Ladies and gentlemen, good day, and welcome to Gujarat Fluorochemicals Q2 FY 2025 earnings conference call, hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Agarwal. Thank you, and over to you, sir.
Thanks, Sagar. Hi, good afternoon, everyone, and a very warm welcome to Gujarat Fluorochem's Q2 FY 2025 earnings call, hosted by DAM Capital Advisors Limited. On the call today, we are representing Gujarat Fluorochemicals management, Dr. Bir Kapoor, Chief Executive Officer, and other senior members of the management team. I will hand over the call to Dr. Kapoor to take it forward from here, and then we'll open the floor for questions after his opening comments. Please go ahead, sir.
Thank you, Nitin. Good afternoon, everyone, and a very warm welcome to all of you on GFL's earnings call for the quarter ended 30th September 2024. I have with me here a management team, including Mr. Akhil Jindal, who is our Group CFO, Mr. Manoj Agrawal, our CFO of GFL, and Mr. Kapil Malhotra, who is our Business Head of Fluoropolymers. The company announced its quarter two FY 2025 results at its board meeting held today on 29th of October, 2024. The results, along with the earnings presentations, are already available on the stock exchanges and on our website. I will briefly talk about the numbers and then give you an update on the business operations and outlook.
The company reported a consolidated revenue from operations for Q2 FY 2025 at INR 1,188 crore, which is up by 1% on quarter-on-quarter basis, and up by 25% on year-on-year basis. Consolidated EBITDA for this period was INR 295 crore, which is up by 13% on quarter-on-quarter and up by 80% on year-on-year basis. The EBITDA margin for this quarter was 25%, which is up from 22% in the previous quarter. Consolidated PAT for quarter two FY 2025 was INR 125 crore, which is up by 12% on quarter-on-quarter basis and up by 133% on year-on-year basis. The higher depreciation and interest expenses are on account of the higher CapExes incurred, primarily in the EV vertical.
Once the revenue from this segment reaches optimal levels, the overall profitability and return ratio will significantly improve. We believe that going forward, with capacity utilization picking up, operating leverage will kick in and will drive profitability and improve our return ratios. Once again, primarily from the battery chemicals verticals, along with pickup in fluoropolymers, where, we are continuously moving up in the value chain with higher value-added products. Let me briefly take you through the performance of each business segment for the quarter. During the quarter, the production in the Bulk Chemical segment was around at full capacity, barring few days losses due to planned maintenance. Caustic prices, which have remained stagnant at lower level, have now started moving up, and now we expect to see a significant improvement by quarter four FY 2025.
MDC prices have also improved marginally during the quarter, and we expect it to firm up, going forward. Within the fluorochemical segment, refrigerant prices have marginally improved during the quarter and are expected to further improve going forward. Specialty chemicals remained muted during the quarter, however, margins and volumes are likely to improve from Q4 FY 2025 onwards. Let me talk about Fluoropolymers. Fluoropolymer segments has shown a healthy improvement on year-on-year basis. While on the quarter-on-quarter basis, the revenue remained flat, this segment witnessed significant improvement in margin as well as revenue mix, which has changed towards higher value-added grades of fluoropolymers. In new fluoropolymers, over the past three quarters, we have been focusing on high value-added grades and new fluoropolymers, while exiting some of the fluoropolymers in the lower-end segments.
Elaborating on the above, qualification for our high value-added grade fluoropolymers, which is used in automotive sectors and which is being driven by the government's thrust on increasing the proportion of ethanol blending. We have witnessed, we have achieved a qualification in this segment. Further, the grades required for semiconductor and EV sectors have also been developed, and the qualification is in final stages. Overall, these developments should result in incremental revenues and better margins going forward. The exit of one of the legacy players by December 2024 will lead to substantial incremental business from quarter one FY 2026, for the higher value-added fluoropolymer grades. There are encouraging signs of improvement in all three segments: Bulk Chemicals, Fluorochemicals, and Fluoropolymers, which are expected to report growth and better margins from Q4 FY 2024-2025 onwards.
Let me give you a quick update on the Battery Materials business, which is catering to EV and ESS segments. As you may be aware, that GFCL EV is one of the leading companies outside of China to have such a wide product range of battery materials. And it's close to commercial production stage. With IRA regulation in U.S., we expect good traction of our product in the U.S. markets. We have recently raised INR 1,000 crore in our subsidiary, GFCL EV, at an equity valuation of INR 25,000 crore, which is a validation of our capabilities and strong outlook in this segment. This fundraise is the first step towards meeting our CapEx requirements for the new business under GFCL EV. In terms of the product portfolio, we are ready with our initial capacity for salt, which is LiPF6, electrolyte, PVDF binder, and additive.
