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After several quarters, Navin Fluorine (Navin) reported a subdued quarterly performance impacted by planned and unplanned shutdown of its HFO plant (Honeywell). Consequently, revenues/ EBITDA/ PAT for Q1 declined 29.5%/ 43.4%/ 54.9% QoQ at Rs4.9bn/ Rs1.1bn/ Rs615mn. Management cited it as a one-off impact due to operational issues post planned shutdown and nothing to assign to the industry environment. Apart from HFO plant issue, CDMO revenues too were lower QoQ due to lumpiness and execution of one large US order in Q4FY23. Management did not cite any demand related challenges for any of its segments although demand remains volatile. We have lowered our FY24E estimates primarily considering some pricing pressure on HFO and only marginal uptick in CDMO. Chemical sector is undergoing a challenging environment which has been impacting financial performance of companies. It has prompted us to rejig the multiple for the sector and hence we have lowered Navin’s target P/ E multiple from 45x earlier to 40x. Nonetheless, we remain optimistic on the growth prospects of Navin and maintain Buy with a reduced TP of Rs5,267 (earlier Rs5,768).

Planned and unplanned shutdown impacts Q1 coupled with lower CDMO contribution During Q1, Navin reported 29.5% QoQ decline in revenues at Rs4.9bn. HFO plant planned shutdown and later shutdown due to issue in purification section, led to 41.5% decline in HPP revenues. Lower R22 demand too impacted HPP performance. In CDMO too, revenues declined 54.2% due to execution of a large US order in Q4.

Capex projects on track, to fuel future growth Ongoing projects are on track with R32 sales expected to start in Q2 and new fluorospecialty molecule (agrochemical) project commissioning by end-2023. On the newly announced 40,000MT AHF project, the company is working on basic engineering and technology with a global player. On a new CDMO project, detailed engineering work going on and is expected to go to board for approval in coming quarters.

CDMO – Working on multiple molecules, sizable opportunity with Fermion contract Navin is working on multiple Phase I and late stage molecules in CDMO. Multi-year and multi-molecule Fermion contract is expected to add sizable contribution to CDMO segment from 2025 onwards. Navin has already supplied qualification quantities with approval in place for one molecule and for the other two molecules qualification quantities will be supplied in subsequently quarters.

No negative is positive, stay optimistic Management remained optimistic on all the three business segments citing that HFO volumes will be recouped in Q2/ Q3. Ramp up in newly commissioned projects and upcoming ones is expected to drive revenue growth in FY24E/ FY25E. Based on current business environment and management outlook, we have lowered our FY24E earnings by 8% while upping FY25E earnings by 2%. Lowering our P/ E multiple to 40x, we maintain Buy rating with a lowered TP of Rs5,267 (earlier Rs5,768).

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