Gujarat Fluorochecmicals Ltd has kept a steady uptrend in total income for the last three quarters and the latest quarter total income shows a jump of 28.16% from the previous one. And consequently the Net profit for the same quarter has rocketed 282.53%. GFL has the highest EPS (earning per share), 15.78 and lowest PE (price earning), 5 among its peers.
GFL’s Cash Profit for the year stood at Rs. 419 crores. Its Book Value stood at Rs. 112 per share, while its EPS for the year was at Rs. 31/-. GFL’s current Market Cap at a price of Rs. 154/- stands at Rs. 1692 crores only, i.e. at less than 5 times it’s last fiscal’s Net Profit. Considering its huge Investment Portfolio and its investments in new ventures and the growth potential in the coming years, this kind of valuation is peanuts. This stock has the potential to multiply several times in the coming months and years.
Growth Potential:
Gujarat Fluorochemicals Ltd, part of the Industrial Gases Giant: INOX Group, has been following a superb Business Strategy over the past few years. It started off with Refrigerant Gas manufacturing & exporting. While expanding it Refrigerant Gas manufacturing capacity, the company came to know about UN’s Clean Development Mechanism (CDM) scheme, under which companies will be awarded Carbon Credits if they invest in technology to reduce their Pollution Levels at their Manufacturing Units to bring it below the UN-specified norms. The number of Carbon Credits awarded was dependent on the type of pollutant and the amount of reduction the company manages under the stipulated levels. For Gujarat Fluorochemicals (GFL) the CDM scheme turned out to be something like a lottery. GFL’s pollutant from the Refrigerant Gas Manufacturing unit had one of the highest Carbon Credits conversion ratios. This Carbon Credits are bought by large manufacturing companies in Developed countries. Fortunately GFL has expanded its Refrigerant Gas Manufacturing unit and enabled higher Carbon Credits.
Apart from its Refrigerant Gas manufacturing business, GFL has also got into manufacture of certain raw materials that it needs, like Caustic Soda and Chloromethane. This has helped GFL in managing costs better as well as improved its products portfolio. GFL has also recently invested in a 6,000 tpa PTFE plant. PTFE is a versatile and advanced engineering plastic, which has multiple applications across industries, due to its outstanding chemical resistance, heat resistance, insulation, low-friction and non-stock properties. PTFE is used in chemicals, textile, automobile, electrical, electronics, and a host of other sectors.
What is even more interesting is the kind of investments GFL has been making to diversify its business. First GFL invested in Multiplex business under Inox Leisure Ltd. GFL owns over 65% in Inox Leisure, which is now the third largest Multiplex chain with nearly 120 screens operational. . Inox Leisure contributed nearly 25% of GFL’s consolidated revenues during FY’2009-10 and is a profitable business. GFL has also built up a large Investment Portfolio comprising of Bonds as well as Equity. The Investment Portfolio itself is worth over Rs. 600 crores.
Over the last 2 years GFL started investing in Wind Farms to generate electricity, which will give it recurring revenues with limited operating expenses. By March’2010, GFL had built a capacity of over 65MW and has also planned a strategy to scale this capacity rapidly to over 2000 MW over the next 3-4 years. In order to reach this goal in a cost-effective manner, GFL has invested in Wind Turbine Generator (WTG) manufacturing capacity (under a new company called Inox Wind Ltd.) during the last fiscal. The plant started production during the last week of March’2010. The Power generation business contributed nearly 18% of GFL’s consolidated Total Income and is expected to rise rapidly over the next 3 years on the back of increased Wind Power Generation capacity. With the start of WTG manufacturing plant, we can expect GFL to add a few hundred Megawatts of Wind Power capacity every year.
Gujarat Fluorochecmicals Ltd has gained investor’s confidence by paying dividend year by year. After paying two interim dividends of Rs 1 (100%) in Nov 2009 & Feb 2010, the Board has recommended a final dividend of Rs 1.50 (150%) per equity, which not only limits its downside, but indicates good upside potential. Hence one can buy the scrip with a target price of Rs 185.