Also, we expect our LFP plant to come online in quarter four, FY 2025. It is encouraging to note that our battery salt plant has reached the global quality benchmark and is currently undergoing the ramp-up phase. As we are in the commercial ramp-up stage, the frequency of customer visits and audits from many of our customers have increased, and product validations are underway. Initial validations have achieved positive results, and discussions with few customers are moving towards commercial agreements closures. We expect commercial supplies to commence from quarter four, FY 2025. With the impending commercial agreements, we believe that the CapEx intensity is going to increase further. And we expect to complete the cumulative CapEx of INR 5,000 crore by FY 2027, and cumulative CapEx of INR 6,000 crore by FY 2028, which we had indicated earlier.
For this, our guidance continues at 2x for the asset turnover and 25% EBITDA margins are at optimal utilization levels. In conclusion, for GFL as a whole, we are seeing a continued improvement in our financials. The slowdown in Europe and adverse business cycles have, however, impacted H1 and delayed our recovery with respect to our earlier plans. However, in view of the initiative which we have taken in the Fluoropolymer segment and expected favorable changes in the market, we are expecting a substantial improvement for Q4 FY 2025 onwards. With this, I would like to open the floor for questions. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from Rohit Nagaraj from Centrum Broking. Please go ahead.
Yeah, thanks for the opportunity. So first question is regarding the three segments. You have given, you know, substantially positive and optimistic outlook across the three segments. Just talking about the individual segments. On the commodity Bulk Chemicals. I think there is still overcapacity in domestic markets, so why we are seeing that there will be improvement in pricing? On Fluoropolymers, I just suppose globally, auto is currently under slowdown. So again, why there is a positive there? I mean, it is only related to one of the global players shutting down capacity. And third, in terms of Fluorochemicals, again, on the ref gas, the pricings have still benign, plus there is availability in the market. And fluorochemicals, I think there are supplies coming from China.
So what gives us confidence that things will start improving from only 2026? That's my first question. Thank you.
Thanks, Rohit. Some of these points I touched upon in my opening statement. Let's talk one by one. First is the bulk commodity, where we are seeing strengthening of caustic prices, partly because of the improvement in the downstream demand for it, and also global caustic prices are firming up. Okay, and in our case, where we are fully utilized on chlorine, it's a positive when the caustic prices improves. Coming to Fluorochemicals. The fluorochemical specialty chemical, of course, is a very small segment for us. Where we have seen intense competition from China earlier. However, going forward, we are expecting some improvement in the demand in downstream in agrochemicals, which we expect to improve and see in next the quarter four and FY twenty-six.
In refrigerant case, what our reading is right now is that, as you know, that, the quotas are being cut for R-22, significantly from next year onwards. And based on our past experience, with the reduction of quota, there is always a significant, hardening of prices. And based on our past experience, we expect to be a positive movement in terms of, pricing as well as also the volume. Coming back to Fluoropolymers. You talked about the automotive segments, and, you talked about the automotive segment. When we look at our own product portfolio, we are looking at the specific product, segments where we have a strength, and there are new applications which is emerging, particularly what we talked about earlier was the ethanol blending.
Now, as the automotives are moving towards ethanol-blended fuel, there is a requirement for fluoropolymers as a new application, which is not there. So based on these things, so our growth that we are projecting or what we are expecting, the positive movement, is with respect to the product portfolio and the grades and the new polymer segment in which we are playing together. Okay, so this is what we have, and I would request Kapil, if would like to add any point. Kapil Malhotra is our Business Head, Fluoropolymers. He is with me.
Yeah, thanks, Dr. Kapoor. Rohit, in fact, whatever Dr. Kapoor has said is absolutely true in my, in our segment. And even in automotive segment, the demands are pretty steady. And as the ethanol blending takes away from first quarter next year in 2025 So we expect the demand to come forward from January itself onwards. And most of the grades which we are talking about, we already got qualifications from our customers, Tier 1, Tier 2, and the OEMs over here. So that's a positive statement which we have made, and we're looking forward towards it increased business.
