Ladies and gentlemen, good day, and welcome to the Gujarat Fluorochemicals Q2 FY 2024 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 and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand over the conference to Mr. Nitin Agarwal from DAM Capital. Thank you, and over to you, Mr. Nitin Agarwal.
Thanks, welcome. Hi, good evening, everyone, and a very warm welcome to Gujarat Fluorochemicals Q2 FY24 post-results conference call, hosted by DAM Capital Advisors Limited. On the call today, we have, representing Gujarat Fluorochem management, Dr. Bir Kapoor, Chief Executive Officer, Mr. VK Soni, Head, Projects and New Initiatives, Mr. Manoj Agarwal, Chief Financial Officer, and Mr. Vibhu Agarwal, Head, Investor Relations. I will, hand over the call to the Gujarat Fluorochem management team to make the opening comments, and then we'll open the floor for questions. Please, go ahead, sir.
Thanks, Nitin. Good evening, everyone, and a very warm welcome to all of you on this GFL's Quarter 2 FY 2024 earnings call. Nitin, I also have my senior colleague, Mr. Kapil Malhotra, who is the Business Head of our Global Fluoropolymers business with me, in addition to the name that you mentioned. The company announced its Q 2 results at its board meeting held today on 3 November, 2023. The results, along with the earnings presentations, are 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 the overall outlook. The company reported a consolidated revenue of INR 947 crore for the quarter ended in June 2023.
September twenty-three, I'm sorry, down by 35% on year-on-year basis. Consolidated EBITDA for Q2 FY 2024 was INR 163 crore, down by 70% on year-on-year basis. The EBITDA margin stood at 17% for the Q2 FY 2024, and the consolidated PAT for this quarter was INR 53 crore, down by 85% on year-on-year basis. Let me briefly take you through the performance of each business segment for the quarter. The last quarter has been unprecedented for us, where performance has got impacted in all three business segments, namely, bulk chemicals, fluorochemicals, and fluoropolymers. These were all for different reasons, which got coincidentally hit at the same time. This is, however, expected to reverse going forward.
On the bulk chemical vertical, while the revenues were almost flat on quarter-on-quarter basis, the drop in prices of these commodities from the previous quarter led to the drop in profitability in this segment. We expect the prices to have bottomed out and the second half of FY 2024 to be better than first half, as we have seen before. GFL's consolidated PAT was largely impacted by fluorochemicals segment. The major impact was on account of drop in exports volume of R125 refrigerant. In the domestic market as well, the poor seasons also significantly impacted the volumes of refrigerant sales. Volumes are expected to improve going forward, though they are expected to remain subdued compared to FY 2023, due to phase out in US Fluoropolymer performance majorly impacted due to commodity and lower end-grades of PTFE, where prices saw a sharp decline due to Chinese dumping.
Due to continued destocking in higher end-grades and headwinds due to sluggishness in demand, particularly in Europe. H2 FY 2024 is expected to be better as compared to H1, primarily due to expected phasing out of destocking, pickup in the demand in US, and positive impact of exit of legacy players. GFL has been working on optimizing our product mix for the entire fluoropolymer segment to move towards higher end-grades, and this is expected to yield better results starting H2 FY 2024. Additional fluoropolymer capacities that were added recently are also expected to result in continued increase in sales over the subsequent quarters. We also expect that sunrise sectors such as EV, green hydrogen, semiconductor, and solar, among others, to contribute to further increase in demand for various fluoropolymers.
Based on our interaction with our customers in various geographies and sectors, we expect the normalization of demand leading to full recovery by Q1 FY 2024. Let me also quickly touch base on our new vertical, which is the battery chemical vertical. The world is now moving towards EV. The global battery market is conservatively expected to reach 4-5 terawatt-hours by 2030. Our battery chemicals play through salt additive electrolytes, cathode active materials, and cathode binders, will help cater to close to 30% to 40% of wallet share of EV and ESS batteries. This, aligned with the global outlook on the sector, provides GFL with an opportunity to create substantial value for all of our stakeholders. GFL has positioned itself as a leading supplier in battery chemical space with global play, and this has been in line with our demonstrated play in fluoropolymers.
Our integrated LiPF6 plant and electrolyte plants are in advanced stage of commissioning, and we expect to start sampling to our customers very shortly. We have made a good progress in this space, and discussion with global as well as domestic buyers is progressing well. In view of geopolitical reasons and new regulations across US, Europe, and domestic markets, we see substantial growth opportunities in these large markets. On the optimum utilization of the assets, and asset turnover from this segment is expected to be upwards of 2, 2 x, and we expect the margins, EBITDA margins, to be in line with our existing businesses. Our currently committed CapEx in this segment is expected to provide complete asset utilization by FY 2026. In terms of CapEx, some of the planned CapEx that we had announced, for FY 2024, are online.
