE as well as the experience in the products that we have.

Perfect. Just one add-on to that. India is close to 7,000 metric ton of PTFE annually. How much of that are we say in FY '27, assuming that there is an excess production of [indiscernible]?

So we are quite -- Sanjesh, yes, we are quite positive about capturing a very large traction of this. Because of ADD, the imports are expected to go down and we expect to capture a very large percentage of that, I would say, upward of 50%, 60%.

So we have that kind of capacity in the PTFE [ proposals ]?

I'm sorry, can you come up again, please, Sanjesh?

Do we have such spare capacity to cater to the growing demand in the Russian market and the domestic demand?

Yes, we do have in PTFE because we have been -- see, we have, as I said earlier, also many times that we have a large capacity available in monomer. And in recent times, we are adding capacity on the polymer side as well. So I think we are well positioned to capture it.

Okay. Another question on the fluoropolymer. Given the first half performance, which appears to be much slower recovery than probably what we thought at the start of the year. Does it still hold on to the 25% for growth in fluoropolymer for FY '26?

We had guided earlier on 25%. So of course, there was a little bit of ripple, I would say, because of the global situation, particularly in the tariff situation in U.S. However, if adjusting for that tariff part, I think if I look at the rest of our product portfolio, I think we are geared toward achieving the 25%. And going forward, I mean, we have been trying to focus on multiple markets and trying to readjust to this reality of tariff. See, one of the things that has happened, Sanjesh, is that because of the tariff, the lot of decisions have been kept on hold because a lot of customers were expecting this to be reverted. So they actually put their buying decisions on hold. A lot of it has -- we expect to streamline going forward. So a few things. First from our side, we look at alternate markets and try to grow there. Second is that if there are indications that this tariff may go away, and that should give us a further tailwind in terms of going and seeking the target that we have been talking about.

Assuming if tariff stays, then for new fluoropolymers, U.S. will be a difficult market?

See, if the tariff stays, then obviously, in the U.S., PTFE is exempted, you know that. And the new fluoropolymer is the one which is impacted, but we would adjust partly to focus into other markets to grow. And we also believe that some of the decisions of our customers, which has been put on abeyance for now, will probably come into play.

One on R32. One, what is the overall take on safety? We have seen this incident happening quite frequently which is hampering business confidence, even customer confidence was shaken up. Are we tackling that? And just how we see ramp up because I think with all of this incident, [ staff ] costs slowed down. So what's our plan on R32? We were looking at 20,000 metric ton by December. And a related question is -- sorry, the related question is on the margin. What has given such a sharp improvement in gross margin? It went up from 67% to 72%. What explains such a sharp improvement in the margin?

Let me first answer the R32 question. The incident, of course, Sanjesh, is an unfortunate incident, which happened. Now, it doesn't change our plan. Yes, we are trying to learn from it, trying to strengthen our safety processes, safety systems. And as far as 20,000 tonne target is concerned, we had indicated that target by the end of this financial year, which is March. So we will achieve there. So right now, we are strengthening our plant system. We started at a very low capacity. So we are now looking at augmenting that capacity, strengthening the safety system. And coming back now, add the target capacity that we had planned, okay? So the plan of R32 still remains intact. There's not been any change in that, okay. Coming back to the margin improvements. We always guided that we'll probably be in the range of 30% or on the north of it. This time, there are multiple reasons. Of course, because of the product mix as we are going up in the value chain, value-added product mix is improving our margin. There's also been impact of the cost control which is driven by the multiple factors, including the power cost that also we had indicated that we are moving towards renewable, and we'll see more of it as we go along in the next few quarters. And finally, there has been some lift because of the currency and which we also expect to continue. So this margin improvement we see, and we expect it to be sustainable going forward.

Our next question comes from the line of Ankur from Axis Bank.

Continuing on the tariff side. So just trying to understand the ongoing situation better. So while the earlier tariff, as I understand, was largely passed through to your customers. How much of the revised incremental tariff has been passed on? Is it 100% or we have also absorbed some bit of it?

So Ankur, there are two things. First is when we talked last time in the last con call, that time 25% had happened. And it was a combination of pass-through, plus in some cases, we adjusted ourselves also. Now the second one, the discussions are all on. However, one of the things which is very different in the second one is that it has impacted, there's a ripple effect because there are -- it's not only in India, it's on multiple countries, different kind of tariffs. So because of that, there has been some sort of readjustments in terms of our customer supply chain as well. So because of that, there has been a delay in decision making. Now going forward, we expect this to be get adjusted, okay? In some cases, some part will be absorbed by the customer and some we will have to absorb, okay? So we are trying to find a new datum as we go along, but it's a very large jump in tariff, obviously and no one is prepared. But nevertheless, going forward, we expect some adjustments to happen in U.S. market with our customers. And in some cases, as I said earlier, that we look at focusing and developing some of the other markets where we can capitalize on opportunities. So there's a -- at global level, there's going to be some readjustment as it will happen, okay? Again, this is primarily in context of new fluoropolymers, Ankur, because PTFE is not really impacted by this.

