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Published on: Jan. 23, 2022, 5:07 p.m.
Powered by green chemicals Inox GFL makes swift moves
  • Vivek Jain: on a strong growth trajectory

By Ritwik Sinha. Consulting Editor, Business India

For the 90-year-old Inox Group, 12 November, 2021 was a critical date. That day saw the decision of the 92-year-old patriarch, Devendra Kumar Jain, to split the company equally between his two sons, Pavan Jain and Vivek Jain. ‘Amicable settlement’ is the term which the group is using to explain the division, which was reportedly two years in the making. From the original entity’s perspective, it may simply have meant a rebirth.

For the average person, the most identifiable face of the Inox group would be its multiplexes, where it is among the leading players nationally. But this relatively new and B2C business is quite small in size and scale compared to the other units of the erstwhile group which are mostly in the B2B space. Air products and speciality chemicals are large businesses which have not only been the major strengths of the group in the past but also front ranking players in their respective spheres.

“Inox is a 90-year-old group, and over the years we have built companies of large scale, with each company now needing a dedicated management bandwidth. Also, as our families grew, the family patriarch amicably decided to realign the group with the next generations getting involved and primed up to lead these companies going forward. This was in keeping with the forward-looking strategic realignment of the group,” points out Vivek Jain (66), the younger son who has bagged speciality chemical and wind energy divisions in the split. 

Strategic alignment to turn big into bigger are the terms which repeatedly appear in the statements of his son Devansh Jain (35), Group Executive Director of the company, who is the operational head now. “The units that we have could potentially become $1 billion revenue businesses each in the coming years,” says he, while underlining the fact that the restructuring of the group has added a new dynamo to the well-established businesses which will propel them to move at a brisker pace on the growth highway.

Some critical, inherent strengths built over the decades in speciality chemicals, a clear strategy to align with the changing environment vis-à-vis green energy products and a more favourable growth environment for the wind energy segment are all conducive to the further growth of the business. 

Rebranding as differentiator

Before the split, the nine-decade-old Inox Group, on a cumulative basis, had a diversified presence across seven business verticals and its listed entities had a market cap of over $4.3 billion. After the split, the elder brother faction led by Pawan Jain bagged Inox Air Products (50:50 joint venture with Air Products, USA engaged in production of industrial gases on a large scale), Inox Leisure (over 150 multiplex units), and Inox CVA (country’s largest manufacturer of cryogenic liquid storage and transportation tanks).

The Vivek Jain faction is now in command of Gujarat Fluorochemicals or GFL (a leading speciality chemical company in the country which was a major performing unit for the undivided group along with the Air Products division) and Inox Wind, which is in the wind energy segment. The entire wind energy business is controlled by a holding firm, Inox Wind Energy, which was demerged from GFL in FY21.

  • Devansh Jain: going green

    Devansh Jain: going green

For the sake of clarity, the faction led by Vivek Jain and his son Devansh has now been rebranded as Inox GFL. “We envisage huge potential for both the verticals under our fold, chemicals and renewables; we are definitely on a strong growth trajectory,” says Vivek Jain. The rebranding nomenclature, however, strongly underlines the pivotal positioning of the speciality chemical business, identifying it as the clear driver of the younger son’s faction.

And this is hardly surprising given the strong trends in the speciality chemicals business where India has emerged as a global hub in recent years, showing signs of responding to that China Plus One quest of many countries in the post-Corona scenario. “India today has a definite positioning in the global chemical market and there has been a commendable growth in the speciality chemical business segment. The total chemical market is currently estimated at $178 billion, out of which the speciality chemical market’s worth is $32 billion.” observes Sai Krishna, AVP and Sector Head, ICRA. And GFL, with its decisive edge in the segment called fluorochemicals, has been at the forefront of reaping dividends of the bullish trends witnessed in the business. 

Basic strength 

On close examination, a spate of scoring points may be spotted on the report card of 35-year-old GFL. Interestingly, the company was not on the radar of many research firms when the settlement was being worked out. But in recent months, leading brokerage houses have once again expressed interest in the company on the basis of the diverse portfolio it has built in the fluorochemical segment where it is the undisputed leader. ‘The company has set up a capacity of around 700 tonnes of six new fluoropolymers which are FKM, PFA, FEP, PVDF, PPA and micro-powders. PVDF is used in applications which can withstand harsh chemicals and is one of the highest radiation resistance plastics which also finds application in the manufacture of polymer batteries used widely in electronics and electric vehicles,’ a research agency report had mentioned early last year.

