Retain ADD on Navin Fluorine International - High-value business drives growth - HDFC Securities

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

We retain our ADD rating on NFIL with a TP of INR 2,720 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 14/9% below our estimates, owing to a 12% lower revenue, offset by lower-than-anticipated tax outgo.

Financial performance: Revenue/EBITDA/APAT grew 18/26/43% YoY, but fell 4/12/14% QoQ to INR 2,966/823/557mn. EBITDA margin increased by 185bps YoY to ~28% in 3Q. Revenue and EBITDA margin grew on the back of strong momentum in high-value business. The contribution of the high-value business to total revenue was 65% in 3Q.

Segmental performance: Specialty Chemicals (41% of revenue mix) and CRAMS (24%) business units (BU) grew 26/51% YoY to INR 1,220mn/710mn. Inorganic Fluorides BU (19% of revenue mix) grew 12% YoY to INR 570mn as demand recovery was witnessed in its end-user industries such as stainless steel and glass. Refrigerant BU (16% of revenue mix) de-grew 18% YoY to INR 470mn, with trade and service sectors slowly reviving.

Other income adjustment: (1) Marked to market gains of INR 21mn, and (2) one-off gain from investments sale of INR 9mn have been excluded from (gross) other income of INR 91mn to arrive at APAT of INR 557mn in 3Q.

Concall takeaways: (1) The company's capital expansion projects are on track. MPP's capacity is expected to come on stream during 1HFY23 and HPP would be commercialised in 4QFY22. MPP's asset turnover is estimated to be around 1.35-1.45x at peak utilisation with an expected peak annual revenue of INR 2.6-2.8bn. (2) NFIL strengthened both demand generation and demand fulfilment capabilities for CRAMS BU. It hired two new human resource professionals, one in North America and the other as a consultant in Europe, to enhance its order book. It also enhanced the capabilities of its Dewas team to aid demand fulfilment. (3) Growth guidance of 20-22% YoY was given for Specialty Chemicals BU for FY22. Whereas growth for Inorganic Fluorides and Refrigerant BUs is expected to remain in the low teens for FY22. NFIL plans to achieve a USD 10mn per quarter revenue run-rate in the CRAMS BU.

DCF-based valuation: Our target price is INR 2,720 (WACC 10%, terminal growth 3.5%). The stock is trading at 32.8x FY23E EPS.

Shares of Navin Fluorine International Limited was last trading in BSE at Rs.2346.75 as compared to the previous close of Rs. 2480.3. The total number of shares traded during the day was 22999 in over 5449 trades.

The stock hit an intraday high of Rs. 2484.1 and intraday low of 2340. The net turnover during the day was Rs. 54890347.

Source : Equity Bulls

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