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Modular CRAMS capacity addition announced

Navin Fluorine International’s (NFIL) Q3FY22 EBITDA came in line with our estimate, though legacy business helped lead growth / improve margins. CRAMS revenue was lost due to a delay in purchase order, which should be booked in Q4FY22. Specialty mix is changing more toward agro-chemicals, while NFIL will remain opportunistic in domestic pharma business. While NFIL sees rising competitive intensity in agrointermediate business, it remains confident on shaping up of the business model focused at advance platform F3-F6. It has announced debottlenecking capex of Rs750mn for CRAMS capacity addition; Rs10bn worth of capex will commence in FY23. Further, it is building new products across business units, which should help announce fresh capex in FY23 and FY24 to support future growth. We have marginally tweaked our EPS estimates, but increased our target price to Rs3,550 (from Rs3,100) as we rollover valuation to FY24 (40x EPS). We downgrade the stock to SELL (from Reduce) on unattractive valuation at 48x FY24E EPS.

CRAMS revenue growth muted on delay in orders. Standalone revenue rose 23.7% YoY to Rs3.7bn (+13% QoQ), driven by 53% growth in ref-gas, 46% in inorganic fluoride and 24.6% in specialty, while CRAMS revenue dipped 16%. CRAMS was hurt from delay in purchase order, which has slipped to Q4FY22. Specialty rose from strong show in exports (agro / industrial), up 88% YoY, while domestic (pharmaceuticals) dipped 13%. Ref-gas domestic sale was up 79% YoY, while exports were relative low. Inorganic has grown mostly domestic, while exports were down sharply. CRAMS sales were a miss this quarter but should recover in Q4FY22; ref-gas and inorganic continue to see good demand. Specialty will grow driven by agro-chemicals and new plant commissions.

Gross margin stable. Gross margin rose 170bps YoY to 55.9% despite lower CRAMS probably from strong domestic ref-gas sales. NFIL has taken selective price hike, and some more may come in next quarter. Inorganic domestic should have also added to margins. As company prepares for new plant commissioning, its operating cost has increased 36% YoY thus limiting EBITDA growth to 19% YoY to Rs981mn. Net profit rose 17.8% YoY to Rs692mn

Debottlenecking announced in CRAMS. NFIL announce debottlenecking of CRAMS-3 with total investment of Rs750mn, which should enable the company to generate revenue of US$65-70mn pa from the existing potential of US$40mn. The capacity should complete in Q3FY23; the company may evaluate new facility after debottlenecking.

Rising competitive intensity in fluorine agro-chemicals; NFIL’s focus to drive new applications. The company sees rising competitive intensity in agro-chemical intermediate and NFIL continues to build capacity and capabilities in new application (including advance pharmaceuticals, non-domestic generic) in F3-F6 platform. F1-F2 is more generic and less complex, which is seeing rising competition, but F3-F6 platform is very complex to handle, and only few companies globally are strong at this platform. This will remain NFIL’s competitive advantage.

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