However, in view of the markets, we expect these CapEx to be staggered to earlier part of H1 FY25, and CapEx plan for the subsequent years to be remain unchanged. As for our last interactions in several quarters, I felt that there are several questions on the business as well as market aspects of our advanced materials segment, which is fluoropolymers. So I would like to take this opportunity to spend a few minutes giving an overall update on fluoropolymers and its market outlook. This business has been a core segment for GFL, which we have built at a global scale against various odds over last decade. To give a summary of this, I have invited my colleague, Mr. Kapil Malhotra, Business Head, Global Fluoropolymers, to give a brief overview. With this, I would request Kapil to please share the market updates and the business updates.
Thanks, Dr. Prakash. Good evening, everyone. When the fluoropolymers market is experiencing a period of remarkable growth and innovation, playing a pivotal role in the global materials industry. These polymers offer a unique set of properties that have rendered them indispensable in a wide range of traditional applications such as automotive, aerospace, semiconductors, electricals, pharma, chemicals, medical, wind and solar energy, as well as new age applications such as e-mobility, Internet of Things, artificial intelligence, 5G networks. We are present in large number of fluoropolymers, including CTFE, PVDF, FKM, and PFA. These highly versatile materials with a wide range of applications in diverse industries. GFL has gone through rigors of multiple grade developments, customers qualifications and approval, statutory certifications process to reach to the current position. Let me briefly summarize you about the major fluoropolymers, where we are well positioned and have added capacity in grades.
First, let's talk about CTFE. CTFE is currently our largest fluoropolymers segment, where we are present in wide range of products and grades. Today, we have a global market share of close to 10% in this segment. In the last few quarters, we have seen volumes in this segment being impacted primarily due to low cost competition from China and Russia, especially in the lower-end applications. In the higher-end applications, the volumes are marginally impacted by destocking and sluggishness in demand, which majorly emanated from the US and the European regions.... Going forward, we expect to see recovery in these segments as the destocking seems to be phasing out, which should lead to gradual growing starting H2 of this financial year.
We also expect to see the opportunities created by announced exit of legacy players, which got delayed due to uncertainty-driven stocking by the customers in earlier quarters to tide over the transition. Our strategy has been to continuously upgrade our product mix towards higher value-added applications. On the medium- to long-term, we expect to see significant growth in PTFE, driven by new applications such as EV dry batteries, green hydrogen, semiconductor, among others. Our grades are well developed to cater to these applications. Coming to FKM now. FKM has reasonably been stable in the current financial year. We are continuously getting approvals for the new projects on regular basis, and we expect to see its positive impact on volumes gradually starting S2, current financial year.
Similar to PTFE, here also we expect to see significant impact due to the tailwinds created from the void caused by the announced exit of a major legacy player. We are well positioned to capture this business opportunity, thanks to the recently added capacities available along with full backward integration. We also expect to see the positive impact of some of the new emerging applications, such as ethanol blending and some of the high-end applications in automobiles and semicon industry. We are in process to develop the advanced grades to cater to such applications. Coming to PFA. PFA, PFA has been doing well, as there is a significant demand from semiconductor industry, led by recent developments in geopolitical situation, and also demand emanating from new age applications like AI and 5G. GFL with its already developed grades in this segment, is well positioned to capture this opportunity.
We have finalized partnership with some of the global players in this segment. PVDF is one of the fluoropolymer that we are most excited about, given the growth opportunity in this space. We have been building our capabilities in terms of grades and capacities to be able to capture this growth. The EV approvals are underway. After a lot of tweaking and customizations moving towards qualification, our approval process is in line with the front-end battery EV applications coming on stream. EV to be a major driver, some reports estimate PVDF industry at upwards of 300,000 tons per year by FY 2030, from currently around 75,000 tons. This, along with the solar panel demand, should augur well for the future growth. In the near term, we expect to see growth from traditional industrial and construction sector, driven by recently received such industry certifications.
These certifications have taken close to one and a half years due to stringent testing and qualifying procedures. So with this, I would like to hand over back to Dr. Kapoor. Sayonara.
Thanks, Kapil. We plan to have a similar session, where we'll give you a detailed outlook on our battery segments later this year. Before I open up the floor for question and answer, let me reemphasize on our business outlook. While the last two quarters have been primarily impacted by external conditions, we are very positive on the opportunities in our core business segments, be it fluoropolymer or the battery chemicals. There are large opportunities before us, and we have all the building blocks in place to use this larger opportunity. On the market side, as we have stated earlier, that destocking has started to wane. We are also seeing signs of positive impact due to exit of legacy players and are in the process of getting customer approvals.