Another report by ICICI Securities released early last month had recognised GFL as the ‘sole manufacturer of fluoropolymers in India and among the very few players outside of China to have a large fluoropolymer portfolio’. The report further maintained that GFL has built global scale production capacity and at the same time developed vibrant supply chains in the US and European markets with local warehouses. The company currently generates 50 per cent of its revenue from exports to global markets driven by orders from the EU and the US. 

“We are among three largest producers of fluoropolymers globally and the largest in India,” says Devansh, narrating the key strengths of GFL. The company today has three plants, all based in Gujarat – Ranjit Nagar which was commissioned in 1989 and has largest refrigerant capacity in the country, Dahej which is the country’s largest fluoropolymer plant and has been operational since 2007 and the partially commissioned Jolva plant which specialises in fluoropolymers and speciality chemicals.

As per a research report, in fluoropolymers GFL is today competing with global established technology and innovation driven chemical players like Chemours Company (US), Daikin Industries, Ltd. (Japan), 3M (US), Solvay SA (Belgium), AGC (Japan), Dongyue Group (China), etc. There is no domestic competition and it enjoys first mover advantage in fluoropolymers, the report emphasises. 

  • The company’s wind energy business is in the process of a serious revival

The company’s current revenue base is in the vicinity of Rs2,600 crore (last fiscal) but it is expecting a major jump, given the growing demand. As per a senior official of the firm, the results of the first two quarters this year indicate revenues for the current fiscal jumping close to Rs3,600 crore. At the end of the first half of this year, the company had reported earnings to the tune of Rs1,876 crore and EBIDTA of Rs551 crore (see graph). As the fate of GFL post-division became clear around the middle of last year, the company’s stock price 

tripled in the growing market, as it recently touched a 52-week high of Rs2,870 (52-week low is Rs525). The market cap of the company is now close to Rs30,000 crore or over $4 billion. “If you look at the list of enlisted speciality chemical firms, our stock price is still among the cheapest,” a company official says.

The other important element of Inox GFL is the wind energy business which is in process of a serious revival. The group had made a foray into this business in 2010 but according to Devansh the abrupt policy change in 2017, with the Feed-In Tariff (FIT) regime being substituted by auction modality, created an existential crisis for many players in the pure wind play.

“When we started, we wanted to put up 1GW capacity, which was huge then. With McKinsey as our consulting partner, we decided to make our own turbines and set up wind farms. Within five years, we became a leading player and had a successful IPO in 2015. By 2017, the business had grown exponentially and profitability was high. But in 2017 because of the abrupt policy change, the scene became difficult and three of the top five players left the fray,” recalls Devansh who was involved in the group’s renewable business since its early stages. The policy shift in favour of competitive bidding led to a steep decline in tariff but made the business unviable for many. “In the year prior to imposition of auction rules, the total capacity installation in the wind sector was close to 5,000 MW. After competitive bidding, it came down to 1,500 MW. It had a major effect,” says Manish Singh, Secretary General, Indian Wind Energy Association. 

Inox is now charting a new course in the wind business by focusing more on the O&M (operation and maintenance) side of the business. Structurally, Inox Wind Limited or IWL, with its two subsidiaries, offers three sets of services in the wind energy space: manufacturing, infrastructure and O&M. It is counted among the largest WTG (wind turbine generator) manufacturers in India and currently operates three plants (Una, Rohika and Barwani) to manufacture nacelles & hubs, blades and towers. The company claims to have a robust order book of 1,276 MW  and this promises plenty of action as the wind energy installation picks up steam again, getting a decisive push from the increasing hybrid auctions.

An extract from the Inox Wind annual report concludes: ‘During fiscal 2020-21, the company commissioned 80 MW, which includes commissioning for Continuum, ReNew Power and certain retail customers. The company also added a significant volume of 314 MW to the paid O&M services during the year, which catapulted the revenue earning fleet to 1514 MW. The O&M fleet is now a solid annuity business for the company which is expected to generate steady revenues over the next couple of years.’ 

