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ADD on Navin Fluorine International - Commendable performance - HDFC Securities

Posted On: 2020-08-04 09:30:29

Ms. Nilesh Ghuge & Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities.

We retain our ADD rating on NFIL with a target price of INR 1,840 on the back of (1) earnings visibility given long term contracts, and (2) tilt in sales mix towards customised products. The stock is currently trading at 22.5x FY23E EPS, which is contextually low, given the RoIC of 21.6/24.2% in FY22/23E.

- View on the result: EBITDA/APAT were 23/53% below estimates owing to 21% lower revenue and 64% higher tax outflow than anticipated.

- Financial performance: Revenue/EBITDA/APAT declined 15/14/40% YoY and 23/23/92% QoQ to INR 2,047/521/222mn. Revenue was adversely impacted by a temporary suspension of manufacturing facilities on the back of a nationwide lockdown, which had a trickle-down effect on the EBITDA. Despite the adversities, EBITDA margin remained intact at 25.4%. (+31/8 bps YoY/QoQ).

- Segmental performance: Specialty Chemicals (47% of revenue mix) and CRAMS (17%) business units (BU) grew 13/36% YoY to INR 970mn/340mn. The growth in Specialty Chemicals' revenue was backed by product portfolio expansion, deeper penetration into existing users and robust project pipeline in life/crop science. Ramp-up in the Certified Good Manufacturing-3 (cGMP-3) plant boosted revenues for the CRAMS BU.

- Other income adjustment: (1) Interest received on tax refund of INR 262mn, (2) marked to market gains of INR 26mn, and (3) one-off gains from sale of investments of INR 6mn have been excluded from (gross) other income of INR 356mn to arrive at the 1QFY21 Adjusted PAT of INR 222mn.

- Change in estimates: We cut our FY21/22E EPS estimates by 5/3% to INR 40.9/62.9, given the subdued performance of NFIL's legacy business.

- Concall takeaways: (1) Suspension of manufacturing operations for 15 days in Apr-20 and its phased resumption over Apr/May-20 hurt revenues from Specialty Chemicals BU by INR 100-120mn; (2) currently, capacity constraint in this BU is a bigger hurdle than lack of demand.

- DCF-based valuation: Our target price of INR 1,840, based on Jun-22E free cash flows (WACC 10%, terminal growth 3%), offers a 6% upside to the CMP.

Shares of Navin Fluorine International Limited was last trading in BSE at Rs.1751.25 as compared to the previous close of Rs. 1764.35. The total number of shares traded during the day was 5798 in over 1005 trades.

The stock hit an intraday high of Rs. 1793.95 and intraday low of 1745.2. The net turnover during the day was Rs. 10274575.

Source: Equity Bulls

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