PL Sector Report: Fluorochemicals - Sector Report – Champions of magicis elementum!

Fluorochemicals - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd

Sector Report – Champions of magicis elementum!

It took more than seven decades to isolate the magicis elementum - Fluorine, an effort that landed the French chemist Henri Moissan with a Nobel in 1906. Since then, there has been no looking back for fluorinated chemicals, with increasing applications in refrigeration, life sciences, agrochem and polymers. We believe that Indian fluorochemical companies are well placed to capitalize on growing fluorination demand in mass markets given 1) global refrigerant market to expand at 6.4% CAGR over FY23-28E (to reach USD9bn by 2028) 2) remarkable 64% of New Chemical Entities (NCEs) approved by Food & Drug Administration (FDA) in CY22 made use of fluorination chemistry, almost double of 34% witnessed in CY15 3) 11 out of 15 new ISO assigned agrochemicals in 2022 had fluorination in their chemistry compared to 6 out of 17 in 1998 and 4) fluoropolymers finding applications in newer areas like battery membranes & solar films. While fluorochemicals are battling lack of consistent data, user industries like pharma and agrochemicals with size of USD516bn and USD228bn in CY22 are expected to grow by 7.7% & 3.0% CAGR respectively in CY23-30.

Considering strong potential upside and huge demand uptick in the industry, we initiate coverage on 3 fluorochemical companies: Navin Fluorine International Limited (NFIL) with ‘Accumulate’ rating at TP of Rs 5064 valuing at 40x Sep’25 EPS of Rs 127, Gujarat Fluorochemicals Limited (GFL) with ‘Accumulate’ rating at TP of Rs 3230 valuing at 25x Sep’25 EPS of Rs129 and SRF limited (SRF) with ‘Hold’ at TP of Rs 2143 valuing at implied consol Sep’25 EV/EBITDA of 11x).

Lifescience & Agrochem to grow faster than user industries : Fluorinated molecules find increased usage in both life sciences and agrochemical applications due to unique properties of a strong C-F bond namely 1) lower vulnerability to bio-degradation by stomach enzymes thereby ensuring higher bio-availability at target receptors, 2) better penetration of cell membranes, thereby increasing the absorption - a property called as lipophilicity, 3) ability to lower the acid tolerance of bacteria, thereby helping as anti-bacterial agent. Due to higher acceptance, we expect usage of fluorinated drugs to significantly outgrow user industries like pharma and agrochemicals at 7.7% and 3.0% CAGR.

Fluoropolymers - Increased usage in new-age application: Fluoropolymers are finding increased usage in automobiles, electrical and electronics and new energy applications like energy harvesting, sensors, 5G etc. due to 1) higher chemical resistance, 2) better insulation properties, and 3) stability at wider range of temperature and pressure. PTFE (polytetrafluoroethylene), accounting for ~60% of global fluoropolymers is expected to grow at ~5% CAGR till 2030. PVDF (polyvinylidene difluoride), the second largest accounting for ~20% of total fluoropolymer consumption, is expected to grow from 67,000 mtpa in CY22 to 150,000 mtpa in CY32. However, it may be noted due to ongoing research and wide scale adoption of fluoropolymers demand may easily outgrow these forecasts.

Refrigerants – Permanence across generations: Fluorine gases have been an integral part across generations of refrigerants as we move to find gases that are more environment friendly given its 1) unique property of liquefaction at ambient temperature and modest pressure, 2) inert, un-flammable and unreactive nature, and 3) low toxicity. Global refrigerant market is expected to rise by CAGR of 6% to USD9bn by 2028.

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