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Ladies and gentlemen, good day and welcome to the Gujarat Fluorochemicals Q3 FY '23 Earnings Conference Call hosted by Batlivala & Karani Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Archit Joshi from Batlivala & Karani Securities India Private Limited. Thank you, and over to you, sir.
Thank you, and good evening, everyone, and thank you for joining Gujarat Fluorochemicals Third Quarter FY '23 Earnings Conference Call. I thank the Management on behalf of B&K Securities for giving us the opportunity to host this call. I'd like to welcome the Management of Gujarat Fluorochemicals represented by Dr. Bir Kapoor, Chief Executive Officer; Mr. V.K. Soni, Head of Projects and New Initiatives; Mr. Manoj Agrawal, Chief Financial Officer; and Mr. Vibhu Agarwal, Head of Investor Relations. Without further ado, I'll request Dr. Bir Kapoor to begin with his opening remarks, after which we can have the floor open for a Q&A round. Thank you, and over to you, sir. Thank you.
Thank you very much, Archit. Good evening, everyone. This is Bir Kapoor. A very warm welcome to all of you on this GFL's Q3 FY '23 Earning Call. The company had announced its Q3 results at its Board meeting held today. The results along with earnings presentation is available on the stock exchange and also on our website. I will briefly talk about the numbers and then give you an update on the business operations and outlook. First of all, I'm pleased to report that for the quarter ended December '22, the company has reported a consolidated revenue of INR 1,418 crores, which is up by 41% year-on year. The consolidated EBITDA for this period was INR 523 crore, which is up by 66% on year-on-year basis. The EBITDA margin continued to remain healthy and we were at 37% for this quarter. Consolidated PAT for this quarter was at INR 331 crores, which is up by 64% on year-on-year. Other key financial parameters like return ratios, continue to remain strong. The ROCE and ROE improved to 35% and 28%, respectively. The net debt to equity ratio has reduced to 0.21. GFL is continuing with its journey to deliver a strong set of numbers and is building a strong foundation for future growth. We have been consistently delivering growth and value to all our stakeholders. GFL is going through an exciting phase, where we are transitioning towards becoming a leading global player in wide range of new fluoropolymers, which are essentially high-end materials for advanced applications. While these new range of fluoropolymers provide growth in near term, we are also positioning ourselves to capture the growth from sunrise industries like EV, green hydrogen, semiconductors and 5G networks and other new range applications where fluoropolymer applications are there. We believe these new drivers will ensure sustainable growth in the future. Let me now take you through various business verticals and our performance in these last quarter. As you may have seen in the presentation, for the reporting purposes, we have reclassified our business verticals to bring in more segmental focus on businesses. We have now structured our business along 3 verticals, namely, Bulk Chemicals, Fluorochemicals and Fluoropolymers. We believe these verticals capture the business complexities and cyclical patterns which are similar in nature. As you may have seen, we have clubbed all our Fluorochemicals, including refrigerants in 1 vertical, while commodities like caustic and MDC into a separate vertical. Due to fungibility of operations and similarity in market scenarios, we have clubbed all fluorochemicals -- all fluoropolymers, I'm sorry, in 1 vertical. Going forward, we will be sharing with you the performance and value drivers in each of these verticals. To begin with, let me talk about the Bulk Chemical vertical. This segment has seen a quarter-on-quarter revenue growth of 6%. The plants are running at full capacity and, going forward, the prices are likely to be under pressure due to additional suppliers which are coming into the market. In the Fluorochemicals segment, the price and volumes have remained stable, barring some seasonal impact in refrigerants. While we expect the refrigerants to remain stable, we expect to see growth in this segment in next few quarters as the new Fluorochemical plants get stabilized and the production has ramped up post customer product qualifications. The Fluoropolymer business has continued to remain stable, with pricing remaining firm, barring some minor impact on volume in the last quarter due to holiday season in our major markets. Our investment in Fluoropolymers has been progressing well. Except for some delays due to delay in equipment suppliers, we expect these capacities to result into increased sales in next few quarters as capacity utilization is ramped up and additional qualifications takes placed. We expect the demand for the Fluoropolymer to be stable as leading legacy players have not expanded and, in some cases, exiting the overall Fluoropolymer markets. The new Fluoropolymer market has a positive growth outlook due to the emergence of new demands from segments like semiconductors and EV batteries. Let me quickly touch upon our new age industry segment catering to battery chemicals. Our investment in this segment is moving as per the plan. As a first step, we are setting up an initial commercial capacity for LiPF6 to seed the market. This line is expected to come up in the first quarter of FY '24, and we expect that it may take few quarters to