One more thing that you asked about, Rohit, is about the legacy player going out. While we have been saying the legacy player, but what we expect the full impact of that to be visible in FY 2026, because the production of this legacy player is actually going to end only in December 2024. While we were expecting impact of that to be visible several quarters back, but unfortunately it has slowed down, and now we expect to see it ramping up. Also, in last several quarters, we have had our qualifications of our product approved with those customer segments. And we are fully ready right now to capture the demand that is going to be created by the production cut or the lack of volume availability from this legacy player.
Sure. This is helpful, sir. So second question is on the GFCL EV business. So we currently have invested INR 700 crore. Again, one clarification, so effectively, considering the 2x asset turnover, it should yield us about INR 1,400 crore of revenue at 25% EBITDA margin. Is that understanding correct on this business?
Broadly, it is correct, Rohit. Let me give you a slight, you know, clarification on this. First of all, there is a period w ithin which the qualification happens. And once the asset comes in line, the optimal volume, which gets, you know, utilization volume, which takes typically in the beginning, it takes longer. I would say four to six quarters. However, at the later stage, this process actually is more rapid. So we are still maintaining asset turnover, 2x. However, it have to be, you know, there's a lag period between the time when we make these investments and the full optimal utilization is achieved.
Okay. Right. And just one clarification on this. So the existing Fluoropolymers business, which we are reporting, it does not form part of GFCL EV, right?
No, no, it does not.
T hat's all from my side. Thank you, and all the best.
Thank you, Rohit. Thank you.
Thank you. Participants, in order to ensure that the management is able to address questions from all the participants in the conference, please restrict your questions to two. If you have any follow-up questions, you can rejoin the queue. The next question comes from Ketan Gandhi from Gandhi Securities. Please go ahead.
Sir, thank you so much for restructuring of the holding company of the GFL group. Whereby after 20 years, you are unlocking the value, the huge, huge value creation for the shareholder of the minority shareholder of the holding company. I think very few management takes care of their, you know, loyal shareholders by this kind of a demerger. So thank you so much for that. Sir, while demerging this, we are doing some structuring regarding the wind business of the fluoro. So GFL will have any positive impact while they're doing this restructuring?
Thanks, Mr. Gandhi. I'll let Akhil take this question. Akhil, please.
Yes. By virtue of this demerger, this is our effort to make it a clean structure, where you know, the ownership of GFCL will go directly into the hands of the ultimate shareholder, which is the promoters.
Sure.
To that effect, I guess, you know, the structure will become much more clear. To that effect, the holding company of GFCL will be just holding the GFCL assets rather than the combined and the mixed assets. So I believe that going forward, this would enable us to have a better distribution policy. It would enable us to have more fund flow in the hand of all the shareholders, because as and when the company becomes more and more cash positive, the intent is to move on to a distribution and a much firmer dividend policy. So this is the positive effect that the shareholders of GFCL will see on a day-to-day basis. This is our effort to clean up the structure without affecting the shareholders of GFL directly.
I understand that, sir, but my question is not pertaining to this. My question is, does GFL have any asset which will be merged into the holding company, whereby we can get some kind of a, you know, cash infusion?
No. No, no, that, that, that's not the case. Because the holding company was a pure play holding company, and it was having investments of two different companies, which is now being cleaned.
Okay, thank you. I have some more questions. I'll join back in the queue.
Sure. Thank you.
Thank you.
Thank you. The next question comes from Arun Prasath from Avendus Spark. Please go ahead.
Good afternoon. Thank you for the opportunity. Dr. Bir Kapoor, first question is on this production stoppage of this large customer, where we are confident that the Fluoropolymer segment will grow. My question is, how do you get this confidence that, so we have other competition also, which will be running. So do you think that the redistribution of this volume to the remaining players will be in a fairer manner? And what kind of a fair share that you are expecting from this stoppage?
Thank you so much, Arun, for asking. And, I'll make one comment and then let Mr. Malhotra to answer this. I think, the confidence that we have is coming from the fact that we have already been qualified in number of customers who are currently taking product from this player that we are talking about.
So in fact, in the last investor call also I had mentioned that we are moving towards the higher value-added grades, and also the legacy player who is exiting is also in the higher value-added grades. The benefit which we get is that we are moving into those applications where the place vacated by this legacy player is also fulfilled by us, and we expect a very good market share as a lot of our products which were drop-in have already been approved. We have already started getting the businesses, and the other products which were being evaluated have either qualified or are under the advanced production qualifications, so by Q4, 2025, we are expecting the incremental business to start coming much more rapidly.
