EUR 120.00 For Business Accounts Only

NAVIN FLUORINE: Easier raw material sourcing to help better operating margins

NAVIN FLUORINE: Easier raw material sourcing to help better operating margins

(NFIL IN, Mkt Cap USD2.7b, CMP INR4426, TP INR4311, 3% Downside, Neutral)

• NFIL reported an EBITDA/PAT that was 26%/29% lower than our estimate, primarily due to delay in commercialization of HFOs. Gross margin stood at 55.9%, expanding 130bp sequentially, while EBITDA margin contracted 130bp QoQ to 24.6%.
• The High Performance Products (HPP) and Specialty Chemicals businesses (up 76%/45% YoY) registered steep growth,  driven by higher sales in the domestic market as well as the international markets and a few strong partnerships. However, the CDMO business declined for the second straight quarter (-52% YoY).
• The company implemented a new organizational structure with three separate business units, led by three operating CEOs in 1HFY23. The HPP business is being led by Mr. Partha Roy Chowdhury (also serving as interim CFO of the company); CDMO business by Mr. Ravi Venkatraman and the Specialty Chemicals business by Mr. Amrit Singh as CEO, who has been with NFIL for 2.5 years now.
• We assume an EBITDA margin of 25-27% over FY23-24, factoring in the commissioning of various projects already underway. We cut out FY23 EBITDA/EPS estimates by 11%/12% due to delays in completion of projects, while keeping our FY24 numbers unchanged.
• We expect a revenue/EBITDA/PAT CAGR of 39%/44%/42% over FY22-24, and value the company at 40x FY24 EPS to arrive at our TP of INR4, 311. We reiterate our Neutral rating, owing to limited upside in the stock.

 

EBITDA misses our estimate; sequential expansion in margins

• Navin Fluorine (NFIL) reported revenue of INR3.7b (+13% YoY, -5% QoQ).
• EBITDA margin came in at 24.6% (-120bp YoY, -130bp QoQ) with EBITDA at INR900m in 2QFY23.
• Gross margin was at 55.9% (v/s 54.5% in 1QFY23)
• PAT stood at INR641m in 2QFY23 (+3% YoY, -19% QoQ), translating into an EPS of INR13 (v/s INR16 in 1QFY23).
• NFIL has declared an interim dividend of INR5/share (FV of INR2/share).
• For 1HFY23, its revenue stood at INR7.5b (+18% YoY), EBITDA at INR1.9b (+18% YoY) and PAT at INR1.4b (+21% YoY)
• NFIL’s EBITDA margin was at 25.2% for 1HFY23 – flat YoY v/s 1HFY22
• NFASL, the wholly owned subsidiary of NFIL, has commenced commercial production of Hydrofluoroolefins post its successful completion of commercial trials in 2QFY23.
• The customer has validated the product specification for the requisite batch quantities on agreed parameters.

HPP business leads the show in segmental revenue

• The HPP business posted revenue of INR2.1b (+76% YoY, +39 % QoQ) in 2QFY23, led by higher sales in both the domestic and international markets.
• Revenue from this segment includes revenue of NFASL for the supply of Hydrofluoroolefins in 2QFY23.
• The company also announced that R32 production is set to start from 1QFY24E
• The Specialty Chemicals business clocked a revenue of INR1.8b (+45% YoY, flat QoQ) in 2QFY23 – recording the highest ever quarterly revenue, backed by strong partnerships.
• The pipeline remains strong for growth opportunities, with two new plants expected to start in 3QFY23.
• The CDMO business reported weak numbers for the second straight quarter with a revenue of INR390m (-52% YoY, -34% QoQ).
• The c-GMP-3 plant capacity expansion work is on track to be commissioned in 3QFY23E with the successful completion of plant audits by two pharma innovators.
• NFIL has also received PO of USD16m to supply for a late-stage clinical trial.
• The revenue mix in 2QFY23 stood at 49% for HPP business (39% in 1QFY23), 9% for CDMO business (15%) and 41% for Specialty Chemicals business (45%).
• Domestic sales were 45% of the total revenue in 2QFY23, while the rest was exports (55% in 1QFY23). Domestic sales stood at 46% for the HPP business and 44% for the Specialty Chemicals business. Exports contributed 100% of the CDMO business revenue.