get through the qualification and approval processes. We have been in touch with major player in this segment and we see that LiPF6 would continue to be the mainstay of the battery chemicals and would be a major part of the ecosystem for the foreseeable future. We intend to expand this portfolio to include other battery chemicals as well. Global automobile market is progressing fast forward towards EV ecosystem, and we are in dialog with many of the potential battery manufacturer in India as well as overseas. There is no change in the CapEx plan as stated in the last quarter. We are looking at CapEx of around INR 2,500 crores split between this financial year and the next financial year. We may see some upward revision on this plan. However, we'll update you more on the next year's CapEx plan as and when these CapEx 's get approved. On the advances for the wind capacity, GFL has received INR 623 crores from Inox Wind, during the quarter against the advances that GFL had given to IWL for setting up the wind power capacity. The advances have been paid, adjusting for the wind power capacity that Inox Wind will be commissioning for GFL. We believe the Fluoropolymer will continue to provide a strong growth for next few years. This will be further aided by the growth from the battery chemicals segment, starting FY '25. The work of several years, developing grades, getting customer approvals and qualifications is now paying rich dividends for us. We are well poised for strong growth going forward. The overall business environment is in our favor, and I believe we are in a very good spot to be able to participate in the sunrise industries and deliver growth for next several years. With this, I close my opening statement, and I would now like to open the floor for question and answers. Thank you.
[Operator Instructions] Our first question is from the line of Sudarshan Padmanabhan with JM Financial Services.
Sir, my question is to understand a bit more on the shutdown that is happening in Europe, primarily with respect to the PFAS. So in a way, I mean it's going to be something like a Europe Plus One for us. I mean, if you can elucidate, I mean, do we have capabilities that is basically built to capture that opportunity, do we have something which can do the polymerization without the PFAS, if you can give some color on that, sir?
Sure. Sudarshan, as I understand, you are referring to one of the European manufacturer which is planning to exit this market.
Yes, that's correct.
What we believe is, let me give you a little bit about the PFAS. PFAS is small chlorinated molecule that tend to be bioaccumulative and it gets into the water stream and human tissues. Fluoropolymers per se, which are long chain molecules, are absolutely safe as they neither dissolve in water, and they are neither mobile nor bioaccumulative because of their large size. Having said that, in the process of manufacturing it, there are certain fluorinated surfactants which are used, and I'm really proud to announce that GFL has developed technology for the entire portfolio of fluoropolymers without the use of fluorinated polymerization aid. So in that respect, Sudarshan, we are very well positioned to face the challenge, and it's actually not an issue for the fluoropolymers that is manufactured by us.
Sure. Sir, my question is, while you've talked about some of the commodity prices coming down, I mean, if I look at our business model, we have one of the best supply chain. I mean, right from, we have a JV for fluorospar, and if the caustic chlorine prices comes down, I mean, you basically capture it as a lower cost in manufacturing of R22. If R22 price comes down, we can do more of TFEs. If the TFE is lower, you can probably make more of PTFE or PFA. So is that understanding right, even if the commodity prices comes down, you might have a momentary shift between one segment to another, but largely the price fall should be captured as an input cost benefit to another segment. Would that be a right understanding, sir?
Yes. I mean, as you have rightly put, we are completely backward integrated. And for example, for our PTFE fluoropolymer, the raw material is salt, power and methanol. So most of these -- so we are actually insulated from any kind of a commodity price variation in the intermediate part. So I think your understanding is fine, it's just -- it's not going to have an impact, either the price rise or price drop in any of the intermediate chemicals.
One final question from my side before I get back. So if I split it into 2 parts for the question, the new capacities are coming in fluoropolymer. I mean, from the current -- I mean, currently we are doing about 55% plus or minus. Where do we see this business, say, in 3 years? And second is with respect to the guarantees. I mean, have the guarantees given to Inox Group basically been fixed, or are we in the process on that?
Regarding the guarantee, I'll request, our CFO, Manoj to -- Manoj, can you answer that?
Yes, sure. See, as you have seen in the opening remarks, we have already received 2/3 of advances which we have paid to Inox Wind. And the balance, we will be using for the capacities we will set for the Wind. As regards to guarantees, we will also pulling it -- started pulling it down. We are well on track to have all the guarantees removed by end of next financial year. And it will be also pertinent to note that none of the guarantees till date got triggered or revoked -- invoked. So that answers your question on the guarantees and advances.