We expect that market share is going to be good, as the other two players and we people are forming the three major segment where we are going to compete with each other. We are going to expect a very good market share over here.
Going by what you said, we are expecting a fair share of 33% from this player's volume. Is that right and right target?
Yeah, that's a fair share.
But it can be even better also, because we are definitely trying to go for applications into the market.
Is there any chance where we could be getting less than the fair share? Because we are probably from the different region, and the local players would get the preferential treatment from the customers.
No, I don't think so, and, we have a pretty good place in the market with the customers. A pretty well place here.
Right. Right. Secondly, we spoke about this R-22 price increase after the quota getting reset next year. When the R-22 price increases, typically, does the downstream fluoropolymer price also goes up or it remains same, and indirectly the spreads become contracted? How does this happen usually when the quota resets and the price goes up?
So in our case, Arun, the situation is that it's possible that there may be a. See, R-22 is linked to one of the fluoropolymers. You cannot put all the fluoropolymers, because other fluoropolymers are have a different, y ou know. It's only the PTFE part. So it's possible that, with firming this up, there might be a change. However, for us, as we are backward integrated. And also the R-22 is a small part of the cost in overall, for us. So I don't think there will be a significant impact on that overall margin squeeze going forward.
Okay. The reason why I'm asking is when there is a volume decline, that is usually compensated by the price increase of the end ref gas. But in case of an integrated player, this is unlikely to play because unless and until the end product price also goes up. So we will, as an integrated player, we stand to lose. Is it a fair assumption?
Let me just clarify one more point here, because the R-22 again has, you know, it's used as a feedstock and also used as a refrigerant. So price increase that we are talking about is in the refrigerant segments only, okay? Because the feedstock segments typically is also under controlled segments, and it may not help you.
Okay. So, we will be diverting our ref gas volumes to the feedstock segment, when this quota gets implemented?
Hello?
Yes, sir. Audible.
Sorry, Arun, we missed the last sentence that you said. I'm sorry.
Sorry. I was asking, so when this quota gets implemented, we will be shifting the volumes from the ref gas segment to the feedstock segment, right?
No, not really, because.
Okay.
The refrigerant gas allocated quota for us is anyway fixed.
Okay.
And we are separate, because for feedstock, you know, it's coming from our different plant. So it's, I don't think it impacts.
Understood, sir. Finally, on the battery side. You said on the LFP salt side are, the commercial agreements are in the stages of closing stage. So, can you just give us some understanding how many of these customers have a live operating plant where they can take this salt and ramp up their facility? And then same as on the LFP cathode side. The cathode side, you said that Q4 will be starting, but how many of those customers have a plant which can start consuming these products of ours?
So, Arun, most of the customer that we are talking to today have an operating plant. Again, this we are talking about the global set of customers. These are customer who already have ongoing plant, and lot of it is somehow looking at de-risking their supply chain. So that's one of the key part which I stated earlier. So they would like to de-risk it from a dependence on country. So, I cannot really give you much detail on the customers. However, I can tell you that the most of the discussion that we are having today are with the customer who are already using salts. And, also in case of a LFP, they are starting to ramp up their requirements.
Okay. And anything-
LFP will take some time because there'll be a qualification period involved in LFP, it just being a CAM material.
Understood. Can you give me the combined capacity, manufacturing capacity of these customers? I'm not asking for the customer, individual customer level, but the combined capacity, battery capacity of these players, customers with whom you are talking right now.
It would be difficult for me to give because when we talk about the market, we talk about the U.S. market, which is, you know, at several hundred gigawatt hour at the moment.
Understood. Thank you very much.
Thank you. Before we move on to the next question, a reminder to all the participants, please press star and one to ask a question. The next question comes from Sanjesh Jain, from ICICI Securities. Please go ahead.
Yeah. Hi. Good afternoon, sir. First of all, I will apologize, I got into the call late. Some of the questions may be repetitive. In which case, you can choose not to answer if I will read that in the transcript. First, on the gross profit margin side, there is a good 300 basis point improvement quarter-on-quarter. If I look at the revenue mix, that really hasn't changed much. And absolute revenue growth has also been not to an extent which can drive a 300 basis point margin improvement. What has really led to sudden sharp improvement in the margin? That's number one. Number two, whether it is sustainable, and are there more room to grow?
What was the last statement, sorry, Sanjesh, last sentence that you said? Can you come closer to the mic?
Is this margin sustainable, and are there more scope to improve it?
So. Any more questions? Shall I answer?
