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Navin Fluorine International (NFIL) reported a revenue of 5bn (-11% YoY/ 6.4% QoQ), the topline growth was impacted due to postponement of sales for key molecules to next fiscal and channel inventory destocking. CDMO dragged performance for the quarter, however the company has entered into a strategic partnership with a US based CDMO player, which will help in deeper penetration into US market. The stock is trading at 31x FY26E EPS of Rs 106.5, with an expected improvement in RoE to ~20%, despite a huge capex (Rs8bn) over the next two years. We value the company at 35x FY26E EPS (earlier Target P/E at 40x) to arrive at our TP of Rs 3,727 (earlier Rs 4,007). We downgrade our rating to ‘Accumulate’ from ‘BUY’.

* Consolidated revenue is at Rs5bn (-11% YoY/ 6.4% QoQ). For 9MFY24, topline improved by 6.1% to Rs14.6bn from Rs13.8bn. Gross margin was at 53.9% (vs 57.2% in Q2FY24 and 56.3% in Q3FY23).

* EBITDA came in at Rs757mn (-51.1% YoY, -23.1% QoQ), and EBITDA margin came at 15.1% (vs 27.6% in Q3FY23 and 22.4% in Q2FY24). Higher opex and feedstock cost led to 3-4% decline in EBITDA margin, which the management guides to recoup in subsequent quarters.

* Reported PAT was at Rs780mn (-26% YoY, 28.8% QoQ, +71.6% PLe) primarily due to higher exceptional items due to sale of surplus unused colony land situated at Surat (Gujarat). During the quarter end, the Company paid an interim dividend of ~5 per share plus a onetime special dividend of ~3 per share, aggregating to~ 396.6mn.

* Concall takeaways: (1) CDMO segment: cGMP-4 expansion in two phases1 st with 100kl capacity at a cost of INR1.6bn; extended MSA to three molecules for CDMO for European customer; 30-35% of revenues would be from nearcommercial molecules; few molecules dropped off from CDMO due to data not meeting requirements; earlier announced CDMO project of USD16mn is expected to come in FY25; cGMP-4 required to take revenues to USD100mn from CDMO in few years; entered into strategic partnership with a US based player for CDMO (2) HPP: Rs840mn for R32 capacity doubling aimed at securing market position, R32 is a low GWP product, 1st cut would commence in 2032; R22 continues to face pricing pressure; R32 plant has stabilized and is operating at optimal capacity; HFO plant ramp up is taking time; demand of HFO remains sluggish; expected to do INR4.6bn in HFO sales in FY25. (3) Specialty chemicals: added one molecule at Dahej and expected to add four new molecules (3 at Surat, one at Dahej) in next quarter; commercial supply from Rs5.4bn agrochem project (half of which is dedicated) expected by Q1FY25; Capex of Rs300mn at Dahej to be commercialized in FY25. (4) Miscellaneous: Unpredictable weather conditions, destocking continue to be pain points; long term outlook remains intact; 3-4% impact on EBITDA is recoverable; Gross debt Rs12bn including working capital.

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