Coming back to your question on the future, we normally don't give any projection for 3 years. However, all I can tell you right now that going forward, we see growth from the Fluoropolymers where we have made investment in this year. And we see these 2 result into a significant growth for the company.
[Operator Instructions] Our next question is from the line of Sanjesh with ICICI Securities.
First, on the fluoropolymer side, you touched upon the 3M exit and PFAS regulation. I just wanted to understand to capture this opportunity, which is opening up in the TFE market, are we planning to add more PTFE, because it's only 3,000 metric ton of capacity of PTFE, what we are talking. The industry of 2 lakh metric ton is growing at 6% that need to be feeded and the certain European guys who are exiting. Obviously, we have enough upscaling opportunity, but we don't want to leave the opportunity of volume growth. So how are we looking at PTFE expansion apart from the debottleneck what we have already announced? That's number one. Number 2 is on the LiPF6. Now the prices of LiPF6 have sharply corrected. Does it impact the economical ROCE with which we have embarked on this CapEx? And do we really want to restrict ourselves as an LiPF6 player or we are looking at more holistic electrolyte -- electronic solution player? How are we placing ourselves in the battery chemicals? So these are 2 of my initial questions.
Thanks, Sanjesh. Let me come to the first question regarding the exit of the large fluoropolymer producer in Europe and PTFE. We have already announced debottlenecking of PTFE capacity, Sanjesh, you know that. And what our plan right now is to get the full capacity utilization on PTFE first, what we already have on the plate, and then subsequently look at further debottlenecking or adding more reactor as the demand comes up in these segments. And as far as the TFE availability is concerned, we already have TFEs available. We do not see any issue in ramping up our capacity. Coming back to the second question that was related to battery chemicals, and I have stated that LiPF6 is a starting point for us to get into the segment. Eventually, we would like to get into more chemicals related to battery, which have synergies with whatever we plan to do, and eventually get into electrolyte and solutions, like what we talked about, because that market is still evolving, Sanjesh. And as you know, the Indian market will come probably by FY '25, and global market is still evolving. So we certainly have plans to be -- have a larger play in this segment.
One follow-up on the fluoropolymer. In the new fluoropolymer, we were in a process to expand the capacity from 8,000 metric tons to 18,000 metric ton. One, where are we in that expansion plan? Have we completed the expansion of the entire 18,000 metric ton, what we thought? Number 2, what is the utilization rate of the existing fluoropolymer that will help us understand what is an upside potential from the fluoropolymer business from the existing capacity?
In terms of the capacity, I mean we had given a plan of investment and ramping up our capacities on new fluoropolymers. Our plan is progressing well, as I indicated earlier. We are well poised to go to 1,400 or 1,500 tons per month, as we've indicated earlier. And currently, I can say that we are probably around 12,000 ton-plus capacity. And again, in these things, there are 2 parts, Sanjesh. One is capacity in place, and second thing is the capacity utilization. So I think both are being progressed. And I expect that the next couple of quarters in the next financial year, we will be able to get the full benefits of this capacity addition.
So can you help us understand in Q3, what was the utilization rate in the new fluoropolymer?
It would be difficult for me to give that utilization rate, Sanjesh, because these are depends -- one more thing I would like to highlight is that we have been talking about capacity rather loosely in these calls in the past because as you know, the capacity goes up and down depending upon the grade we make. And for example, if I make a very highly specialized grade, my capacity can drop as much as by 65%, 60%. So it would be difficult for me to give the capacity utilization, but all I can tell you is that in next financial year, in 2 quarters, we'd be able to -- we expect this capacity to be fully utilized.
Sorry, I am harping on the same thing, but what do you anticipate in terms of when we are running at a full utilization, what is the revenue potential from this new fluoropolymer at the peak of the production capacity?
See, normally -- let me put it another way, Sanjesh, because to get the revenue potential in the right way, I would rather talk about the asset turnover, okay? And see, in these capacities, where we have no backward integration, you can take asset turnover anywhere between 1.5 to 2.0. That's the number I would like to leave with you, to get the full revenue from these capacities because these are -- because we are already backward integrated in most of the cases, and these are primarily the front-end additions. So I expect the asset turnover over to be the range of 1.5 to 2.0.
So what is the capital employed here?
We already mentioned that it's -- this current financial year, it's in the range of -- so it's around INR 500-odd crore. You can take INR 500 crore, INR 550 crore, something like that, as said in one of the calls earlier.
Our next question is from the line of Rohan Gupta with Nuvama.