The same is expected to gradually add to our top line in the subsequent quarters. We are confident of delivering growth from next few quarters, and we are hopeful that FY 25 will be better as compared to FY 23. So thank you, all of you, and let's have question and answer session. 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 telephone. 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. In order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two questions per participant. Should you have a follow-up question, we would request you to rejoin the queue. The first question is from the line of Harsh Shah from HSBC Asset Management. Please go ahead. Hello, Harsh?... We are unable to hear you.
Yeah, sorry. If you, yeah, you can hear me now, right?
Now I can hear you. You are audible. Go ahead.
Yeah. Thank you for the opportunity, and thank you for the opening commentary, and good evening, everyone. So firstly, on the business side, I understand on the revenue there has been a lower offtake, and on top of that, there has been declining prices. But if I look at the margins, can you just help us understand, where are we taking such a higher margin hit versus, our peers? Is it safe to say that incremental margins that we were making, all this time was because of, the refrigerants only?
Well, I would, Refrigerants actually contributed significantly to the overall top line as well as the bottom line. But, I would not really say, because now, you know, if you look at it, since the reporting is on, on consolidated terms, so it would be difficult to say, or identify segmental margins. However, at this point of time, the margins in other areas are not hit, not, not particularly, as I indicated earlier, that, particularly our high-end fluoropolymers, there we have seen a very, very minor impact in the pricing as well as volumes.
Understood. So for the full year, earlier, it was a constant commentary that, 38% also, you did not say that you will achieve it, but there was a constant commentary that, 30% is a very sustainable number, and that is where the focus remains. Taking apart this one-off, overall situation, are you still confident of achieving that 30%? And for this year, what is the margin guidance or outlook, if you can give? If you cannot give a specific figure, it's fine, but just a guidance of where exactly you will land up for this year and next year.
Yeah, Harsh. For this year at least, we can say that we'll achieve the 30% margin. We expect to catch up going forward. However, for the next year, I think we normally don't give any guidance in terms of what our numbers will be. However, as we have stated again and again, that we expect our margins to remain around 30%. That position, we are still holding on to.
H2, you will catch up significantly faster to achieve that consolidated full year 30% margin, correct?
I'm sorry, could you come up again, Harsh, please? I'm sorry.
So H2, you will pick up significantly faster in terms of margin, which will lead to consolidated FY 2024 margin to be hovering around 30%. Am I correct?
I think I misspoke there. I think what we are saying is that our FY 2025, we expect to come back to our stated 30%. This year, of course, so far has been severely impacted by a number of parameters, as you know. So we expect the margins as well as the top line also to be lower. We expect to see, of course, the coming quarters to be better than what we have seen in the last two quarters. That's what we are stating.
Understood. Second question is on the balance sheet. Overall, our working capital days have shot quite a bit, and a large part of that incremental is because of inventory. So how is our inventory situation right now? And once we enter the H2, now we'll directly see the balance sheet now towards the end of the year. But from now till the end of financial year, how will our overall working capital and inventory position look like? And what led to also such a spike in overall inventory days?
Yeah. The working capital has increased primarily because of the finished goods inventory and because, you know that, since our volumes have come down. However, most of our sales actually is in overseas market where we have a stock and sell. So our stocks overall, based on our planning, has gone up in our depots overseas. However, going forward, we expect to see it to come down, and by the end of the year.
Understood. I'll join back in the queue if I have any questions. So thank you for answering all the questions, and all the best.
Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead, sir.
Hi. Good evening, sir, and thanks a lot for the opportunity. Wishing you a very happy Diwali in advance. And Kapil, sir, thank you a lot for giving your brief remarks on the fluoropolymers business. So my question is to you, if you can share a few moments on the PFAS issue. While there's a lot of literature available to read, but it's still quite an undiscovered topic. So if you can share what's exactly happening across the globe, and if there's any impact you see in the business going forward.
Thanks, Archit. First of all, Happy Diwali to you as well. As far as PFAS is concerned, we have already stated that PFAS, primarily the concerning area, is the small molecules and molecules which are mobile. And in case of fluoropolymers, which are very long chain molecules with very little or no mobility at all, we do not see this issue going forward. And it's not the impact of PFAS what we are seeing lately in the volumes. And we don't see PFAS significantly impacting or at all impacting our fluoropolymer business.
Sure, sir. Would this also be the case for the other—I know that we have discovered a route to make PFAS free, PTFE and PFA, but what about the other molecules? I just wanted some more elaborate understanding on this, the way we see it going forward, because I think the EPAs and five countries in Europe are still kind of hellbent with respect to taking this issue a bit ahead, which, you know, this comes out quite negative. So just wanted to check your understanding on this.
Our position in this, again, is the same, Archie, that fluoropolymer will not be impacted. And, as we had stated earlier, that also have processes developed using non-fluorinated surfactant, which we have impacted in almost all fluoropolymer where we are present. So we do not see PFAS to be an issue going forward, in impacting fluoropolymer business.
