Chemical stock falls 20% in a mth. Why ICICI Sec sees it as ‘good entry point’

Chemical stock falls 20% in a mth. Why ICICI Sec sees it as ‘good entry point’

Market


Gujarat Fluorochemicals’ (GFL) stock price has corrected about 20% in the past one-month, and 25% in the past three months while fundamentals remain robust with opportunities expanding, as per domestic brokerage and research firm ICICI Securities. The stock trades at reasonable P/E valuation which makes it the most affordable India fluorine player by valuations, as per the brokerage.

“It offers a strong net profit CAGR of 41% over FY22-24E, and return ratios are healthy, post-tax ROCE at 21% and ROE at 25.6% in FY24E. Within fluorine chemistry, we relatively prefer fluoropolymers business as it is in a sweet spot to grow along with new-age industries such as batteries, solar panels and green hydrogen,” the note stated.

Integrated players are winning on reliability, and rise in the cost for western peers is helping GFL expand margins. New fluoropolymers capacity expansion will immediately help in growing profits in FY23 and FY24; thereafter, the company is working on expanding presence in battery chemicals. 

It believes the recent sharp stock price correction offers good entry point. The brokerage house has retained its Buy rating on the specialty chemical stock with an unchanged target price of 4,270 apiece and it is among its top stock pick in specialty chemical sector.

Fluoropolymers – market turning more favourable for integrated players which puts GFL in a sweet spot as it is fully backward integrated for its entire fluoropolymers business. GFL has done upfront investments in intermediate production (R-22 and R-142b), which has enabled the company to win more customers / contracts in fluoropolymers business, ICICI Securities added. 

“Large Chinese fluoropolymers producers also enjoy the same position; however, GFL scores over Chinese players in terms of market penetration, technical sales team and local warehousing. It has at least a few years of head start compared to any potential Chinese / Indian competition,” the note stated.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.


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