Congratulations on good set of numbers. Sir, just few numbers, if you can just run us through. So sir, this year we have added significant capacities in PVDF and also in FKM range as well. Sir if you don't mind sharing the current running rate of all these PVDF and FKM at -- and with the current utilization levels, it will be helpful.
It will be difficult for me to give the capacity number and running numbers for obvious reasons because these are particularly for the product segment. These are considered numbers for us, particularly for PVDF and FKM. So I would not…
Okay, sir. I will not ask further specific, but if you can just give us some sense that adding PTFE, FKM and PFA, all this put together, what is the monthly production run rate right now and what we -- what was the number when we started the year, so we can just say that how the benefit will be coming in FY '24. If you can just share those numbers, at least?
One of the things that I have -- we had already indicated in the past that after the full utilization of this capacity, we will be at the 1,500 tons numbers, approximately, of the new polymers. And we…
1,500 tons, we will be achieving that number?
Right. And we have capacities in place. I mean, right now there are 2 things happening at the same time. One is, we are adding capacity. And second is utilization of these capacities, because these are -- when we add the capacity, we also have to qualify the grades and add customers because these are not commodities like caustic, where I add capacity and I start selling next day. So there is a time lag between the -- putting up that physical capacity and doing the capacity utilization as we go along. As I had indicated that we expect this, whatever the investment that we're making this year, which is this financial year, which is essentially approximately in the range of what we had indicated, INR 1,500 crore in new fluoropolymers, I expect to see this capacity getting fully utilized by next 2 quarters, so in the next financial years, 2 to 3 quarters.
So sir, just to clarify, you mentioned the fluoropolymers capacity is 1,500 tons per month that we are aiming to achieve and that will be available for next year, right?
Correct. This is what has already been announced. We have indicated that in our earlier calls. If you recall, this…
Yes. So this will be achieved with the CapEx -- current CapEx of INR 1,500 crore which we have planned to invest, right?
Correct. The total CapEx, that was the plan. However, for the new fluoropolymers, this number was not INR 1,600 crore, it was around INR 500 crore and INR 550-odd crore as I indicated earlier.
Right, sir. Sir, second is on our fluorochemical business. Though you have changed the grouping and fluorochemicals, I believe, that include both the Fluorospecialty chemicals and also, the ref gases business, right?
Yes.
Just wanted to check that in terms of the specialty chemical business, Fluorospecialty, how has been the ramp up, because, I think, that was something which was still struggling in terms of the growth? So how has been the growth there?
Yes, we had a CapEx plan, which already -- capacities have been added, the plants are commissioned. Now they are in the process of being ramped up, and in some cases -- see we had 2 set of investments there. One set was more towards the backward integration and second was for the new products. And the new product part is now getting qualified. So I expect is maybe another quarter or 2 quarters or so, we should be able to get them on board completely. And coming back to the grouping, the grouping is because these are all falling into the fluoro chemicals range. They are very distinct in the nature, and also in terms of the location and capacity they are within a certain unit. So it makes sense for us to have them put into one category.
Sir, just last one, and I'll get back in queue. When this power plant will be available for use in terms of commissioning line?
Yes.
This swing capacity is actually the policy has been already announced, an extension up to 30 June 2023. And we are also in process of getting that EU approval. Once that is in place, we expect that by next -- first quarter of the next financial year, we should put up these capacities.
Okay. And you'll be 20 MW power plant?
Yes.
Okay, and what will be the wheeling rate, here, sir?
Wheeling rate, he is asking.
The PLF factor, we assume around 25%.
No, sir, if you could just share the cost to us in terms of what will be our expected cost?
So we cannot divulge you to the cost, because it is of factoring because of the PLF factor and other O&M cost and the location, wheeling losses, banking regulations and other things. But it will be still cheaper than your conventional energy, lot cheaper than the conventional energy, either from coal or gas.
So it's cheaper than the normal grid power or our power.
And sir, what about the guarantees, which we had given to the subsidy? Is that also cancelled or that stands still and will be only over by end of the year?
Yes, yes. Next financial year end. That I have already answered in one of the question which was asked earlier.
So that will be -- this financial year end, FY '23 end, right?
Next financial year.
We have started putting it down, and it will be fully off by the end of next financial year.
Our next question is from the line of Rohit Nagraj with Centrum Broking.
The first question is again on the wind power project. So I understand when we had envisaged 125 MW of project, we were expecting about INR 150 crore to INR 175 crore of savings per annum. So with this 20 MW power plant next year, I mean on a yearly basis, what will be the savings that we are expecting now?