Sure, sir. Sir, just one more question on PTFE. Firstly, if you can share where are we on the debottlenecking that we are planning to take it to close to 21,000 tons of capacity? And if you can also share where are we with respect to the increase in other fluoropolymer capacity. Just one supplementary thing on the PTFE. The clarification that I was seeking for was more from the understanding of prices. I know that we've seen quite a good or rather a healthy pricing in PTFE in the last two years. And probably in the current state the commodity grades have, you know, coupled with the inventory situation, have dragged the per kg realization, which used to hover somewhere between $10-$11 earlier.
I just wanted to get your understanding on where the pricing can be, you know, going ahead, in FY 25, where do you see it heading to? Would the specialty mix be so high that it can, you know, take up, or rather offset the lower grade commodity PTFE that we are selling currently? Thank you.
Yeah. I think you asked multiple questions in the same question, Archit. Let me go one by one. First, about the debottlenecking. As I stated earlier, that we have staggered our CapEx plan, and based on the market right now, our capacity debottlenecking plan has been slowed down because... And however, we are probably slowed down by a couple of quarters, which should come back online. We have all the pieces and plans in place to achieve that as soon as we see an uplift in the market. Coming back to the pricing side, there's been a continuous effort of us, as Kapil stated, to go to higher and value grades and sort of upgrade ourselves in the product mix in PTFE.
So, although we don't give the pricing for the individual polymers, but what you have stated, we expect to remain there or even do better going forward in next year, as the product mix is going to be more skewed towards higher value add. Kapil, you want to add anything?
No, I think you're absolutely right. You know, we are constantly churning our grids to see to it that we go into higher valued application, as the way I have stated to you earlier, and that process keeps on going on.
Sure, sir. Thanks, sir. Sir, sir, can I squeeze in one more, sir, if possible?
I'm fine.
Yeah. Sir, actually, we were given to sort of understand that, you know, when the chip shortage happened, the TFE monomer was rather diverted towards manufacturing more of PFA than PTFE, which also had some ramifications on PTFE prices, which we also enjoyed. Now, do you see this issue kind of normalizing, that the availability of PFA and PTFE both has more or less become a level playing field for not just us, but, you know, the competition also? And, would that also take away some of the pricing benefits that we enjoyed in the past?
I'm not really clear about your question, but what I'm asking is that what I understand from you is that you're saying that the TFE going to PFA versus PTFE. Is that correct?
Yeah, yeah, yeah. You know, we are made to, you know, you know, by speaking to some of the industry guys, we kind of understood that PTFE prices went up because there was some unavailability of the TFE monomer, as like I said, it was used more in making PFA because there was an inherent shortage of chips, and since it finds applications in semiconductors, PFA had a higher demand than that of PTFE. Correct me if I'm wrong. I could be, I could be absolutely wrong also.
We are not seeing that, but as Kapil has indicated in his overview, obviously, PFAS has a good potential and primarily driven by the semiconductor segment. As far as we are concerned, with respect to our own availability of TFE, we have a fairly high capacity of TFE available. All our TFE plants are geared towards meeting the demands, not only of PTFE, but also for PFA.
Sure, sir. Thanks. Thanks a lot for that. Thank you. All the best.
Thanks.
Thank you. Before we take the next question, to all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.
Yeah, good evening, sir. Thanks for taking my question. First question again on the margins. I'm just looking at the gross profit margin, which is your revenue minus cost of goods sold, which in this quarter came in at around 64%. If I go back into FY2022, FY2021, where it was only R22, we didn't have R125. We used to do 67%, 68%, or close to 70% as well in few quarters. So can you help us understand why there is a drop? Even in last quarter, I don't think refrigerant was great for us. We did a 70% gross profit margin. What has changed in this quarter for our gross margin to drop by 700 basis points?
Okay, I'll let Mr. Manoj Agarwal, who is here, yes, Manoj.
Yeah, Sanjesh. Essentially, gross margin got impacted due to the volumes have gone not only because of quantities, but because of prices, softening of prices also in both, lower end of polymers and as well as the all chemicals. And, and, our refrigerants also. So that all this put together has reduced the gross margins.
No, Manoj, again, our raw material prices would have also fallen equally, right? Because the entire chemical has fallen. In fact, when the raw material prices fall and the finished prices fall, mathematically, margins go up, they don't come down. If we are protecting the spreads.
If the finished prices fall, acceleration is higher than the raw material prices fall, because you always keep the inventories of the raw materials and even finished goods inventory. So that, there is always a lag effect between the catching of the raw material prices with the finished goods prices. So, that effect will play out in next quarter or so, once the inventories are leveled out, and both raw materials and finished goods.
