Gujarat Fluorochemicals Equity Research

Date of Research – 18 January 2016

Price – Rs. 470.00

About the Company

Gujarat Fluorochemicals Limited (“GFL” or the “Company”) commenced commercial operations in 1989. Gujarat Fluorochemicals is a part of the $2 billion INOX Group of Companies. INOX is a family owned, professionally managed business group, with interests in diverse businesses including industrial gases, refrigerants, chemicals, carbon credits, cryogenic engineering, renewable energy and entertainment.

Refrigerant Business: Around 95% of Company’s refrigerant production is exported to more than 75 countries across the globe. Domestically, Gujarat Fluorochemicals is the preferred supplier of refrigerants to all the major OEMs in the air-conditioning and refrigeration sector. Chemicals Business: It combines chemistry and innovation to address diverse needs of industry. The Company has a well-established diverse portfolio of chemicals catering to a broad range of industries. Entertainment Business: Owns and operates an entertainment business through INOX Leisure Limited.

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations3,166.413,451.545,340.817,198.67 6,392.95 
Expenses2,149.182,853.394,305.805,896.09  5,212.88  
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)1,017.23598.151,035.011,302.58  1,180.07  
Depreciation170.66200.44284.75327.53  348.70  
Finance Costs132.02178.92218.77232.28  278.99  
Other income31.2945.4149.8185.02  91.61  
Exceptional items(244.33)4.96  200.82  
PBT745.84264.20825.63822.83  443.17  
Tax193.6737.64158.53224.13  226.90  
PAT (before Minority Interest and share of Associates)552.17226.56667.10598.70  216.27  
Profit/ (loss) attributable to Minority Interest8.8144.5781.86204.84  – 
Share of profit / (loss) of Associates(4.11)– 1.75  
Consolidated Profit / (Loss) for the year543.36186.10585.24393.86  214.52  

Profitability Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Operating Profit Margin Ratio32.1317.3319.3818.09  18.46
Net Profit Margin Ratio17.446.5612.498.32  3.38

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Share Capital10.9910.9910.9910.9910.99 
Reserves & Surplus2,707.062,707.063,285.994,224.274,485.42 
Net worth (shareholders funds)2,718.052,718.053,296.974,235.264,496.40 
Minority Interest153.41153.41261.62849.25973.54 
Long term borrowings895.741,387.281,247.251,136.761,062.51 
Current liabilities1,233.73840.561,973.432,796.523,737.44 
Other long term liabilities and provisions14.8365.4566.2952.8659.87 
Deferred Tax Liabilities168.48252.37315.22348.12 
Total Liabilities5,184.245,184.237,097.949,385.8810,677.89 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
Fixed Assets3,367.843,437.354,433.804,469.024,937.08 
Noncurrent Investments153.53184.3179.27136.51286.89 
Current assets1,243.081,243.082,105.244,043.254,746.01 
Long term advances and other noncurrent assets349.98447.14405.98549.62657.11 
Deferred Tax Assets0.280.2816.2722.3934.74 
Goodwill on consolidation (net)69.5169.5157.39165.0816.05 
Total assets5,184.225,184.237,097.949,385.8810,677.89 

Efficiency Analysis

ParticularsFY 2012FY 2013FY 2014FY 2015FY 2016
ROE / RONW28.7028.695.6413.8213.32 

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net Worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2013FY 2014FY 2015FY 2016FY 2017
Total Income from Operations (Rs. Cr.)3,166.413,451.545,340.817,198.67 6,392.95 
Growth (%)11.88 %9.00 %54.74 %34.79 % (11.19 %) 
PAT (Rs. Cr.)552.17226.56667.10598.70  216.27  
Growth (%)(28.82 %)(58.97 %)194.45 %(10.25 %) (63.88 %) 
Earnings Per Share – Basic (Rs. )49.4616.9453.2835.85 19.53 
Earning Per Share – Diluted (Rs. )49.4616.9453.2835.85 19.53 
Price to Earnings9.6525.9612.9314.44 36.04 

Dividend History

The Company has maintained an average dividend yield of 1.70 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Gujarat Fluorochemicals’s average current ratio over the last 5 financial years has been 1.17 times.

Long Term Debt to Equity Ratio

Companies operating with high long term debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Gujarat Fluorochemicals’s average long term debt equity ratio over the 5 financial years has been 0.30 times which indicates that the Company operates with very low level of debt and is placed well to withstand economic slowdowns.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

GFL’s average interest coverage ratio over the last 5 financial years has been 7.99 times which indicates that the Company can meet its debt obligations without any difficulty.

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Gujarat Fluorochemicals reported a promoter holding of 68.33 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 8.40% (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.