It may be around INR 4 -- savings will be around INR 4 per unit.
Yes.
And in terms of capital, if you can give us the number?
Let me calculate it out. Around 6...
Sorry?
Around INR 40 crore.
INR 40 crore per annum.
Yes, yes.
Sir, the second question is on the PVDF film. So I understand last time we had indicated that the plant will be commissioned by sometimes July '23, and commercial supplies will start, maybe 4, 6 months post that. If you can just tell us what is the status for the same?
Yes, yes, we are on track with that plan, Rohit. We are still holding on to that date. So we will be -- our plans would be mechanically complete by that timeframe and start production.
Our next question is from the line of Ketan Gandhi with Gandhi Securities.
Sir, I have 2 questions. One is, in last con call, Vivek ji said something about saving a lot of cost in the power, but he did not divulge with details. Any concrete plan has happened on that?
Yes, we are -- yes, Ketan, we are already working on it. Still, it's not finalized yet. We expect to finalize in next few months. We'll let you know where we expect to have a saving in the power cost. Not finalized yet. We are still working on that, Ketan.
Sure, sir. And sir, I believe, there are only a few, very few, I mean, or total, there were 4 players as far as semiconductor grade PFA is concerned. 3M is out, so another 3 player. So how we are geared up to take that forward in terms of PFA in semiconductor grade, because we have a lot of markets in Japan and USA, both. Japan, we are getting the premium valuation.
Yes, Ketan, excellent opportunity for us. And I'll request Soni to...
Yes, so you are very right. PFA is an excellent opportunity. Semiconductor is a requirement of each country because of strategic reasons. And we are also gearing ourselves. First of all, the monomer TFE, we have adequate availability. We are also expanding our capacity by adding a couple of more PFA reactors. And we are also going to develop these new grades for the high purity semi applications.
Sir, in terms of timeline, how we can see the first batch out for the commercial sales?
So I think in 3 quarters, we should be seeing the start of semis. Actually, in semis also there are different grades. High purity, ultra-high purity. So depending on that, we'll be steadily moving towards the ultra-high purity grades.
Sure, sir. And sir, PVDF backsheet panel, we were to commercialize that in coming financial year. Are we on track on that or there is some delay?
No, as we just mentioned the PVDF film will be commissioned in July in this year, '23.
Okay. And sir, that PVDF film capacity is part of that 18 -- 1,500 per annum new fluoropolymer capacity or it is -- we have to account it separately?
Yes, it is part of that.
Our next question is from the line of Anant Jain, individual investor.
Congratulations on a very good set of numbers. My question is more in terms of what we see on PVDF and LiPF6 in China. Currently, LiPF6 prices have fallen significantly and similar thing is happening in PVDF battery grade prices. So my question is that, other fluoro -- if you pay -- if you can give the number of grades, roughly, per fluoropolymer wise, which kind of tells that these are not commoditized? And secondly, when I look at Tinci, what Tinci has done is that it has actually contracted out a lot of capacity of LiPF6 and other battery chemicals, and they use lithium carbonate as a base price, and then they have some kind of formula on top of that. So how are we looking to work through these kind of grades where large capacities have come up and the prices fluctuate significantly?
So basically, you are right. The lithium -- the LiPF6 prices were higher earlier and now they have corrected, but actually our margins will not get impacted because we already started with a lower capacities after reasonable studies. Lower -- I mean lower prices. In fact, the prices we considered are much lower than even the corrected prices. So our margins will not get impacted at all. About the issue of Tinci, you mentioned, yes, of course, it's a new age chemical and there are different technologies, and one of the technology Tinci is using, they are still, we understand, working on this. According to our information, there are some issues, and while we are going for the process which is adopted by bulk of the LiPF6 manufacturers globally.
So my question was more in terms of contracting out capacities with lithium carbonate acting as a passthrough kind of a pricing mechanism so that we are not exposed to the vagaries of the market. So are we also looking like once...
So actually, there are different arrangements for tying up the lithium. So we are working on all these arrangements. And very soon, we'll be having a long-term strategic arrangement in place.
Great, sir. My second question is, we were supposed to get FKM capacities in the last quarter. If you could give me -- are those capacities on stream, and when can we see numbers coming out from those capacities?
See, as I indicated earlier, the capacities are coming up as of now, but we cannot give the exact capacities as of now, whatever that's come up. And the ramp up of the capacity utilization is in place. So we are -- as far as the investment and setting up the reactor, I think we are on track and we are ending on the capacities, as I had indicated earlier.