Fair enough. Just trying to understand. Pre-tariff, will it be fair to say that U.S. will be making better margins in U.S. than, let's say, rest of the world within exports?

Pre-tariff, yes, I think so. I think pre-tariff, yes, because U.S. market, of course, is a good value, high-value market for us.

Sure. And now in the current scenario, which other markets are we focusing upon in terms of selling your products alternatively to those markets?

There are multiple opportunities because as I said earlier, some of the new fluoropolymers are in the A-space like semicon applications. And in case of there is an opportunity available in Japan, and Russia and some parts of Europe. I'm sorry, that's not Russia, Japan and Korea. I'm sorry. My bad, I'm sorry.

Sure. No worries. Fair enough. And second thing, on the LiPF pricing, which you alluded towards, $10 per kg increasing around $17. Any thoughts there in terms of, let's say, any firm contracts that we have with us in terms of the supplies for LiPF6? And at what pricing are we getting them incrementally?

Yes. Ankur, it could be difficult for me to talk about the contracts or the pricing, but let me tell you the context why this is such a -- see, so far, we have positioned ourselves as an alternate supply chain, and also delinking to some extent from the price which is prevailing in China. However, if the Chinese price itself goes up as what we said earlier, then our overall target markets and opportunity become very big for us, okay? And particularly, let's take an example of Indian customers, okay, who always have an opportunity to import from China, and that option is available for them. So in that context, now the price in China has gone up, then obviously, they are better of procuring it from a domestic supplier. So that opportunity opens up. Otherwise, buying from an alternate source always is a strategic decision. In view of these pricing, it's not only strategic, but it's also an economic decision. So that, I think, is it gives a certain lift and creates a much larger opportunity for LiPF6. Now coming back to the contracts. We have discussions going on with a very large number of customers globally. We have certain agreements in place. But right now, it's going through the qualification process, which takes some time. And as I said earlier, that we have reached the benchmark quality. And now the sample from the commercial plant is being tested by our customers, and they'll commence -- we expect the sales to commence very, very soon now.

Sure, Mr. Kapoor. And just one follow-up here. From a time line perspective, by when should we see, let's say, the first commercial sale happening here? And just next to it is like which geography is probably -- I'm sure we'll be looking at multiple markets, but probably which one or two geographies will be the bigger ones from your addressable target markets?

It should happen in first -- next few months, Ankur, as early as that because we are very, very close. And in terms of geographies, there are not that many places which manufacture battery. Of course, geographies are going to be mostly non-China. That's all I can say right now.

[Operator Instructions] Next question comes from the line of Archit Joshi from Nuvama Wealth Management Limited.

First question on the battery side of the business. Given that all three growth engines are in the EV product space are near to commissioning or, let's say, commissioned. And we might have all three lines open for doing business, let's say, in the second half fully of the next calendar year. Any number that we might be working with here as to what we might achieve in FY '27 in revenue terms?

At this point of time, I think we had given a very broad number earlier, Archit, if you remember, primarily based on asset turnover and investments. It would be very difficult for me to give a very specific number as it's a business which is in developing stage. This is a new business with a very, very high potential. It's a great opportunity and there will be some time to build up this business. But at the end, we expect this to be at a full blown, the number that I had indicated earlier, with the asset turnover of close to 2 plus with the healthy margins. Rajiv, do you want to add anything? Alright. But let me tell you that now what we have achieved is very unique. We have commercial plant now in LiPF6. Our commercial plant now is in operating LFP. I think it's the first LFP plant in India and it's the first commercial plant, which is, in a way, outside China, which is operated by non-Chinese entity. So I think that's -- and also our electrolyte plant is now in operation. So now the process is that is to develop samples, which are commercial samples, and go through the qualifications. Unfortunately, in Battery Materials business, the qualification takes time because there are a lot -- number of steps. And also, apart from the qualification is not only on the product but also on our audits on our manufacturing capability, our quality control, et cetra, et cetera. So it's an elaborate process that we have to go through.

Understood, sir. Getting a little more nuance here, given that we've seen some delays in battery manufacturers in India, there has seen some delays in the ramp-up of our gigawatt factories. Are we targeting more export markets in the beginning? Would it be fair to assume that our business mix will be oriented slightly more on the export side to begin with?

I'll let Mr. Rajiv Rao answer that. Rajiv, please go ahead.

Yes. So we are looking at global markets outside of China. So our initial business would be focusing on export markets for our products. And as they sell factories in India kicking in the next calendar year, then slowly the Indian part of business will start increasing as a percentage of our overall sales.

And that was, Archit, always our plan. When we started this business, we knew that the Indian demand would take some time to develop. So that's why our focus primarily was export market, and we have tremendous experience and expertise in handling export market through our experience in fluoropolymers. So we started -- that has been the plan, and that's what we are following up at the moment.