Okay, so there is some inventory impact which is dragging this. So this is not a representative margin or it's a representative margin?
No, this is not a representative margin because both, finished goods prices are at the bottom of prices of this. Raw material and finished goods inventories are the high, high, high valued inventories, based on the earlier procurements. So once these things get level out, our definitely margin will be better going forward.
Got it. Got it. Second, Kapil. Kapil, can you help us understand the competitive landscape in the European market for the fluoropolymer space? That's number 1. Number 2, how does the exit of Dyneon is going to help us in FKM, FFKM, and all those things? Can you just help us how this market is going to restructure and how are we looking ourselves to position in that scenario?
Let's see, as I've already indicated that, some of these legacy suppliers, either they have... one of them has exited and the other one is exiting. Definitely, the landscape is going to change. As GFL has constantly, striven to reach to the higher value-added segments, always going away from the commodity kind of grade. So this is going to help us, because a lot of market share from the exit should be captured by GFL too, and we are positioning ourselves to do that.
Okay. And, can you help us with the competitive landscape? Because Chinese will also looking for the same market as well, right, at the same time. They're already sitting on a huge capacity.
Fortunately for us, they are mostly in the commodity grades. They, they don't come into the specialty grades, neither do they have the grades to qualify for those applications, which take a lot of time. The other landscape of the competition is that most of our legacy competitors have also not increased any capacity in the last couple of years, and neither do have any announcement to increase the capacities. So that should help definitely us in capturing more market share.
One more thing I would like to add here, Sanjesh, is that,
Okay.
The exit of the player that we are talking about was present all in the very high end of segments. Okay? And, what happened is that these were not a commodity segment, and there's some of the segments were actually developed and created by these players or this player. So, developing and meeting that is also, you know, has been a challenge which we have been able to overcome very successfully, and we have been able to develop those grades.
So are we getting approval for the similar grades? So because we need the supplies before he exits, right? Are we in the approval stage? We have approved by some of them, and when is the supplies going to start, if we are approved with them?
Let me add one more point for clarification for, for you, just to make you understand the whole situation. Because, we mentioned this exit of legacy players earlier. But this process actually have been delayed, because what happened when these, exit were announced, due to uncertainties, the customers have stocked up materials. Okay? Because, these were some of the difficult grades. They were not sure who could supply, who could come up and reach up to that. So in that, uncertainty, the customers have already stocked these materials quite a lot, from these players, and that is also added to a, a destocking. While we had started developing those products, getting approvals, they were not reflecting that much in terms of the orders or the volume. But we expect to see that now in this current quarter, end of this current quarter, and more from the Q4 of this financial year. Kapil, you want to add something?
Yeah. So whatever Dr. Kapoor said-
Mr. Sanjesh Jain, I would request you since-
It is not management speaking.
Sorry, sorry. Go ahead.
Yeah. So I think in sync with what Dr. Kapoor said, and absolutely in the same way, and as I had said that, the, and, and you were talking about the approvals. In fact, lot of, you know, the grades are already approved, and we already started seeing the tailwinds coming up, and the process will, hasten further from, next quarter onwards. As Dr. Kapoor is saying, the destocking also ends with those customers.
So are we already approving any part of it, or it is still under the process, Kapil?
The majority of the grades, yes. Some of the other grades, which, you know, we were earlier not, you know, really going and competing, but now we are competing, and approvals are in place because these announcements were made around three quarters back. So the grades were given for approval. The approvals have started coming in, or some of the approvals will come by this quarter.
Great, Kapil. Thanks to you, sir, for answering all my questions, and best of luck for the coming quarters.
Thanks, Sanjesh. Thank you. Thank you.
Thank you. Before we take the next question, to the participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, we would request you to rejoin the queue. The next question is from the line of Ketan Gandhi from Gandhi Securities. Please go ahead.
Hi, Dr. Bir Kapoor. I have a question for you. In your opening remarks, in the last statement, you said, next year would be better than FY 2023. That is the previous year, which we've shown the highest profit in life. So it is FY 2023 or FY 2024?
Definitely better than FY 2024, but we were sort of benchmarking FY 2023, so we expect FY 2025 to be on the same line and better than FY 2025. You heard it right, yeah, Mr. Gandhi.
I'm just repeating, next year could-will be better than FY 2023?
Yes.
Okay. Thank you.
Thank you. The next question is from the line of Rohan Gupta from Nuvama. Please go ahead.
Sir, good evening, and thanks for the opportunity. So first question is on our PTFE, where you have mentioned in your presentation, in your opening remarks as well, that there has been significant pressure in a low grade of PTFE commodity in nature. So what I understand that we have a probably high share of PTFE in a high end of the product portfolio. So why our product basket and margins has been getting impacted in the current scenario with the Chinese dumping, if we are, we were already in a high grade and value added?