I will take one by one, because probably I came late, so I have a little bit more stuff.
As we had indicated, a lot of it is, as we are, you know, as we are moving into the new fluoropolymers. Our effort has always been to go up the high value-added product grades, where the margins are higher. So what we are seeing today is the result of what we have been talking about earlier, and moving towards higher value-added fluoropolymers, and also which is in the new fluoropolymers grade. So that, that's the change of the product mix, and coming out of some of the lower value-add segments, is what is resulting into a jump in this overall margin that we talked about.
We believe it is sustainable, because of the sticky nature of the business, and as we are getting more and more into these high value-add segments, we expect these margins to be stable and sustainable.
Clear. And just now that we are this calendar year, how are your discussion with your customer for next calendar year for fluoropolymer? Say have an ambition to reach INR 2,000 crore of EBITDA by end of this fiscal year on an exit run rate. Are we on course for that, and a growth from there is possible? That's another one.
Yeah. I think that one of the reasons why we have been talking positively about fluoropolymers is because the ongoing discussion with our customers is quite positive, and that's where our confidence is emanating from. So I'll let Kapil also add on to this point .
Yeah. You are absolutely right. We have been also maintaining the same statement throughout. And we have started seeing the results of that, and from the next quarter, we'll start seeing the results further on. As the opening up of the new sectors, new applications in the semicon business also keeps on getting added. And as we said, that we are under advanced stage of qualification, and have already got some qualifications with the customers. And whatever discussions we have been having on the business front with the customers, it is going in a very, very positive direction.
Very clear. On a related point, we did push back the CapEx last year when things were softer. How does the CapEx pipeline look like? Have we completed the new fluoropolymer capacity expansion from 700 metric ton to 1,700 metric ton per month? We were looking at debottlenecking PTFE by 3,000 metric ton per annum. And again, backward integration, we do see. Where are we in all these CapEx cycles, and what is the plan for next year?
See, we are more or less, you know, completed those CapEx that we are talking about. Except some of them which I had mentioned earlier. We had delayed or staggered, particularly Sanjesh, in PVDF, for example. Where we have some capacity, but we have not added the full capacity there, because we are waiting for the market to pick up and then add. We are prepared in terms of the monomer capacity being in place. However, on the downstream side, we have held back yet. However, more or less, it's the new polymer capacity that we had projected, we are more or less there, except for PVDF.
And next year CapEx will be?
It's, I would give us a quarter, since this will tell you more about next year CapEx. But right now, of course, you know, the focus is to build the EV business and add the CapEx there and rapidly take it up. So in Fluoropolymers, we are prepared with respect to our complete backward integration. And as we see market requirement coming up, I think we are well prepared to add capacity. However, these capacities are now going to be incremental, looking at the market conditions.
Fair enough. Now talking about the battery chemical and the restructuring, I really didn't get the restructuring part of it. Can you help us understand what exactly restructuring are we doing? That's number one. Number two, now that we have raised INR 1,000 crore in battery chemical, which allows us to further do the CapEx in the [audio distrotion] subsidiary side, how do we look at that part of the fundraise? And what is the objective of the fundraise?
I'll let Akhil answer that structuring part first, and then we'll talk about the funding and the fundraise.
I think, as I explained in the one of the previous question, it's a simplification of the structure rather than anything you know, anything complex around it. So it's just that the alignment of shareholdings of GFL directly in the hand of the ultimate shareholder is what our ultimate objective is. Also, we want the simplification of the structure that the holding company currently is having different businesses, different holdings, which is also being simplified in this whole process. So in effect, there is no direct impact on the shareholders of GFL directly. When I mean shareholder, I mean the outside shareholder, other than the promoter family. And obviously, it will lead us to a better distribution policy as we go along.
On the second part, which is the fundraising, this has been done for the GFL EV, and this all is being, you know, put to use for the CapEx plan for GFL EV business, as Dr. Kapoor mentioned. We have roughly around INR 5,000 crore of investment planned up till FY 2027. Out of which almost INR 1,000 crore is already invested. So this INR 1,000 crore will enable us to be funded for the period of next, say, 12 months- 18 months. And then the cash, you know, internal workflows and other things will also start. So I guess this is the, you know, the main objective, that EV should start standing on its own feet in terms of the CapEx planning and funding its own, you know, investment.
This is the first initiative that we have taken in this company to fund from the outside sources, rather than the GFCL internally.
Good. Good. And what is this INR 1,000 crore CapEx plan for in next 12 months- 18 months?
