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Non legacy business to lead show…

About the stock: Navin Fluorine (NFIL) operates one of the largest integrated fluorochemicals complexes in India with a presence in speciality chemicals, CRAMS, inorganic fluoride and refrigerant segments.

* The company has two manufacturing facility in Surat and Dewas while it is setting up a new greenfield capacity at Dahej

* In terms of revenue contribution, speciality chemical constitutes 40% of overall revenue followed by CRAMS of 25% and rest from refrigerant (~18%) and inorganic fluoride (~17%) businesses.

Q1FY22 Results: Revenue was almost in line with our estimates while PAT came in lower than expected owing to higher operating cost.

* Reported revenue growth of 52% YoY to | 326.5 crore, led by speciality chemical (up 37% YoY) and CRAMS (up 97% YoY)

* Gross margins declined 311 bps YoY to ~54.6% while EBITDA margin contracted 122 bps YoY to 23.8%, due to higher operating cost such as employee (+26% YoY)

* EBITDA was up 45% YoY to | 77.8 crore

* PAT increased 45% YoY to | 55.9 crore owing to lower than expected operational performance

What should investors do?

The stock appreciated at 74% CAGR in last three years

* We retain HOLD rating on the back of better growth outlook from value added segments such as CRAMS and speciality chemical

Target Price and Valuation: We value Navin Fluorine at 40x P/E FY24E EPS to arrive at a revised target price of | 3710/share (earlier | 3460/share).

Key triggers for future price performance:

* Upcoming capex for speciality chemical and HPP to aid value added business revenue mix and thereby group return ratios

* Potential entry into other key segments of fluorine molecules

* Increase in custom synthesis/CRAMS business revenue

Alternate Stock Idea: Apart from Navin Fluorine, in our chemical coverage we also like Neogen Chemical

* Trigger for Neogen Chemical’s future revenue growth would be increasing CRAMS opportunity

* BUY with a target price of | 1085

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