I have been a big fan of Gujarat Fluorochemicals Ltd's (GFL) management since the last 6-7 years. The way they have used the Cash generated from sale of Carbon Credits, which they got for using eco-friendly technology in their Refrigerant Gas business. Over the years the price of Carbon Credits has keept fluctuating wildly, leading to wild swings in Revenue & Profit numbers for companies like GFL. Smart managements like that of GFL have used that surplus capital earned from sale of Carbon credits & invested into other businesses which could offer a good balance of growth, stability, diversification & profitability.
GFL is the promoter of INOX Multiplex chain, which has consistently expanded capacity & is amongst the Top-3 Multiplex companies in India. As of December'14, INOX multiplexes are contributing close to Rs.1000 crores to GFL's Topline on a Trailing-Twelve-Months basis. But the profitability of this business is not that strong at an EBITDA margin of just over 6%. With increasing scale, the profitability could increase, but only upto a certain extent. To further diversify it's revenues source, GFL invested in setting up Wind Power Generation Capacity. With the initial few Wind farms, GFL tested their operating performance & profitability. To set up a Wind Farm, the CAPEX is high at about Rs.6-7 crores per MW, but the Operating Costs are very low, resulting in high Profit Margins. Few years back GFL decided to hike their Wind Power generation capacity from just about 100 MW to 2000 MW spread over a few years. This huge expansion would have entailed Huge CAPEX too at about Rs.10,000 to 12,000 crores. To make it more competitive, GFL decided to tie-up with a global technology partner and assemble it's own Wind Turbines, which was expected to bring down the CAPEX by about 20-30%. GFL setup a separate subsidiary called INOX Wind about five years ago specifically for assembling the different components required for building a Wind Turbine. They were open to outside orders as well, but initially most of the orders were in-house to the extent of over 70% in the first couple of years. But when the Govt granted the accelerated Depreciation benefit again to Wind Farm investors, the orders from outside started flowing in. By March'13, in-house orders constituted about 40% of Revenues of Inox Wind, which dropped to 15% by March'14 and further down to 2% by December'14. This is a very good strategy to give higher priority to outside orders at a time when they are flowing in real strong.
Look at the charts above, T-T-M Revenues from the Wind Turbine business have jumped from about Rs.1000 crores at the end of March'13 to over Rs.2500 crores by December'14, with most of the jump happening in the last 2-3 quarters. On the profitability front too, EBITDA margins were about 8% at the end of March'14, but has sharply increased to about 13% at December'14. The increased scale has clearly benefited the margins of INOX Wind business. INOX Wind now contributes about 50% of GFL's Consolidated TTM Revenues and about 45% of Consolidated EBITDA. Over the last 1 year, the contribution from GFL's original Chemicals business to Consolidated Revenues has dropped from 33% to 25%, while EBITDA contribution has dropped from 35% to about 21%. GFL's Wind Power Generation business, which hasn't seen much expansion in the last year or so, contributes less than 4% to the company's consolidated Revenues, but it's contribution to consolidated EBITDA is at over 20%, thanks mainly to the high Operating Profit margins in that business. The INOX Multiplex business contributes about 19% of GFL's Revenues, but less than 10% of EBITDA, again mainly because of the low margins in that business.
Look at the Consolidated TTM charts above. The clear upswing in business performance has been handsomely rewarded by the stock market with GFL's share price rallying from under Rs.300 level in March'14 to over Rs.750 level currently. On the valuation front, GFL's share trades at about 28 times it's TTM EPS, but with strong growth, the 1-year forward P/E ratio is probably well under 20 times. The Promoter of GFL owns about 70% of the company and coupled with low Equity Capital, the total floating stock of this company is very limited. Another positive development is that GFL has filed a DRHP for an IPO of INOX Wind, which could happen anytime in the next 2-3 quarters. As and when that happens, the stock of GFL could rally further depending on the kind of valuations they get for INOX Wind and the quantity of shareholding they sell. Overall GFL is a good stock to have in one's portfolio if one wants exposure to 3 or 4 different businesses with a single stock. But remember that GFL's stock does have a tendency to remain in a narrow price range for long periods, mainly because of limited floating stock and very very low trading activity. The share price moves only when some large investor thinks that this share deserves some valuation re-rating.
