Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA+/Stable/Crisil A1+’ ratings on the bank facilities and Rs 50 crore non-convertible debentures of Gujarat Fluorochemicals Limited (GFL).

 

The reaffirmation reflects sequential improvement in operating performance, with revenue of Rs 3,512 crore and operating margin of 23% reported for the nine months ended December 31, 2024, as compared to Rs 3,148 crore and 21.5%, respectively, for the corresponding period of the previous fiscal. This recovery is driven by improvement in realisations in fluorochemicals, especially the refrigerant gases segment, along with modest volume recovery in the fluoropolymers (FP) segment. These segments were significantly impacted by Chinese dumping earlier, which had led to subdued realisations and piling up of inventory in the FP segment, and had an adverse impact on volume in key export markets such as the US.

 

Crisil Ratings expects significant recovery in operating performance over the next few quarters which will remain key monitorable. This will be driven mainly by the FP segment, with bottoming out of the destocking phenomenon, leading to recovery in demand and improved realisations. Furthermore, exit of few legacy players and commercialisation of certain new FPs, which are under advanced stages, should start contributing significantly from the first half of fiscal 2026. The new FP segment comprises products such as salts (Lipf6), binders (polyvinylidene fluoride or PVDF) and electrolytes (LFP), which are used in high-growth sectors such as electric vehicle batteries, hydrogen fuel cells and semiconductors. GFL is well positioned to cater to these segments, given its expertise in fluorine chemistry, significant investments and the China-plus-one sourcing strategy for end-users. This segment will drive revenue growth over the medium term. Hence, improvement in product mix will help reduce volatility and aid sustenance of the strong operating margin. This ramp up in new-age FPs will remain monitorable.

 

Financial risk profile remains healthy, marked by external net debt of ~Rs 1,787 crore as on December 31, 2024, and robust debt protection metrics, with interest coverage ratio expected to sustain over 6 times. GFL is incurring significant capital expenditure (capex), given the growth opportunity in the new FP segment, including battery chemicals, with nearly Rs 1,400 crore per annum for the next few fiscals. Crisil Ratings notes the recent equity raise of ~Rs 1,000 crore in GFCL EV, a majority owned subsidiary, for funding the capex requirement. Majority of capex is likely to be funded through support from promoters and rest via internal accrual.

 

Furthermore, significant reduction in debt under group companies and improvement in accrual from the wind business have lowered dependence support from on GFL. Adjusted net debt to Ebitda (including guaranteed debt of Resco Global Wind Services Pvt Ltd [Resco; rated ‘Crisil A/Positive/Crisil AA+ (CE)/Stable/Crisil A1’]) is expected to improve sharply and is projected to be below 1.25 times at the end of fiscal 2025, compared to over 3 times in fiscal 2024 and ~1.5 times in fiscal 2023. With further recovery in operating margin of GFL, unwinding of guaranteed debt towards Resco, and no significant debt-funded capex plan, net debt to Ebitda should sustain below 1.25 times, going forward. This will remain a key rating sensitivity factor.

 

The ratings continue to reflect the established market position of GFL in the chemicals business, healthy operating efficiency, driven by integrated operations, and its strong financial risk profile. These strengths are partially offset by the financial support extended to group companies and susceptibility to inherent volatility in the chemicals business.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of GFL and all its subsidiaries, as all the entities (collectively referred to as GFL) operate in similar businesses, under a common management.

 

Crisil Ratings has included the debt of Resco, which has been guaranteed by GFL, to arrive at the adjusted debt.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the chemicals business: GFL is the largest polytetrafluoroethylene (PTFE) manufacturer in India and amongst the top players globally. The company has a diversified product portfolio, comprising PTFE, new FPs, specialty chemicals, caustic soda, chloro-methane and refrigerant gases. The new FP products contributed to nearly 25% of overall revenue in fiscal 2024, and this segment is likely to be a key growth driver over the medium term. The company’s market position should improve further, driven by growing demand in end-use industries such as EVs and semi-conductors, and the China-plus-one sourcing strategy for end-users. Ability of GFL to ramp up revenue in this segment will be monitorable.

