ADD on Navin Fluorine International - EBITDA margin surprises positively! - HDFC Securities

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

We retain our ADD rating on NFIL with a TP of INR 2,410 on the back of (1) earnings visibility given long-term contracts and (2) tilt in sales mix towards high-margin high-value business. EBITDA/APAT were 45/78% above estimates owing to 27% higher revenue and significantly better EBITDA margin, courtesy better-than-expected contribution from the high-margin Specialty Chemicals and CRAMS business.

Financial performance: Revenue/EBITDA/APAT grew 17/38/57% YoY and 50/80/192% QoQ to INR 3,077/935/646mn. Revenue and EBITDA margin grew on the back of strong momentum in high-value business' performance. EBITDA margin surprised positively at 30.4%, the highest ever reported in the past five years. (+476/494 bps YoY/QoQ).

Segmental performance: Specialty Chemicals (33% of revenue mix) and CRAMS (32%) business units (BU) grew 9/111% YoY to INR 1020mn/990mn. The growth in Specialty Chemicals' revenue was driven by its Life Science and Crop Science segments. CRAMS BU displayed an outstanding performance due to completion of pending orders during the quarter. cGMP plants were running at over 80% utilisation in H1FY21.

Other income adjustment: (1) Marked to market gains of INR 25mn, and (2) one-off gain from investments sale of INR 2mn have been excluded from (gross) other income of INR 88mn to arrive at APAT of INR 646mn in 2Q.

Concall takeaways: (1) Disinvestment of Convergence Chemicals Private (CCPL): NFIL sold off its 49% stake in JV CCPL to Piramal Pharma for a consideration INR 651mn along with INR 79mn towards leasehold rights for GIDC land. NFIL will continue to be the key raw material supplier to CCPL and will have a perpetual license to use CCPL's technical know-how. (2) GM was down QoQ due to lower margins in the legacy business.

Change in estimates: We raised our FY21 EPS estimate by 10.6% to INR 43.6 to account the exceptional gains arising from the sale of CCPL in FY21.

DCF based valuation: Our target price is INR 2,410 (WACC 10%, terminal growth 3%). The stock is trading at 37.7x FY22E EPS.

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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