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Navin Fluorine International - Cashing-in new opportunities still far way - ICICI Securities

Posted On: 2020-10-30 08:23:01

Navin Fluorine International's (NFIL) Q2FY21 EBITDA grew 38% YoY on strong growth in CRAMS revenue (110% YoY) and lower cost inflation. It saw CRAMS annual run rate jump to Rs2.6bn from Rs2bn earlier on tailwinds from strong Europe and US orderbooks. It is working on improving efficiency of cGMP-3 plant, which should improve asset turns. NFIL remains excited on rising opportunities from its entry into high performance and adjacent products, and now into Hexofluoro. However, its promised capex announcement in specialty chemicals is long pending. We see FY22E growth dependent on CRAMS as the specialty segment is now at optimal capacity utilisation. We have slightly increased our estimates, rolled over valuations to Sep'22 and assigned a higher P/E multiple at 30x (from 26x) on rising opportunities. Thus, our fair value for NFIL rises to Rs2,086 (from Rs1,575). Maintain REDUCE.

- CRAMS drives revenue growth. Standalone revenues rose 16.6% YoY to Rs3bn driven by CRAMS revenue rise of 110% to Rs1bn, and specialty chemicals revenue growth of 8.5%. Ref-gas and inorganic fluoride revenues were down 17% and 5.8% YoY to Rs580mn and Rs490mn respectively. CRAMS revenues were aided by a strong order from one customer as indicated in Q4FY20 earnings call, and a few other orders bunching up. cGMP-3 plant saw utilisation of 80% and run-rate guidance has been increased to Rs1.3bn for half year from earlier Rs1bn in CRAMS sans quarterly volatility.

- Gross margin hurt from pricing pressures in legacy business. Gross margin dipped 280bps QoQ despite higher revenue contribution from CRAMS. This was due to pricing pressures in ref-gas and inorganic fluorides; however, the extent of margin dip cannot be entirely explained from pricing, in our view. EBITDA margin came at a strong 30% (up 500bps QoQ) as 80% of incremental gross profit flowed into EBITDA. EBITDA grew 38% YoY to Rs935mn and net profit was 45% YoY higher at Rs673mn.

- Hexofluoro adds to rising opportunities. NFIL is exploring more opportunities in high performance products (HPP) in fluorine chemistry after signing a multi-year contract. It has added another platform from Piramal JV - Hexofluoro where the products find use in pharmaceuticals and electric vehicles. Further, the company is also working on new fluorine use cases (only player in eastern hemisphere) for batteries, etc.

- Other highlights. 1) NFIL is working on improving its processes and yields, and is reducing batch cycle to extract more out of the cGMP-3 plant. It also plans minor debottlenecking, which would add to capacity. Assessment for adding cGMP-4 will be made only in FY22/FY23; 2) in specialty chemicals, it has many molecules in various stages of development from R&D, piloting and commercialisation. A few of them will require dedicated facilities while others can be manufactured in multi-purpose plants. Management would announce firm capex plans by end-FY21; 4) NFIL has agreed to sell its 49% equity in Piramal JV to the JV partner at Rs650mn vs investment of Rs320mn. It will also part with 11 acres of land out 85 acres for Rs79mn.

Shares of Navin Fluorine International Limited was last trading in BSE at Rs.2241.35 as compared to the previous close of Rs. 2278. The total number of shares traded during the day was 19389 in over 3126 trades.

The stock hit an intraday high of Rs. 2339 and intraday low of 2227.35. The net turnover during the day was Rs. 44269806.

Source: Equity Bulls

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