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Sunday, January 8, 2012

Gujarat Fluorochemicals - a long term bet



Company profile
Inox Group
Major Companies
(1)     Gujarat Fluorochemicals Ltd.
(2)     Inox Airproducts Ltd.
(3)     Inox India Ltd.
(4)     Inox Leisure Ltd.

Incorporated in the year 1987 GFL belongs to $2 billion Inox group having interest in industrial gases, refrigerants, chemicals, carbon credits, cryogenic engineering, renewable energy and entertainment.
GFL operates India’s largest PTFE (Poly Tetra Fluoro Ethylene-the engineering plastic) and refrigerant plants. The company is largest and most competitive producer of the refrigerant gas- HCFC22 in India. GFL has the largest and most efficient refrigerant plant in India.
HCFC22 is a refrigerant gas cum a feedstock for making PTFE and almost half of what the company produces gets consumed at its Dahej plant in Gujarat for production of PTFE.  Almost 90% of the remaining half of the HCFC22 produced is exported to 75 countries.


GFL products
1.       PTFE(A.K.A. engineering plastic)
2.       Refrigerants(HCFC22)
3.       Chemicals(caustic soda, various acids etc)
4.       Carbon trading

                                                                                                                                                         
GFL’s Subsidies
·         Inox Wind Limited (IWL)
·         Inox Renewable Limited (IRL)


GFL Plants
Products
Dahej Plant Gujarat
Caustic soda, chlorine, Chloromethane, PTFE
Una Himachal Pradesh & Bawla Gujarat
Wind turbines


Shareholding pattern


Financial Analysis #
Parameter
Value
EPS
24 Rs.
Book Value
159.1 Rs.
Price to Earnings Multiple (P/E)
16.3 Rs.
Price to Book Value(P/B)
2.5 Rs.
Return on Equity (ROE)
15.1
Return on Capital Employed (ROCE)
14
M-Cap/Sales (or Price/Sales per Share)
4.2
Debt/M-Cap
.1
Current Ratio
1.6
Debt/Equity
.3
Inventory Turnover Ratio
5.67
Interest Cover
10.2
Asset Turnover Ratio
.4
Net Profit Margin
26%
Dividend Yield
.89%

# Calculations at the price of 390 Rs. as on 6//1/2012
# Financial data used FY 2010-2011
#standalone results considered

Financial status of the company is quite stable. Despite belonging to capital intensive sector it has efficiently contained its debt and satisfactory ‘interest cover’ indicates absence of any problems in paying interest on debts. GFL gives a return of 15% on shareholder’s equity and which is quite good. Current ratio of 1.6 indicates ample liquidity in short to medium term. Price of the share is 4-times of its ‘sales per share’ and is justified. NPM of 26 % is quite robust.
Only negative thing was the negative profit CAGR of last 3- years which indicates company’s net profit decreased over years. Financials of the company shall remain under pressure in FY 11-12 and fair price of the share should be around Rs. 290.

Inference
The company’s profitability is supposed to increase at the rate of 5 per cent over years to come with rising price of HCFC gas but cheaper gas manufacturers from China poses as the major threat. Company earns the handsome revenue by selling the carbon credits to European buyers.
Fair price of the share is around Rs. 300 but investors may start accumulating the share at the current price level. In future interest rates are supposed to calm down with dwindling food inflation growth rate and the same shall be beneficial for companies like GFL. There are only four major manufacturers of refrigerant gases in India and GFL is the largest among those. The real threat is from Chinese competitors. GFL is supposed to deal with this competition with integration projects at its Dahej plant.

Disclaimer: Analysis is for the information purpose only. Though due diligence has been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of this report. 
                                                                                                                                   

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