  • Inox GFL's Dahej plant: the country’s largest fluoropolymer plant

In financial terms, the company had recorded an overall sale of Rs847 crore during FY21 – an increase of 12 per cent as compared to Rs760 crore in the previous fiscal. The enlisted firm, meanwhile, has a market cap close to Rs3,000 crore. 

The green identity

According to CFO Manoj Agarwal, the restructured entity under the command of Vivek Jain and his son are well placed financially and ready with a new capex plan. “The INOX-GFL group is in a strong position financially. Gujarat Fluorochemicals has steady cash flows, and we recently announced a capex of Rs2,500 crore over FY22-24. We are confident of meeting this through internal accruals.” 

Devansh provides the details of this capex plan which, in broader terms, is in alignment with enhancing the capacity of fluoropolymer categories or speciality chemicals in line with the company’s core intent of being counted as a strong green business entity. “The investments would be for fluoropolymer expansion – PTFE particularly, and we are also setting up large capacity of PVDF (advanced polymers) used across EV batteries and in batteries of solar panels. We are also setting up a LIPF (Lithium Hexa Fluoro Phosphate Plant), a battery chemical which is also used in hydrogen cells. We want to play across the green arena – EV, solar module and hydrogen cells – and eventually emerge as the largest player on the green chemical side in India,” he explains.

With this capex, the company’s target is to build a capacity of 1,000 tonnes per month of PVDF (primarily used for electric vehicle batteries). It is currently 100 tonnes. Similarly, for LIPF, the company has decided to set up an initial capacity of 1,800 tonnes with scalable designs. 

GFL’s decision to significantly scale up and cater more to what a research report terms as ‘new age verticals’ coincides with mounting demand. “The double-digit growth in the speciality chemical segment in the last few years (CAGR of around 12 per cent) is expected to be sustained in the medium run. The leading players will benefit from it as India further consolidates its position as a global supplier,” says Sai Krishna of ICRA.

A recent research report from a leading credit rating agency underlines the fact that ‘the medium to long term outlook remains favourable for the specialty chemical segment, aided by growth prospects in the domestic market as well as robust demand from the export segment. Further, the segment will also benefit from increased domestic feed stock availability in the medium term, supported by trade protection measures from the Government.’ With the strong presence of growth triggers, Devansh is expecting a significant, consistent jump in financial numbers.

“In a cumulative sense, we are looking at a topline of a billion dollars in the next three years and a 35 per cent margin. In FY22-23, our revenue will be in the Rs4,000-4,500 crore trajectory,” he says. Recent reports by leading brokerage firms also point in this direction. For instance, the latest report from Edelweiss underlines its revenue touching the Rs5,100 crore trajectory by FY25 and EBITDA figures reaching close to Rs1,800 crore. The ICICI Securities report projects the topline number crossing the Rs4,700 crore level in three years.

  • The company's manufacturing facility

While the mainstay business driven by fluoropolymers seems to be on the roll, the growth scene may not be as clear for the wind energy business even as the focus is returning with the government’s massive renewable targets of over 450 GW by the end of this decade. “The policy disruption is behind us. We now have 16GW of wind capacity bid out and under various stages of installation. And there is more focus on hybrid auctions. Historically, we have done 3-5 GW of wind capacity annually which will soon move to the 5-7 GW range, which is huge. There is major push from PSUs; even NTPC wants to add 2GW of wind annually,” Devansh points out.

But according to Manish Singh, while hybrid tenders ensure a fresh push to wind energy which is now clearly playing second fiddle to solar power, there could be issues going ahead. “There could be technological and operational challenges. It would be interesting to see how this hybrid formula works.” 

In the best-case scenario and on the basis of its current order book, the company is expecting major augmentation in its revenue. And to harness its mainstay O&M capability in wind business, the company’s material subsidiary, Inox Green Energy Services Limited (Earlier known as Inox Wind Infrastructure Services Limited) (IGESL) has intimated the stock exchanges on 6 December 2021 for raising of funds through initial public offer.

“In the renewables business, while we faced some headwinds in the past due to policy changes in the wind energy sector, the renewables sector is bouncing back. With the fund raise plans that we have announced, we are confident of returning to positive territory and generating strong positive cash flows in this business too,” says Manoj Agarwal. The company intends to raise Rs500 crore through fresh issue and Rs400 crore through OFS by Inox Wind Limited. Post the split, Inox-GFL certainly seems to be making swift moves, having found a new spring in its step. 

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