Yes.
We have all the planned upfront funding, right?
We have raised right now, okay? And the CapEx plan is, Sanjesh, we had given a broad number, that INR 5,000 crore by FY 2027 and INR 6,000 crore by 2028. So it will be spread, and it would be difficult for me to say that what exactly, where exactly I'll be spending INR 1,000 crore or INR 500 crore in the next quarter or next four quarters, five quarters, but the broad plan is what we have indicated. So INR 1,000 crore raised is a step in that direction. It's a first step, as we mentioned in our opening statement. And capacity expansions applying will be mostly in the same product line that we talked about, which is salt and LFP CAM and also electrolyte.
Got it. Got it. So, basically, we have put up initial capacity, and wherever we tie up for the larger capacity, that's where the CapEx will be deployed. Will that be a right way to think?
Exactly. That's right. So basically, we have commercial scale. Our plan is to have all the products, the commercial scale plant, ready and operating for qualifications, close the commercial deals, and then expand or add capacities along with the customer requests. This is the plan that we've been getting. Okay?
As you mentioned about certain in the previous quarter, you did mention that Q3 onwards will start with.
Sorry, once again, I lost the last sentence, Sanjesh, please. Could you repeat that? Hello? Hello.
Sir, the line for Sanjesh, sir, has been dropped.
Yeah, some problems. Okay, thanks. Thanks.
No problem. We'll move on to the next question. The next question comes from Aditya R, from Sowilo Investment Managers. Please go ahead.
Good afternoon. My question was little more in the macro. So, we have been facing pressures from China, and you also spoke about situation in Europe. Can you throw a little more color on, like, how that has panned out? And because the commentary was positive, so I just wanted to get some idea on that.
Very difficult to... I mean, I'm sorry, Aditya. Could you come up again, please?
Yeah.
And come closer to your microphone, please.
Yeah, yeah. So my... Is it better now?
Yes, please. Better.
Yeah. So my question was more on the Chinese situation. So we've been facing a lot of pressure, especially because the overcapacity there. And then you also mentioned today about the European market. So I just wanted to know how the situation has panned out and how is it right now, like, some color on how it is currently, to get some idea of, you know, what we can expect.
Yeah. So the way it is, yes, you're right, and I presume you're asking in context of battery chemicals. Is that right, Aditya?
No, of chloro, the chlorochemicals.
Chlorochemicals. See, in Fluoropolymers, obviously, you know-
Fluoropolymers.
Are you talking about Chlorochemicals?
No, no, no. Fluoropolymers. Polymers, the polymers.
Fluoropolymers. Okay.
Yeah.
So in Fluoropolymers, you know, in most of the markets and the grade that we operate, we do not really have a direct competition with Chinese products. I think we have stated that earlier also. Clearly, having said that, you know, we have competition with legacy players, established players. And our effort in that segment has been primarily to go up the value chain, going and add higher and higher value products.
We have been progressing in this journey for quite some time, and we believe that with the specialized material portfolio that we have in fluoropolymer is essentially we are trying to capture the market, which is very, very high end. Whether it is the high end of automotive segments or it is the high end of semicon or EV. From that perspective, having a very high or the overcapacity on the fluoropolymer is not really the right reason for any kind of concern in the high value-added rates.
No, totally agree.
Okay. All right.
Okay. So then my next question would be, there was, I mean, talk on the Polyfluoroalkyl substances, the PFAS, them being banned. So what kind of effect that would have?
I am, I presume you're talking about the PFAS substances?
Yeah, PFAS. PFAS, yeah.
PFAS, okay. So, I think we have already given our view earlier also in the PFAS. That PFAS is, it's an area of concern. However, the most of the regulatory authorities globally have taken a view that the fluoropolymers are not really the PFAS of concern, because these are very long chain molecules which do not actually migrate or are not going to the aqueous medium. So, fluoropolymers in a way, as a product, is not really an area of concern related to PFAS.
Okay. Thank you.
Aditya, sir, you have any other follow-up questions?
No, no, no.
Thank you. Next.
Thank you.
The next question comes from Sanjesh Jain, from ICICI Securities. Please go ahead, sir.
Yeah, sorry, I got dropped off previously.
Welcome back.
Thank you, sir. Just now, I was asking on the battery chemical side. You mentioned in the previous call, and you also highlighted even in the previous responses, that you are looking to get certain approvals in the next one quarter- two quarter. And in the previous call, you mentioned that there is possibility of a commercial supply starting from Q3. Are we on course for that?