Great, sir. One last question if I can squeeze in, for R142b, is the only application is to -- like getting into fluoropolymers or is that R142b has any other applications on the refrigerant gas side?
I don't think there's any refrigerant application. R142b is mainly used as raw material for VDF and then that range of polymers. It used to be there earlier because it -- essentially, it's a refrigerant, but not because of its a ODF. It is out of the -- it is part of the banned substance now. So it's only used as a raw material right now not as a refrigerant.
Our next question is from the line of Nikhil with JM Family Office.
Yes. This was regarding your comment which you made that you'll be gradually transitioning to the new non-fluorinated surfactant technology which takes away the risk of any kind of regulatory action. I just wanted to understand for the entire capacity by when will this transition happen? And will this be only for some part of the capacity or the entire production will move to the new technology?
Yes, we already have technology in place, and we are slowly going to change, and we expect this transition to be complete by the end of this calendar year, in next 4 quarter, by December '23. I mean, it's around that time because there are -- because these are changed step by step and the grades are qualified as we go along. But we have the technology, we have the know-how, how to do it.
And just to be sure, would this technology be unique to you or...
It's proprietary to us and it's a patented technology for us, and I'll request Mr. Soni to add to this.
You see, actually, as Dr. Kapoor mentioned, we are the first company globally to announce this technology. And after a lot of in-house development, we have perfected this technology. Almost 5-year time it took us.
We have been working on it for quite some time now, and now we have reached a point where we have started implementing it and rolling it out.
And once you transition to this, that takes away any kind of risk of any -- if at all the regulatory authorities ban any of these products, that it takes away that entire risk. Is that right?
Yes, 100%, entirely it takes away, because these are non-fluorinated.
Our next question is from the line of Garvit Goyal with Nvest Research.
Sir, my question is on, what are your current development from this nascent, or we can say PEM membrane slides, that is going into the hydrogen? So is there any development or is there any…
So yes, we are developing the Proton Exchange Membrane, PEM, for both the application, that is fuel cell as well as electrolyzers. And it will take us about one year to have the product out. And the progress at the moment, I must mention is quite satisfactory. And we should have the initial samples ready for sampling quite soon in maybe 1 or 2 quarters.
And sir, you're not giving guidance for long term, but is there any estimated top line for FY '23 that you are targeting internally?
Actually, as you know, the focus is presently on EV and hydrogen, green hydrogen. Although in the news, it is still yet to see actual capacity on the ground. But in any case, we are getting ready for it.
No, actually, I was asking what is your internal target for top line for FY '23?
And in any case, it is difficult, it is little early in India.
Sorry, actually, I think there's some confusion. I am asking for the overall top line for GFL by the end of FY '23.
See, normally, Garvit, we don't give top line guidance because -- but we have been saying all along that we are looking at 20% to 25% growth every year. That is what we have been taking as a target going forward.
Our next question is from the line of Nitin Agarwal with DAM Capital.
Just continuing on the PFSV PTFE business that we talked about. Sir, in your assessment, as this market transitions to PFSV market and with our capabilities on this -- making this product, I mean, how do you see that in terms of what are the -- qualitatively how can the market in your assessment change? Does it become a more value-added market, does the realization per ton overall for the marketing changes meaningfully versus where it is right now? And even from a competitive perspective, do you see a significant reduction, even further from the number of players who are out there?
See, we have to see how this market evolves and how regulatory systems -- restrictions come in place. But we are very well positioned. And the way we see our differentiation is both in volume as well as the price because as some of the players who do not have this capability may fall out, so there will be an opportunity for others to come in, obviously. And we are very well positioned at this point of time.
Yes. I mean, the point is absolutely taken. I was just trying to understand if this -- does this transition means that the overall value per ton for the PTFE market goes up in the future from a realization perspective and from a profitability perspective?
In the short term, as we are transitioning, it's sort of an old platform, which is on the environment and sustainability. It will, as the more pressure is built in, I think it will see a differentiation, but not at this point of time. But eventually we expect the pricing to go up as the players are phased out because of the pressures. At this point of time, it is beginning to happen as you see, and -- but on the ground, when these capacity go out, then you will see a bigger impact on the pricing.
And just secondly, in terms of the demand scenario that you're seeing for FKM and PDF, I mean does the demand/supply dynamics, I mean, if you can just give some thoughts -- your some qualitative thoughts on how you're seeing the demand and supply dynamics in both of these products? Is supply catching up in either -- in both of them or is there a marked difference in the demand/supply dynamics in either of the 2 categories at this point of time or you see it happening over the next couple of years?