Yes, thanks, Rohan. I'll let Kapil answer that question. Kapil, please.
Yeah, Rohan. In fact, as earlier, you know, earlier calls, Dr. Kapoor has mentioned, that we have somewhere around 25%-30% of the portfolio, which still we compete with the, you know, Chinese and Russian players in the commodity segment. So those prices definitely went down, and they were competing. We had to compete with them, in the Indian as well as the global markets. So that has impacted, to some extent. However, as already stated, that it's a constant endeavor for us to move on to the next value chain, and that process is on, and probably subsequent quarters, we'll still move away from that 30% difference to even this much smaller, minuscule difference in terms of going to the share of the high valued ingredients. That impact will be seen in subsequent quarters.
Okay. So second question is on our margin. What we are trying to achieve is roughly 30% EBITDA margin. Sir, we have definitely seen a very high extraordinary margin, and even you have already mentioned that 35%-40% kind of margin in the fluoropolymer high end is likely to continue. We have seen a significant correction in the prices in the, and product realization across the product basket in fluoropolymer as well, which is to the tune of almost 30%-40%. With this kind of price reduction, we are still talking about only kind of 30% margin. So it means that the spreads which we have enjoyed earlier, there is almost 50% kind of reduction in those spreads.
So even in terms of percentage, we may talk about the 30% margin, but in terms of the contribution to the profitability from the fluoropolymer segment, is going to remain significant, lower than what we have achieved in FY 2023 or probably earlier. Until, unless that we are looking the new product chain, the new product introduction is going to have very, very high margin.
... And that can compensate this kind of losses. We have, which we have always stated that, you know, upwards of 30% margin on overall, because our endeavor has always been to, as the prices are, you know, we are fit at very low end of product. We are upgrading our product mix continuously to go to the higher and higher, margin products, and our endeavor has been to maintain that.
Just to clarify that on average, you still aim to achieve that, what average realization we were working earlier by improving the product mix, and on them you are talking about this kind of margins, right? Not on the lower commodity prices and lower end of the realization.
I'm not really clear, Rohit, what you're asking, because the thing is that the overall product mix of fluoropolymer is changing.
What I meant to say that our average blended realization earlier, a year back, was close to $35 to 40, $40+, which has corrected significantly, and on that we were talking about 30, 35% kind of margins. Now, that product basket, you still aim to achieve a $35 to 40 with the introduction of new fluoropolymers and battery grade fluoropolymers going forward. And on them, you're talking about 30%+ margin? Because right now, the realization basket or our basket realization has come down very sharply. That is also visible in your presentation. So just needed some clarification on that.
I, Rohit, I don't think we ever stated that our average pricing is $35 to 40. Some products in the price range that we stated, some are on the lower side, so this realization is different than what you stated. So it's never been stated that the overall realization is in the range of $35 to 40.
Fine, sir. I'll seek you the further clarification later. Thank you so much.
PTFE, as you know, the earlier stated in the call, was, you know, $11 to 12 kind of range. That's
Sir, I was more referring to fluoropolymer PTFE in a high-end value-added, which includes FKM and PVDF, and more importantly, catering to the battery chemicals and all.
Fluoropolymers. With the new end fluoropolymers, it's going up. Yes, you're right. But on an average, taking up to $35 to 40, I'm not so sure. I don't think we indicated that number ever.
Okay, sir. Thank you.
Thanks, Rohit. Thank you so much.
Thank you. The next question is from the line of Rohit Nagaraj from Centrum Broking. Go ahead.
Yeah, thanks for the opportunity. The first question is on the EV and new energy space. So, what is the kind of revenues at peak utilization levels, based on the current investments that you are looking at? And, when it will start flowing, so FY 25, do we expect any revenues to come in, or it will be starting from FY 26? Thank you.
On battery chemicals, as I stated earlier, that we will give you a separate brief. What I have stated today is that the investment that we have made so far, the asset turnover for that is 2x. And we expect to see the capacity utilization of these assets by FY 2026. That's what we have stated.
So just I'd like to-
The business outlook and our view on, on battery chemicals, right?
Just, just to get a perspective, what would be the number of, you know, what is the number in terms of the investment that we have made right now?
We have already stated, I think it's around 800, INR 600-INR 800 crore that we have invested in our battery chemical business so far, particularly in the integrated LiPF6 plant and also electrolyte plant.
Sure. Sure. That answers. And the second question, again, unfortunately, harping upon the margins part. So, in 2018, when we had actually started working on the fluoropolymers plant, in one of the presentations, we had indicated that, from... I mean, the investment that we were going to make that time, the revenue potential was about INR 600 crore and, EBITDA of about INR 300 crore, you know, indicating probably 50% margins. Just to get a broader perspective, what would be a broad margin range for the fluoropolymers and the fluorochemicals segment? I mean, I'm not talking about the current environment or the last year's environment, but in a normalized environment, what would be a broader range?