 |
| Revenues & EBITDA are on Trailing-Twelve-Months basis |
GFL is the promoter of INOX Multiplex chain, which has consistently expanded capacity & is amongst the Top-3 Multiplex companies in India. As of December'14, INOX multiplexes are contributing close to Rs.1000 crores to GFL's Topline on a Trailing-Twelve-Months basis. But the profitability of this business is not that strong at an EBITDA margin of just over 6%. With increasing scale, the profitability could increase, but only upto a certain extent. To further diversify it's revenues source, GFL invested in setting up Wind Power Generation Capacity. With the initial few Wind farms, GFL tested their operating performance & profitability. To set up a Wind Farm, the CAPEX is high at about Rs.6-7 crores per MW, but the Operating Costs are very low, resulting in high Profit Margins. Few years back GFL decided to hike their Wind Power generation capacity from just about 100 MW to 2000 MW spread over a few years. This huge expansion would have entailed Huge CAPEX too at about Rs.10,000 to 12,000 crores. To make it more competitive, GFL decided to tie-up with a global technology partner and assemble it's own Wind Turbines, which was expected to bring down the CAPEX by about 20-30%. GFL setup a separate subsidiary called INOX Wind about five years ago specifically for assembling the different components required for building a Wind Turbine. They were open to outside orders as well, but initially most of the orders were in-house to the extent of over 70% in the first couple of years. But when the Govt granted the accelerated Depreciation benefit again to Wind Farm investors, the orders from outside started flowing in. By March'13, in-house orders constituted about 40% of Revenues of Inox Wind, which dropped to 15% by March'14 and further down to 2% by December'14. This is a very good strategy to give higher priority to outside orders at a time when they are flowing in real strong.
Look at the charts above, T-T-M Revenues from the Wind Turbine business have jumped from about Rs.1000 crores at the end of March'13 to over Rs.2500 crores by December'14, with most of the jump happening in the last 2-3 quarters. On the profitability front too, EBITDA margins were about 8% at the end of March'14, but has sharply increased to about 13% at December'14. The increased scale has clearly benefited the margins of INOX Wind business. INOX Wind now contributes about 50% of GFL's Consolidated TTM Revenues and about 45% of Consolidated EBITDA. Over the last 1 year, the contribution from GFL's original Chemicals business to Consolidated Revenues has dropped from 33% to 25%, while EBITDA contribution has dropped from 35% to about 21%. GFL's Wind Power Generation business, which hasn't seen much expansion in the last year or so, contributes less than 4% to the company's consolidated Revenues, but it's contribution to consolidated EBITDA is at over 20%, thanks mainly to the high Operating Profit margins in that business. The INOX Multiplex business contributes about 19% of GFL's Revenues, but less than 10% of EBITDA, again mainly because of the low margins in that business.
Look at the Consolidated TTM charts above. The clear upswing in business performance has been handsomely rewarded by the stock market with GFL's share price rallying from under Rs.300 level in March'14 to over Rs.750 level currently. On the valuation front, GFL's share trades at about 28 times it's TTM EPS, but with strong growth, the 1-year forward P/E ratio is probably well under 20 times. The Promoter of GFL owns about 70% of the company and coupled with low Equity Capital, the total floating stock of this company is very limited. Another positive development is that GFL has filed a DRHP for an IPO of INOX Wind, which could happen anytime in the next 2-3 quarters. As and when that happens, the stock of GFL could rally further depending on the kind of valuations they get for INOX Wind and the quantity of shareholding they sell. Overall GFL is a good stock to have in one's portfolio if one wants exposure to 3 or 4 different businesses with a single stock. But remember that GFL's stock does have a tendency to remain in a narrow price range for long periods, mainly because of limited floating stock and very very low trading activity. The share price moves only when some large investor thinks that this share deserves some valuation re-rating.
No comments:
Post a Comment