Navin Fluorine International Ltd. share price target

Multi-year deal win gives strong earnings growth visibility

We recently met Sitendu Nagchaudhuri, Chief Financial Officer of Navin Fluorine International (NFIL), to get an insight into the domestic fluorination chemistry industry and the companys role in the entire value chain. NFIL was set up in 1967 primarily as a key manufacturer of refrigerant gases, inorganic fluorides in India in Surat (Gujarat). Refrigeration gases are used as a cooling agent in air conditioners, refrigerators and commercial establishments while inorganic fluorides are used as a raw material for industrial use primarily in the metal and glass...

Navin Fluorine International Ltd (NFIL), one of the key players in the fluorochemical space in India.

Our view: This contract not only shows the trust on NFIL's capability and expertise in complex fluorine chemistry but also could be a precursor to acquire more such deals. Also, the existing contract may be extended further. NFIL's customized and exclusive agreement not only enhances its longterm earnings visibility but also accelerates earnings growth. The management hinted that more products will be added in this new vertical, which we believe will fetch higher margins, thereby boosting NFIL's operational and financial efficiency. It is carving its own niche in fluoro chemicals worthy of a premium multiple over its peer SRF (24.3/19.8x FY21/22x). This compels us to ascribe a higher valuation multiple of 25x vs 20x earlier. Upgrade to NEU with a TP of Rs. 1,479. Navin Fluorine signed a 7 year exclusive supply contract with a global company for High Performance Product (HPP) having a total revenue potential of Rs 29bn starting Q4FY22. The product will be manufactured at the recently announced greenfield plant at Dahej.

The legacy business should continue to grow at a slower pace given that investments are largely flowing into the CRAMS BU. The specialty business is also exhibiting strong traction. Besides, an order in the CRAMS BU gives a near term earning visibility. High-value specialty chemicals and CRAMS BU will help maintain healthy margins. Maintain BUY. We maintain BUY on NFIL after an in-line 1QFY20 with a TP of Rs 821 (20x Jun-21E EPS). We retain our faith in NFIL as its CRAMS BU now demonstrates earnings visibility.

Navin fluorine international ltd reported Sales/EBITDA/PAT de-growth of 0.5/3.8/0.3% YoY to ` 2.41bn/607mn/395mn. Sales were lower than our expectations by 7.5% (D.est: ` 2.6bn), while EBITDA/PAT came in-line with estimates (D.est: ` 577/391mn). Gross margins improved on a sequential basis by 230 bps, while there was a drop on a YoY basis of 250 bps to 52.5%. The company has taken price hikes in Q1FY20 and expects gross margins to be sustainable with fluorspar prices softening. CRAMS revenues weak, however commentary positive...

The legacy business should continue to grow at a slower pace given that investments are flowing into the CRAMS BU. The deferment of campaigns in CRAMS BU raises concerns about lower utilisation. We thus cut our EPS estimates for FY20/21E by 6.5/5.5% to Rs 35.5/40.6. We maintain BUY on NFIL after an in-line 4QFY19 with a TP of Rs 812 (20x FY21E EPS). Investments for the last 7 years have led the CRAMS BU to grow at a CAGR of 52.8% but the earnings outlook remains unpredictable. Growth in the refrigerant gas BU is expected to be muted given the 15% production cut under the Montreal protocol. Hence, we think that NFIL is treading on thin ice.

We thus cut our EPS estimates for FY20/21E by 5.3/5.8% due to lower contribution from CRAMS BU and cut P/E multiple to 20x with a revised target price of Rs 836/share. Navin Fluorine International Ltd (NFIL) reported sales/ EBITDA of Rs. 2.26bn/524mn up by 6.5/1.7% YoY. PAT declined by 21.8% YoY to Rs 388mn (ex Dahej ops). Though price hikes taken in the legacy business cushioned the impact of higher RM prices (EBITDAM @23.2%, up 236bps QoQ), revenues from CRAMS continued to be subdued.

We maintain Buy with a target price of Rs 915. Navin Fluorine International Ltd (NFIL) reported sales growth of 10.8% YoY to Rs 2.41bn. EBITDA and PAT declined by 4.7% and 20.0% YoY to Rs 503mn and Rs 343mn respectively. Growth in CRAMS (ex- Dahej) has staggered (grew 4.1% YoY to Rs 510). 1HFY19 revenues from CRAMS are at Rs 860mn (down 13.1% YoY). CRAMS is a lumpy business and the management expects recovery in the ensuing quarters.

We are valuing NFIL at 22x FY20E EPS of Rs 40.4 and resume coverage with a TP of Rs 890. Navin Fluorine International Ltds (NFIL IN) four decade long experience in handling niche Fluorine chemistry, strategic tie ups with significant entities (viz Honeywell PLC and Piramal Enterprises), prudent allocation of carbon emission reduction credits (earned ~ Rs 4.0 bn from FY11-FY13 to invest in Specialty Chemicals and CRAMS) and faster than expected growth in CRAMS business (expected to grow at a CAGR of 65.8% from FY15-20E) are a testament to NFILs journey of being the strongest player in Fluorine chemistry.