We, I think, said that we, our, supply or the revenue from the battery chemical would start trickling in from Q4 onwards, and we are still maintaining. Our products are at qualification stage still. We have, because there are several steps in qualifications. At this point of time, in some of our products, we are at the final stages of qualification, which is actually in the battery tests. That's where we are. So as soon as we get the qualification, we expect our supplies to start, because on the commercial front, Sanjesh, we are ready in terms of supplies.
How has been the product so far? What has been the responses? What has been the area of improvement? Where are we exactly in the product life cycle of commercialization? That's number one. Number two, on the LFP, how is that progressing? Are we on course again in the Q4 to commercialize the plant?
Let me answer the first question, that, you know, in terms of qualification, there are several stages. We are in the final stages of qualification. We are getting a very good traction. And, you know, as you know, that we started our plant, you know, several quarters back, and then we have been working on getting the benchmark quality, and we have achieved that now, in terms of having a global benchmark, and also very close to getting qualified. Okay, we are at the final stages of qualifications. So from that perspective, I think, we are getting a good traction because, once we have a commercial plant which is operating, we have a sample in our hand, the customer traction is very, very different foundation. Okay?
Okay.
And we are getting a very, very good response from customers, and we have engaged with a very large set of customers on this. Coming back to your question on LFP.
Okay.
LFP, our plant would be mechanically complete very close to the end of the year. So we are probably maybe two months behind, I would say. We'll be having, but we'll still have our production being there in the quarter four of this financial year. LFP, however, being a CAM material, has a longer qualification cycle compared to salt. So that process we have already started with the lab sample, and as our commercial plant starts producing, the final stage of sample will go from the commercial plant for qualification.
Plant performance in terms of yield, pricing, profitability, are we able to achieve what we would have envisaged and how it is versus, say, Chinese peers?
It's little bit too premature for me to talk about that, but I'll definitely give you an update once we ramp up the full capacity and start our supplies. Okay. But we are going step by step. The first thing is to get the benchmark quality, then ramp up the capacity, and then look at them. We have no doubt in our mind meeting any of the global benchmarks, either in terms of output quality, operability or the efficiency parameters.
Very, very nice to hear all those thanks please for bearing with me and answering all those questions so patiently. Thank you again.
You're welcome, as always.
Thank you. The next question comes from Yash Shah from Investec. Please go ahead.
Hi, sir. Thank you for the opportunity. So I just had one clarification question. Earlier in the call you said that we would like to self-fund our CapEx for the EV business, and which will require CapEx of about INR 5,000 crore by 2027 and INR 6,000 crore by 2028. Does it mean that we'll be raising more, INR 4,000 and INR 5,000 crore respectively, for the EV business? And if so, through what mediums have you planned on that? That's all, sir.
Sure. Thanks. Thanks, Yash.
No, so as we mentioned, we have already invested close to INR 1,000 crore in this business, from the parent. INR 1,000 crore is what we have raised in the market as we declared, you know, a few weeks back and also on this call. We are in advanced discussion with a sovereign fund to invest, you know, around $100 million. So that's going to be our another source. Plus, as and when required, we will go for another round of INR 800 crore-INR 1,000 crore in the, you know, through this initiative. What it would mean is that close to INR 3,000 crore, I mean, INR 3,700 crore would be, will be, invested through these sources. And the rest will be by way of an internal accrual.
As Dr. Kapoor mentioned that most of these capacities will start coming in, and they will start contributing and having a free cash flow to fund the further CapEx. So our overall plan is to raise up to INR 3,000 crore, you know, INR 3,000 crore-INR 3,700 crore, including the INR 1,000 crore that we have already invested. So that means additional INR 2,700 crore, and the balance would be through the internal accruals.
Sir, do we expect to have internal accruals of INR 1,500 crore to INR 2,000 crore by FY 2026 to anchor CapEx in 2027?
Possible, because we are giving the guidance until FY 2027 of total INR 5,000 crore. And if we have already raised INR 3,700 to internal, you know, including the GFCL contribution. So INR 300 crore should be possible through the internal accruals over the next two years- 2.5 years . Yeah.
Got it, sir. Got it. And, one more question, sir. Incremental to this CapEx, what will be, what is the CapEx guidance for our base business by chemicals, fluorochemical and fluoropolymers?
