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Navin Fluorine’s (NFIL) 1QFY24 EBITDA missed our and consensus estimates by ~28% primarily on account of issues at the HFO plant in Jun’23. However, the management says that the lost volume will be majorly recovered over the next 2 quarters. On the CDMO front, the management remains hopeful of achieving ~20%YoY growth and probably higher growth in FY25 with increased offtake. Besides, the new contract with Fermion for multiple late-stage pharma molecules has increased the company’s visibility from CDMO beyond FY25/26. On the specialty chemicals business front, the quarterly run-rate seems on track to achieve our annual forecast. There, however, will be some challenge from the R-22 side amid the weak summer. Further, we build in some price decline in R32, sales for which are on track to commence from 2QFY24. Hence, to factor in 1QFY24 results and commentary, we have marginally cut our FY24/25/26 EBITDA estimates by ~2%. We maintain BUY with a revised Sep’24 TP of INR 5,665 (from Jun’24 TP of INR 5,495) based on 36x Sep’25E EPS (DCF implied). As highlighted in our recent sector report (click here), Navin has the pathway in place to take advantage of HF capacity expansion and continue the strong growth momentum beyond FY25/26.

* HFO plant shutdown led to EBITDA miss: Navin Fluorine (NFIL)’s 1QFY24 consolidated gross profit came in 15% below JMFe and stood at INR 2.9bn (down 30% QoQ, up 34% YoY) as revenue was 18% below JMFe at INR 4.9bn (down 30% QoQ, up 24% YoY) more than offsetting higher-than-anticipated gross margin of 58.7% (vs. 56.7% of JMFe and 59.3% in 4QFY23). As a result, EBITDA came in 28% below JMFe/consensus and stood at INR 1.1bn (down 43% QoQ, up 15% YoY) despite lower-than-anticipated other expenses of INR 951mn in 1QFY24 (vs. JMFe of INR 1.1bn and INR 1.4bn in 4QFY23). Revenue miss was primarily on account of teething issues at the HFO plant. CDMO business anyway remains lumpy on a quarterly basis. Further, PAT was down 40%/44% below JMFe/consensus and stood at INR 615mn (down 17% QoQ/ 55% YoY) on account of higher depreciation charge.

* Management expects no impact on full year HFO volume: On account of some teething issues in Jun’23, the company’s HFO sales were impacted in 1QFY24. However, it expects to make up for the lost volume in the coming quarters. Hence, on a full year basis, revenue forecast from the Honeywell project remain more or less unchanged. On the CDMO business, the management remains confident of achieving 20%+ YoY growth on account of strong order inflows. On the specialty chemicals business front, 1QFY24 performance was robust and commentary, going forward, remains upbeat.

* Expect 33% EPS CAGR over FY23-26E; maintain BUY: Within our specialty chemicals coverage, Navin Fluorine has one of the highest EPS growth at ~33% over FY23-26E. We maintain BUY with a revised Sep’24 TP of INR 5,665/share (from Jun’24TP of INR 5,495 earlier) based on 36x Sep’25E EPS (DCF implied).

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