Again, I mean, it need not be a, you know, small range of, say, 30% ± 1% or so, just a broader range. And this will help in terms of, modeling, what could be the broader, you know, consolidated margins for at a business level. Thank you.
... We have stated, with that under normal condition, our average margin to be around 30%. Obviously, in this average, the fluoropolymer is at the top, where contribute maximum, and, followed by specialty and ref gas, and finally the, the bulk chemicals, because we have a spread from bulk chemicals to, to fluoropolymers. So we do not give, guidance on individual segments. However, we have stated that under normal conditions, we expect to get 30% margin.
Sure, sir. Thank you so much, and best of luck.
Thanks, Rohit. Thank you.
Thank you. The next question is from the line of Mithun Soni from GeeCee Investment. Please go ahead.
Yeah, hello. Just, sir, I want some clarity understanding. So let's say if you were to benchmark on a index of 100, all the prices, for Q1 or Q2 two last year, or whatever way you'd like it, which products is where you have seen the maximum decline? If you can give some percentages as to what has been a decline.
It's difficult to give, but let me start the, you know, from the, in the commodity segments, where the prices are on, CMS and caustics. Okay, there's a significant erosion in terms of the pricing in this segment. There's also, in case of ref gas also, there's an impact more on the volume side and marginally on the price side as well. Fluoropolymer, if I look at it, as Kapil has stated, and I said earlier that the major impact has been on a low-end PTFE commodity segment, which got impacted more. So this is the situation.
Can you give, like, a percentage form, like if you as on a base of hundred, like, in the lower end PTFE, the percentage decline in pricing would be what about? This is for us or for the industry. Would it be about 10%, 15%, or is it mid-20s, and similarly in the ref gas?
Yes. Again, I'm struggling to how to give product, because there's a very large number of product mix and the product-
I'm just trying to... I mean, a broad indication. The idea is that,
When, which is, you know, impacted significantly by by Chinese and Russian, the drop has been very, very significant, probably 25% to 30% almost.
25 ±5, I think, yes.
Okay. So that would be the impact which you would have seen in the low-end PTFE grade, where the competition was high.
You know the numbers for the other commodity segments.
Correct. Correct. So, and so you're saying if you were to exclude these three categories, the fluoropolymers, the specialty and everywhere, is the impact of pricing is not material, in the sense it may marginal ±3% to 5%?
I'm sorry, impact of what did you say?
Impact of pricing in the specialty fluoropolymers or specialty chemicals, other than this low-end PTFE, the high-end PTFE, the PVDF, the PFA, the impact of pricing.
No, not been impacted, as I stated earlier.
Okay. So basically, this is the only impact which has affected us to some extent, and given that the raw material, we had this higher price raw material, we have also seen the gross margin impact, which should go back to normal in the subsequent quarters. Is that a fair-
Yes. I think once, the volume looks up and we see a tailwind from the factors that we stated w e expect to get back to numbers in fluoropolymers, what we had achieved earlier.
But, sir, and you said that recovery of destocking coming to completion, competition is also sort of normalizing from China. Are you seeing the things start improving at the ground level in this quarter itself, or you feel it has still to catch up in terms of the improvement?
Yeah, I'll let Mr. Malhotra take this one.
See the headwind from China still remain in this quarter also. However, you know, as stated earlier, at least I'm seeing in the business prospects from, you know, all the global, you know, arena. As for our fluoropolymers, the green shoots have started coming in, and the number of inquiries are going up. And I expect that momentum now to continue. And as we stated for the reasons earlier, the subsequent quarters should start seeing those uptrends, you know, quarter by quarter.
Correct, correct. One last question, great clarification. As we indicated that FY 25 should be, we would like to surpass FY 23, can we... Should we look at it as an absolute basis surpass both in terms of the revenue as well as operating profit? Because margins, I understand, there's a lot of volatility, 30%, 32%, 35%. But on an absolute top line and revenue and absolute operating profit, what we did, will we, can we-- you think we can surpass that in FY 25?
... Or we'll try to get that exactly, what I stated earlier. Yes. Yes.
Fair. Thank you very much, sir. Thanks.
Thank you. The next question is from the line of Yash Shah from Investec. Please go ahead. Mr. Yash Shah, are you there online? Because you're not audible.
Hi. Am I audible now?
You're audible right now.
Hello. Hi. Hi. Hi, sir. Thank you for the opportunity. Sir, first question was regarding on the refrigerants side. You mentioned during our opening comments that the business was impacted majorly because of phasing out in US Just wanted to understand from you, sir, wasn't this supposed to be helpful for us that we would have been able to send the US producers who want to be, like, cutting down on the production, that would have given us an advantage? I just wanted some clarification on that one first.