Yeah. Right now, I think as we had indicated, you know, in this year, INR 500 crore is what we had planned. INR 500 crore in GFL and INR 700 crore in EV. I think we will give you guidance probably in the next to next quarter, probably sometime in January, about the plans for the GFL.
Okay.
Because which again, will be primarily on the fluoropolymer focused. Okay.
Yeah. Okay, sir. Perfect. Thank you very much, sir. Yeah.
Thank you, Yash. Thank you.
Thank you. The next question comes from Rohit Nagaraj from Centrum Broking. Please go ahead.
Yeah. Thanks for the follow-up. So just again, talking on the CapEx front. You just mentioned that we have, the GFL has invested INR 1,000 crore. But this year's CapEx plan is INR 700 crore, so why there is a disparity?
So when we said INR 1,000 crore is up in the total for the EV business, which includes the amount of money invested in the previous year also. So as of up-to-date, you know, the investment in GFL EV business by the parent is INR 1,000 crore.
Okay, and this will remain static? There would not be any incremental investment now?
I mean, we hope to fund it from external sources, as we have done it now. And that's where I guess, you know, most of the fundraising activities that are going on. Which we also mentioned in our previous quarterly call, that we have got, you know, a lot of traction coming from various investors to fund the EV business. And in that direction, we have already raised INR 1,000 crore in this quarter. And as and when there would be fund requirement, we will be further tapping the market on that count.
Fair enough. This is helpful. Sir, just second clarification. Now, historically, we had consolidated margins of closer to 30% for the GFL business. Incrementally for the EV business, it will be about 25%, as you have indicated. So going forward, do we see margins in the range of 25%-30% for the consolidated entity, including the EV business?
Yes. I think, you know, consolidated guidance that we had given was?
[audio distortion]
Yes.
Yeah, sir. Yeah.
Yes. Yes, Rohit. So what you're asking, as I understand is that, GFCL EV, we are saying 25%. And in GFL, we have been talking about 30%-35%. Is that right?
Correct. Correct. Correct.
Correct. That's what we have been saying, although at the current scenario, the margins are standing at around 25% for GFL as well. But with increase in the high value- add fluoro polymer, we expect it to go up.
Okay. So, this is helpful. Thanks a lot.
Thank you. The next follow-up question is from Aditya R from Sowilo Investment Managers. Please go ahead.
Yeah. Thank you for taking my question. So, like, there was this regulation on the Inflation Reduction Act, right, from the U.S. And there they spoke about how they want to phase out a particular company from the whole supply chain, at least attempt to do that. So I just wanted to get a sense of how quickly is that transition. I mean, now that it's passed, how quickly do you expect that transition will happen?
You mean transition for battery chemicals? Because of the battery material. Okay. Yeah. One of the key requirement of the IRA is that, that the subsidies which is being given on EV products by U.S. government, that subsidies, the components and the battery components and materials, which goes into making those, batteries, should not really come from FEOC countries. That's the main reason. And, so it should be. So there are two parts to it. One is related to, components and assembly of battery components. and second is with respect to the critical minerals, should not be, from any of the FEOC country, which is Foreign Entity Of Concern, which they have indicated t he name of the several countries there.
So we expect, as it's evolving, so some part it's basically IRA Act is started from January 2025. And then it will slowly kick in, in terms of percentages of the non-FEOC components. And also in critical minerals, there should not be any component from FEOC countries, and these critical components being fluorine and lithium at the moment. So it will phase it in, but the way we see it is all the growth which is going to come in in U.S. markets primarily is none of that growth or even some of the existing businesses will come from any of the companies which are associated with FEOC. So this will have a very significant and rapid impact in next two years - three years, as the IRA fully kicks in.
So you see the timeline to be two years - three years only for the transition?
Right. So in some cases it has already started. A nd in some cases, for example, like salt, they had given a two-year timeframe, which will actually fully kick in from January 2027.
Okay. Okay, got it. Thank you. Thank you.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you very much, Nitin, and I would like to thank each and every one of you for being part of this call. As I had mentioned in my opening statement, a lthough you know, in last two quarters, because of several reasons, the growth was not as we expected it to be. However, going forward, the traction that we are seeing in the market, particularly driven by the fluoropolymers market segment, we expect to see a significant improvement. And we expect from the FY 2026 to be significantly better, and I think that from now onwards, we are seeing a continuous improvement, and we expect this journey to continue and certainly FY 2026 will be a lot better than the FY 2025. So with this, I would like to thank you all, and, thanks for interest in GFL. Thank you.
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.