Sure, sir. A bit more on the CapEx front, if I may. I think you've done INR 575 crores last year. This year is projected with INR 1,200 crores in EV. One is how much would have been done in the first half? And any number for FY '27 within EV in terms of CapEx and where would it flow into -- in which of the three areas that you would target doing the CapEx in FY '27?

See, the CapEx that we had planned on EV, I think, is progressing well, and we'll give you a better estimate probably the end of next quarter. But the focus, of course, has been on -- primarily on the cathode and the salt side because those are capital intensive, and that's what our focus area is to expand on those product lines.

Sir, on FY '27, could we have a ballpark number to work with?

So we have not given that guidance yet, but it will be probably be higher than INR 1,200 crores, maybe more like INR 1,500 crores approximately. Because what we had indicated earlier, Archit, is that we'll be doing close to INR 6,000 crores of CapEx in 4 to 5 years. So we'll follow up that plan. So next year would probably be almost close to INR 1,500 crores, maybe higher. We'll give you a better indication probably in our next call.

Our next question comes from the line of Dhavan Shah from AlfAccurate Advisors.

So my question is on the gross margin side for the standalone business. If I look at the quarter-on-quarter revenue, I think there has been decline for both Fluoropolymers and Chemicals segment. And also you mentioned that during the quarter, I think you supplied the new fluoropolymers for the semicon. So is it fair to assume that because of that changes in the product mix, we have seen the gross margin improvement on the quarter-on-quarter basis?

Yes, Dhavan. It's one of the reasons. We already have stated that earlier that there are multiple factors, which is driving it. One, of course, was the product mix, higher value product that as it becomes part of our product mix leads to better margin. And of course, there has been an improvement on the cost side as well, primarily driven by the cost of power.

Understood. And going forward...

Value-added product, yes. That has always been, and we stated in previous calls as well that our approach has been to slowly increase or improve our product portfolio for high value-added products and then improve the margin. And this journey, we expect to continue.

Understood. So this is a minimum gross margin we can expect in the next few quarters at least because the scale would also be improved for the new fluoropolymers and then your additional 10,000 tonnes of R32 can also come on stream. So is it fair to assume that the Q2 gross margin is the minimum that you can maintain over the next few quarters?

Yes. I think it will be better than what we have, and I would expect it to grow further. Yes.

Understood. And what is the status of the 10,000 tons of R32 right now after the fire? Is it more or less on stream? And by when are you going to start the production?

We said that it's going to be 20,000 tonnes because that was our target by the end of this financial year, and we are on target. And because of the incident, yes, it gives us an opportunity to revisit and strengthen our plan from the safety side. And it also gives us an opportunity to augment our capacity and whatever -- wherever we thought there's a work required to reach to the 20,000 tonnes, we have done that. We expect the plant to start probably by the end of this month.

Sure, sir. And the last one is on the battery CapEx. You mentioned that maybe next year, we can do roughly INR 1,500-odd crores of the CapEx, that is at the Indian site. But what are the funding plans over there? How are we going to fund, and by when can we see the another round of funding?

Yes, Dhavan. I'll request Akhil to take that.

Yes. So we are fully funded up till now for the CapEx that we have incurred. In fact, we have almost another INR 200 crores of term loan that is yet to be drawn. And all the figures are as of 1st of October. So that is being utilized for the further funding. Thus, we are expecting to close on the -- for the sovereign fund that we discussed with you last time. So we are fully funded for another up to $125 million, which would be incurred over next, say, 6 to 9 months, perhaps a year. So we'll be raising money as and when we need rather than just keeping the money and putting it into treasury. So that's the, I guess, the funding will follow the CapEx need of the company.

Understood, sir. And will there be any dilution -- equity dilution in the battery business going forth?

At this juncture, there won't be any dilution. But of course, as and when the funding is done, that time, we'll come back to you in terms of the exact proportion and ratios. Most of them are convertible instruments. So we would not see any dilution happening now. But perhaps, just before the IPO or at the time of IPO, there would be some dilution. But we'll give you the detail as and when the fundings are frozen and the documents are signed accordingly.

Our next question comes from the line of Krishan Parwani from JM Financial.

Two questions from my side. First, on the Battery Chemicals business. So do you expect EBIT breakeven in FY '27 and if not in F '27, then by when?

Yes, I think we expect it to happen in FY '27. We should be able to reach that breakout point, yes.

Okay. I mean, on EBIT, not on EBITDA, correct?

Yes.

Great. And second, on the ref gas, do you intend to increase your R32 capacity beyond 20 KTPA that you have already announced to utilize your R-22 co-entitlement?

Yes, our plan is to maximize and take up to the level of our entitlement.

By when can we expect that?

I think we'll take that call probably a quarter from now once we commission or stabilize and commission our 20,000 tonnes.