Which categories are you referring to, Nitin?
FKM and PVDF.
So in terms of the demand/supply, as of now, the market, again, are segmented, because in PVDF, there is batteries market and there is a non-batteries market. So they have their own set of dynamics. But we see the overall market sentiments to be positive in these, because again, these are not commodities, these are very specialized product which are grade wise, and supply also, we need to look at from that perspective, because we have to see China versus non-China et cetera, et cetera.
And sir, last question on your battery chemical business, sir, what are the milestones that one -- we should be sort of our tracking in the business over the next, say, 2, 3 years from GFL perspective?
The first milestone is the commissioning the LiPF6. And then the next milestone is having it validated. So we hope to achieve both these milestones by the last quarter of this calendar year. And after that, the next milestones are of course to keep pace with the growing market, as well as to add more battery chemicals. These are the broad milestones.
And sir, for PVDF for the battery grade which was there, what is the milestone we should track for that?
So PVDF battery grade, we are much more advanced because the product is under advanced stages of approvals, maybe in 1 or 2 quarters, we would have the business starting.
And sir, just lastly on that, do we need to create specific capacity for this battery grade PVDF, or we've got -- our current capacities can start -- we can use them for commercial manufacturing when the approvals come through?
No, actually, we have a very limited capacity, which was for basically non-battery grades. And for battery grades, we would be adding capacities. As the market builds up, we have planned to keep on substantially adding reactors. But the monomer side, we have adequate capacities considering the market already we expect to come in.
So we have taken some capacities of 1,500 that we talked about into the battery grade as well. And as the market evolves for the EV batteries, we can add in more reactors going forward because on the backward side, we have adequate capacities. So it's only -- as the market goes up, we only need to do the front-ending. So in terms of back [Technical Difficulty] we are there actually, completely.
Our next question is from the line of Aman Vij with Astute Investment Management.
My first question is on the refrigerant side. So if you can talk about, we have both Class II refrigerants and Class III refrigerants, and with this protocols coming in. So are we allowed to add capacities or is it dependent on some kind of quotas? If you can explain that. And also per say, R22, are the companies allowed to add capacity if they don't sell it in the market, but if they want to backward integrate? If you can just explain all these things that is happening in both Class II and Class III refrigerants?
So for R22, the Class II refrigerants, we are allowed to add capacity only for feedstock use and not for emissive use at all. And for Class III, we have like HFCs, we are allowed to put up capacity only up to a certain time, which is the first quarter of '24.
And till that time any player can…
Pardon?
But the raw material used, I think this is allowed to be added.
Yes, yes.
There is no restriction per se.
Yes, for feedstock use, there is no...
There is no restriction.
Even in developed countries?
No. Actually, the ozone rules are varying from country to country. But according to us, it is the same, it should be the same.
Okay. And you talked about till first quarter of, I think, CY '24 or is it FY '24?
[Technical Difficulty] come up well before that.
Okay. And there is no limit to what companies can add?
Yes.
Sure, sir. My next question is on the fluoropolymer side. So if you can talk about the number of grades we have in total and in, say, PVDF, FKM and PTFE specifically, because this helps in understanding how much grade we have to cater to the market, number of grades.
It's difficult to say that number, but the number can be 100 or over a 100 number because there are -- grades keep evolving based on the customer, but -- so it's over 100.
100 is combined, sir, including everything?
Yes, exactly.
And for new fluoropolymers roughly, I'm okay with the rough number also, what is this number?
We have put every -- all the fluoropolymer in one vertical. So that's the number -- or maybe even higher, somewhere around, give or take, 15%, 20%.
Sure, sir. And just one clarification, you mentioned by Q2 FY '24, so that means in the next 3 quarters, we expect full ramp up of 1,500 tons per month capacity. Is my understanding correct?
So what will happen is that our capacity would be completely in place by then. The full utilization in terms of the sales coming from them, I think, will probably be, we are looking at maybe, by the March 20 -- by '24 roughly, that's what it is, I think, the complete -- but that's -- so we will be seeing a growth in the coming financial year, which is primarily coming from these capacities that have being added.
And out of the INR 1,250 crore of CapEx, which we have lined up for FY '24, how much is for this new fluoropolymer in that?
INR 500-odd crore, INR 500 crore, INR 550 crore, roughly.