Still, Yash, your voice is breaking. Can you... Still not able to get your question, please. Can you just repeat the part? I think you're asking about the US market, the ref gas.
Yeah. With the US phasing out, yes. Of the US phasing out, sir, was that not supposed to benefit us? Is what my question is, sir, on the ref gas front?
Yes. Actually, the thing is that the phasing out is of particular, as you said, the R125, because of high GWP potential. And the thing is that this time it got impacted from domestic as well as the US both. And there's also been some other issues in US which I would like to point here, that there have been a some circumvention has happened in US imports. And because of that, some of the volumes to US has been impacted. Because some of the plans was ported avoiding or circumventing the duty structuring.
Understood. So, sir, is this not structural in nature? Like, what can lead this to, for this trend to change, are there any duties coming up that you are aware of? Can you throw some light on that?
Yeah, I think this is what we understand from the market space, that this is not structural in nature. It happened, and then now it's normalizing. So, over the... We stated that our ref gas volume is expected to improve from what we have seen. However, it may not be as big or as high as what we have seen in the FY 2023.
Okay. Okay, sir. Thank you. Thank you for this. So my next question was regarding new age verticals which you are targeting by the likes of EV and solar. Can you provide some kind of an idea of when do you plan to launch PVDF in battery and solar, and, say, in Semicon? Also, if you can basically give some idea of how many customers we are interacting on the electrolyte, and electrolyte side. Some kind of a qualitative answer on these new age verticals, sir?
In the EV segments, our plans are already at the final stages of commissioning. We expect to do the sampling from these commercial plants very soon. Some of the samples had created at the lab scale has already been with the customers. So we are engaged with large number of not only domestic, but also global customer on EV. And as I said earlier, that once we have this plant fully commissioned and commercialized, we will have a special call and separate call to give you all a complete overview of the battery chemicals and our plan and going forward on that.
Understood, sir. Also, sir, one last small, small clarification question, sir. We have seen PA-PFA demand to have picked up significantly in this quarter. Is there any specific reason for that, sir?
Yes, of course.
Yeah. Yes. So, the semicon industry is doing well, and because of the, you know, already mentioned that in the, you know, demand is gonna come from AI and 5G segments, too. So because of that, expansions are happening in the semicon industry. We have also seen that in India also, PLI has been announced. So in anticipation of that, the investments are coming, and the demand for PFA is coming up quite nicely for us, and we are also, you know, making our expansions and debottlenecking just to suit that demand also.
Got it. Got it. One last small question from my side, sir. How much capacity have we added in the fluoropolymer side in Q1?
We have already stated earlier that, you know, there are certain nameplate capacity, because when we add, you know, when actual products are made, different product grades have different productivity. But, we already had stated earlier that the new fluoropolymer capacity addition was, I think, around 1,400 or 1,500 tons, something like that, what we stated earlier, several quarters back. Okay. So we are in the phase of ramping up those because as we speak, and these all will get utilized... Over a period of next year.
Understood, sir. Thank you for answering all my questions, sir, and Happy Diwali!
Thank you. Happy Diwali to you as well, to you as well.
Thank you. The last question is from the line of Resham Jain from DSP Asset Managers. Please go ahead.
Yeah. Hi, good evening, team. So I have just one question on the price fall. So one is that whatever you have sold, there will be a lower gross margins, and that's a part of PNL. And the second is whatever raw material and finished goods inventory you might be carrying, and has there been any provision element also in your numbers this quarter?
Yeah, I'll invite Manoj. I don't think we have any provision.
No, no, no. There is no provision element in this call, I suppose.
Okay, perfect. That was really it. Thank you.
Yeah, thanks, Resham. Thank you.
Thank you. I would now like to hand over the conference to the management for the closing comments.
Yes, thanks a lot, and, let me close this call by reassuring, all of you on the positive outlook, that behold before us. And the work that we have done behind the curtains to be able to tide over this tough phase and embark on the growth journey. We have all the building blocks in place and, in our major business segments, be it fluoropolymers or specialty chemicals. We are poised for a very strong growth, going forward. There are also some, questions on margin, and I would like to assure you that going forward in FY 2025, we expect to get back to our normal business margin, which is, 30%. And, looking at the current, business scenario, I would not be able to provide much guidance on FY 2024. Okay?
So to close it, we are confident of delivering growth in FY 25, and the remaining quarters of H2, we expect to be better than what we have seen in H1. We are seeing some green shoots also. And with this, I would like to close this call and thank you all for interest in GFL, and would like to wish you and all your families a very, very happy Diwali week. Okay, thank you. Thanks, Jain.
Thank you very much, sir. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.