 

• Integrated operations driving operating efficiency: The chemicals business is integrated forward into manufacturing PTFE and backward into hydrochlorofluorocarbons (HCFC), anhydrous hydrogen fluoride, chloroform and chlorine. New FP products such as PVDF, fluorocarbons (FKM) and phosphoric acid (PPA) fit seamlessly in the production cycle as these products are manufactured from the same raw materials, such as fluorspar and R-142b. This reduces dependence on external sources and ensures healthy operating margin and capacity utilisation. While the Ebitda margin was subdued at around 23% for fiscal 2024, it is expected to recover and sustain at 25-27% over the medium term driven by an improved product mix.

 

• Strong financial risk profile: The financial risk profile is backed by a strong networth, comfortable gearing and robust debt protection metrics. The financial risk profile has improved as the management has brought down advances provided to group companies by infusing funds in these companies. Debt protection metrics should remain strong, with interest coverage ratio expected to be over 8 times, and reduction in debt guaranteed by GFL. Adjusted gearing should remain below 0.6 time, going forward. Given the subdued operating performance and high capex intensity in fiscal 2024, return of capital employed was subdued around 10%, but is likely to recover in the near term. 

 

GFL plans to undertake capex of around Rs 1,400 crore per annum over the next few fiscals, mainly towards the new FP segment, particularly EV chemicals, and shall fund the same largely through internal accrual. The promoters too have adequate financial flexibility to raise equity funding to meet the capex requirement. Any significant debt-funded capex will be monitorable.

 

Weaknesses:

• Support to group companies, albeit expected to reduce materially: Over the years, GFL has supported group entities by extending loans, advances, corporate guarantees and lien marking its own liquidity for their loans, thus leading to increase in its own debt.

 

With focus on deleveraging and improvement in operating performance,  dependence of group companies, this support from GFL has already been reduced significantly and is likely to be minimal going forward, which remains a monitorable.

 

• Inherent volatility in the chemicals business: The chemicals business is largely export-driven and vulnerable to volatility in international markets. Sizeable capacity addition in the overseas markets could constrain the performance of GFL. While the large scale of integrated operations drives operating efficiency, the business remains susceptible to fluctuations in global supply and price trends, especially in bulk chemicals and refrigerant gases. For instance, the operating margin was significantly impacted in fiscal 2024, due to destocking in Europe, following an economic slowdown. However, the higher mix of new FP products, along with increase in demand and margin, should help reduce volatility in earnings over the medium term.

 

Despite prudent management of foreign exchange (forex) risk, the company remains vulnerable to any sharp fluctuations in currency exchange rates.

Liquidity: Strong

Expected annual cash accrual of over Rs 1,000 crore should more than suffice to cover the yearly term debt obligation of Rs 50 crore over the medium term. The company also had unencumbered cash equivalent/liquid investment of about Rs 933 crore as on December 31, 2024. Combined annual capex of around Rs 1,400 crore, planned over the next few fiscals, will be financed mainly via equity and internal accrual. Fund-based limit of Rs 2,000 crore was utilised at 80% on an average in the 12 months through December 2024.

Outlook: Stable

Crisil Ratings believes GFL’s business and financial risk profiles will remain healthy over the medium term, led by strong demand across products.

Rating sensitivity factors

Upward factors

• Significant revenue growth from new products, resulting in leading market position in those segments, along with operating margin of above 30%
• Material reduction in debt and support to group entities, strengthening the capital structure

 

Downward factors

• Slower-than-expected ramp-up in new segments, leading to subdued operating profitability
• Significant, debt-funded capex or acquisitions, or increase in support to group entities, weakening the financial risk profile with adjusted net debt to Ebitda sustaining above 1.75 times

About the Company

GFL houses the chemicals business of the INOXGFL group. The company has a diverse product portfolio, which includes caustic soda, chloro-methane, PTFE, HCFC and value-added products. It is one of the largest chemicals players in India, with a combined installed capacity of 72,000 tonne per annum (TPA) of HCFC, 19,750 TPA of PTFE, 138,450 TPA of caustic soda, and 109,620 TPA of chloro-methane.

Any other information: Not Applicable