No, no, that for this year, FY '23. I am talking about next year. Is it same, INR 500 crore, INR 600 crore or will it be a bigger chunk next year?
We have still not given yet how our CapEx is going to be in the next financial year, but what we expect is that this will be lower than this year going forward. I don't think we have given a breakup yet of next year's CapEx yet.
And sir, final question. Sir talked about the pricing of couple of products as of today. So what are the pricing for PFA, FKM, PVDF...
Sorry, we cannot give the pricing of individual products. However, all I can tell you is they are stable from last few quarters. We are not seeing any significant change or drop in these prices.
PVDF has corrected, right, significantly?
PVDF has corrected, again, in different segments. So again, that's why one of the reason I'm hesitating to talk about prices because there is a grade to grade variations. But as far as we are concerned, we are not seeing a very significant drop in PVDF prices yet. And there are some particular grades in particular segment where these corrections have happened, which you may be referring to.
But on portfolio level wise for next...
For us, it has not changed much, quarter-on-quarter, and...
And you're not seeing it today also, any correction?
Not much, not much.
Our next question is from the line of Vikas Mistry with Moonshot Ventures.
Sir my question is on lithium hexafluoride. We see that the chemistry used is not so complex, but sourcing is the main competitive advantage. Can you locate in that key, what will be our competitive advantage in better chemicals and electrolytes?
Yes.
Competitive advantage is, first of all, the market, we would have a good market in the domestic, I mean in India. And the second advantage would be the sourcing -- the backward integration. So most of the materials other than lithium carbonate, which unfortunately is not made in India -- not mined in India, everything else we would be making in-house. So that would give us cost benefit.
Sir, if some chemistry does change in this direction, then the capacities will be fungible or not?
See, already -- for 1 or 2 salts, the capacity is fungible. Like there is a different chemistry for EV and different chemistry for energy storage system. So the capacities can be fungible. But depending upon -- because it's a new age chemical, so we have to add 1 or 2 other salts or additives, considering the future in mind. But LiPF6 would continue to be the main dominant salt in the years to come.
Sir, can I understand what is the possible market we're trying to address that electrolyte side of it?
See, the addressable market depends upon the gigawatt hour of EV transition which happens in any country and overall in the globe. [Technical Difficulty] range from 3,500 gigawatt hour to 7,000 gigawatt hour. So depending on that and roughly depending on the chemistry because chemistry wise also there is a wide variation in LiPF6 requirement. So broadly, if you take a number ranging from 100 to 120 metric ton per gigawatt hour and depending on what you assume for gigawatt hours, you can work out the market.
Sir my next question is slightly big, but I want to understand about the grades in PVDF and FKM. How many grades which have a industry structure is more of a oligopolistic kind of infrastructure where value added is quite high? Can you give me the number? So our assessment seems like that over 70% of the grades are having more value added material where competition is quite less.
I'm sorry, I didn't really understand your question, but I think as far as the grades are concerned, it will be difficult for us to give grades, number of grades and -- because there are large number of grades in each of these segments, depending upon applications. So -- and these grades are sort of tailor made to a particular application in particular processing systems.
Sorry to interrupt, sir. Sir my question is that how many grades where the industry structure is more oligopolistic, we have less competition? I want to infer that how many of the grades, percentage of grades we sell which has very less competition?
See, in most of the cases where we operate, we are operating in a very specialized grades, and we are not having competition per se, because there is a -- see, one thing happens in fluoropolymers is once, let's say, a grade -- let's say, talk about FKM used for a fuel tube. And once it's qualified and accepted, then there is a lot of stickiness, because there's no -- because the numbers -- these grades are not changed quickly, plus qualification time is high and also at the same time there is a stickiness to it. So there are -- and so there is a long drawn process of qualification, but then -- and then slowly the volumes are ramped up as OEM gains more confidence in our grade, and then they remain sticky to us. That's the process, actually. So it's not that I go to a customer with list of my grades and they may give an offer to us. That's why you may see certain volumes in China or outside, wherever, but those volumes are very little meaning because it depends on the kind of grade and kind of the customer base and applications they are present in.
Thank you. I now hand the conference over to the management for closing remarks. Over to you, sir.
First of all, thank you very much. Thanks for participating in this call and thanks for showing interest in GFL. We really appreciate your question and your areas in which you are interested in. In case of any further questions, if some of you have not been able to ask questions, I would request you to connect with our Investment Relations, and we will try to answer your questions to the best of our capability. With this, I would like to thank you all. Thank you.
On behalf of Batlivala & Karani Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.