Navin Fluorine International - High opex dents margin - HDFC Securities

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

We retain our ADD rating on NFIL with a target price of INR 4,170 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 11/4% below our estimates, owing to a 5% lower revenue, higher-than-expected opex, lower- than-expected other income, offset by a lower-than-expected tax outgo.

Financial performance: Revenue/EBITDA grew 53/50% YoY on a low base, and fell 3/7% QoQ to INR 3,139/780mn. EBITDA margin fell 59/115bps YoY/QoQ to ~25% in Q1. The margin was impacted negatively in the quarter due to higher raw material costs (YoY), pricing pressures, increased employee costs and higher maintenance expenses. Employee costs in Q1 significantly spiked due to addition of new employees, bonuses, increments and variable payments made in the quarter.

Segmental performance: Specialty chemicals (42% of revenue mix) and CRAMS (21%) business units (BU) grew 37/97% YoY to INR 1,330mn/670mn. The specialty chemicals BU continues to grow on the back of a mix of new products and market share gain. It is seeing good traction from domestic as well as global markets. The CRAMS BU's healthy performance was driven by repeat orders from its existing customers, which led to better capacity utilisation. The CRAMS BU has added new customers in the form of mid-sized bio pharma companies in the US, and fresh enquiries are coming in from its existing customers in Europe. NFIL plans to debottleneck its cGMP-3 plant in the next six months, post which, it plans to set up a cGMP-4 plant.

Exceptional items adjustment: The following items have been excluded to arrive at an APAT of INR 567mn in Q1: (1) marked-to-market gains of INR6mn; and (2) one-off loss of INR 9mn from the sale of investments.

Change in estimates: We cut our FY22 EPS estimate by 6% to INR 57.6, to account for higher raw material prices (YoY), increased employee costs, and adoption of a reduced tax rate in FY22.

DCF-based valuation: Our target price is INR 4,170 (WACC 10%, terminal growth 5.5%). The stock is trading at 48x FY23E EPS.

Shares of Navin Fluorine International Limited was last trading in BSE at Rs. 3519.75 as compared to the previous close of Rs. 3678.9. The total number of shares traded during the day was 20598 in over 3744 trades.

The stock hit an intraday high of Rs. 3719.9 and intraday low of 3498.15. The net turnover during the day was Rs. 73370376.

Source : Equity Bulls

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