IGI Logo

plant (Honeywell) post its shutdown in June, slower stabilization of R32 project, along with deferred revenues in Specialty/ CDMO. Navin’s Revenues/ EBITDA/ PAT thus declined 3.9%/ 13.9%/ 1.5% QoQ at Rs4.7bn/ Rs0.9bn/ Rs606mn. Nonetheless, management cited strong order book across business segments with lost revenues to be recouped partially in Q3. Balance sheet has ballooned with gross debt at ~Rs12.3bn and net debt at ~Rs7.8bn. Navin’s approved fund raise plan is in place and shall be executed at an appropriate time. Challenging 1H, slow ramp of newly executed projects, and muted agrochem environment globally is expected to take a toll on Navin’s financial performance. Although transitory in nature, the exit of current MD is likely to impact new project execution thus affecting near term financial performance. Considering all these factors, we have lowered our FY24E/ FY25E earnings estimates substantially by 23%/ 28% and introduced FY26E estimates. We have also lowered Navin’s target P/ E multiple from 40x earlier to 35x primarily to account for execution delays. Based on our revised estimates, we downgrade the stock from Buy to Add with a reduced TP of Rs3,881 (earlier Rs5,267).

Rs0.9-1.0bn revenue impact due to multiple reasons During Q2, Navin’s revenues suffered from deferment in 2 campaigns at Dahej in Specialty segment, slow ramp up of HPP plant post shutdown in June, deferment of sales of a CDMO campaign to Q3, and slower stabilization of R32 project. Overall, the company lost ~Rs0.9-1.0bn revenues in Q2 with partial recovery expected in Q3 and later. Overall revenue growth remained muted with 3.9% QoQ decline at Rs4.7bn with 250bps QoQ EBITDA margin contraction at 20.8%

Existing capexes on track, new capexes still on drawing board R32 project was commissioned in Q2, new fluorospecialty molecule (agrochemical) project is expected to be commissioned by end-2023, and the 40,000MT AHF project is on track. However, new projects are currently on drawing board and may get delayed during the intervening period of finding a successor to the current MD. Newly commissioned R32 project is likely to start contributing meaningfully from next quarter. Margins are likely to recover once the operating leverage kicks in with revenue growth

Slow ramp up, demand softness in agro likely to impact growth Management clearly cited slow ramp-up in executed projects as well as new projects to avoid any technical issues in operations. Additionally, it has experienced some demand softness in one of the four MPP molecules related to agro.

Estimates downsized, downgrade to ADD We believe, Navin’s growth would be thwarted by project execution delays, slow ramp up, and subdued agrochem macro which has led to lowering our estimates substantially. We have also lowered the multiple due to diminishing premium, earlier assigned to the current MD for his execution delivery. Lowering our FY24E/ FY25E estimates by 23%/ 28%, lowered multiple from 40x to 35x, and rolling over our valuations to 1HFY26E, we downgrade the stock to ADD with a lowered TP of Rs3,881 (Rs5,267). Risks – Sharp ramp-up in new projects, signing on new contracts

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331