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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 facilities 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 the rest from refrigerant (~18%) and inorganic fluoride (~17%) businesses

Q1FY22 Results:Numbers were above our estimates across all parameters, led by strong growth from speciality chemical, inorganic fluoride and refrigerants.

Reported revenue growth was 23% YoY to | 379 crore, led by speciality chemical (up 25% YoY), inorganic fluoride (up 46% YoY) and refrigerants (up 53% YoY

Gross margins were up 170 bps YoY to 55.6% while EBITDA margin was up 40 bps YoY to 26%, due to higher operating cost such as employee (up 30% YoY) and other cost (up 28% YoY)

EBITDA was up 24% YoY to | 98.6 crore

PAT increased 17% YoY to | 68.8 crore

What should investors do?

The stock appreciated at 85% 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 45x P/E FY24E EPS to arrive at a target price of | 4520/share (earlier | 3710/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 | 2160

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