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CRAMS business poised for strong growth; maintain BUY

We believe Navin’s existing CRAMS molecules are likely to scale up meaningfully over the next 3-4 years. As per our analysis, Navin’s CRAMS molecules are key intermediates of several patented pharmaceutical drugs. Some of these drugs have been launched recently and their end usage has been growing significantly. As per industry estimates, sales of these patented drugs are likely to peak by CY25-26. Hence, in our view, with the ramp-up of these patented drugs, Navin’s CRAMS revenue could demonstrate a 29% CAGR over FY22E-25E and reach USD 87mn by FY25E and surpass USD 100mn by FY26E. Further, with the ramp-up of its specialty chemicals sales and contracted HFO sales, Navin’s overall revenue could post a 26% CAGR over FY22E-25E. We maintain BUY with an unchanged TP of INR 4,440/share on account of strong outlook of Navin’s CRAMS business along with long-term growth visibility from its multi-year contracts in specialty chemicals and HFO refrigerant gas.

CRAMS business likely to hit USD 100mn mark by FY26E: As per our analysis, Navin’s CRAMS molecules are used in several patented drugs such as Trikafta, Alpelisib, Etrumadenant, etc. Some of these drugs have already achieved good sales (Vertex’s Trikafta has already reach USD 5bn), while some of these drugs are still in development stages (Arcus Biosciences is developing etrumadenant, for treating cancer). Combined peak sales of some these drugs is likely to be more than USD 10bn by CY25-26E (Exhibit 1). With the scale-up of these drugs, demand for Navin’s molecules is also likely to go up meaningfully. Since Navin’s molecules usually make up ~1-1.2% of market size of these drugs, we believe opportunity size from these existing set of molecules is likely to be ~USD 100-120mn (for Navin). Hence, we estimate Navin’s CRAMS revenues to demonstrate a 29% CAGR over FY22-25E and reach USD 87mn by FY25E (from USD 40mn in FY22E) (Exhibit 2)

Usage of specialty chemicals is also on the rise: Usage of Navin’s other molecules such as 2- fluoro-6-trifluoromethyl pyridine, 6-Fluoro-2-Methyl Indole (6- FMI), and 1-(2-bromo-4- chloro-phenyl)-4-(trifluoromethyl)triazole, 5-trifluoromethyl isoindoline has been also on the rise. 6-FMI is used in Sortilin inhibitors (used to treat breast cancer) while 2-fluoro-6- trifluoromethyl pyridine is used to manufacture Picoxystrobin fungicide as well as several other agrochemicals and other drugs. Hence, we believe its recent capex for specialty chemicals (INR 1.95bn for MPP and INR 1.25bn for a key agro intermediate under multi-year agreement) is likely to see a quick ramp-up as the demand environment remains robust.

Estimates unchanged – maintain BUY: With a jump in revenue contribution of high margin businesses (CRAMS, specialty chemicals, and HFO) to 78% in FY25E (vs. 62% in FY22E), EBITDA margin is likely to expand to 29% in FY24-25E. As a result, EBITDA is likely to post a 31% CAGR over FY22-25E and PAT is likely to register a 32% CAGR over FY22-25E. We maintain BUY with an unchanged Mar’23 TP of INR 4,440/share (based on 40x Mar’24E EPS) as we believe outlook for Navin’s CRAMS business remains robust while multi-year agreements for some of the specialty chemicals and HFO refrigerant gas provide a long-term visibility. Key risks: a) delay in ramp-up of upcoming capacities of specialty chemicals; and b) issues in launch of phase-I/II drugs made using Navin’s CRAMS molecules.

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