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HPP and Specialty Chemicals lift performance YoY

* Navin Fluorine International (NFIL)’s EBITDA/ PAT in 3QFY25 came in at 6%/12% higher than our estimates due to the strong YoY performance in HPP and Specialty Chemicals segments. Gross margin stood at 56.6%, while EBITDA margin expanded 920bp YoY to 24.3%. Earnings expanded 131% YoY to INR836m in 3QFY25. Management continues to drive operational efficiency in the company while indicating that it could exit FY25 with an EBITDAM at ~25%.

* HPP saw better realization as the product mix was optimized, with volume growth seen across inorganic salts, R32, R22, and HFO. The additional R32 capacity, with a capex of INR840m, is progressing on schedule for commissioning by Feb’25, with an asset turnover of 2-2.5x. The AHF capex of INR4.5b remains on track for early FY26 commissioning, with captive consumption expected at 25-27ktpa and external sales at 6-7ktpa.

* Spec Chem's ramp-up at Dahej and Surat will drive higher contributions in upcoming quarters. Dahej's capacity utilization was at 80-85% in 3QFY25 from 40-45% in 2QFY25. Surat assets’ supply has started, with an expected asset turnover of 1.2x on a capex of INR300m. The Dahej Fluorospecialty (Project Nektar) capex of INR5.4b is expected to generate INR5.2b in revenue over two years, with 40-50% contribution in FY26 and nearing peak levels by FY27.

* The Fermion contract is set to contribute ~30% of the USD100m target, with the registration process in an advanced stage and expected approval by AprMay’25. Direct dispatches have begun, and the CY25 order book is secured, with a new molecule supply expected in CY25. The cGMP-4 asset turnover is projected at 2x, while total revenue from cGMP-1/2/3 could reach USD50-60m.

* Despite the robust earnings in 3Q, we rationalize our earnings to some extent by cutting our FY25/26/27 revenue by 6%/6%/10% and FY27 EBITDA/PAT by 7%/10%. The stock is trading at ~48x FY26E EPS of INR81 and ~30x FY26E EV/EBITDA. We value the company at 40x FY27E EPS to arrive at our TP of INR3,715. Valuations remain extremely expensive, thus we maintain our Neutral rating.

Beat on EBITDA led by lower-than-expected opex and employee exp.

* NFIL reported revenue at INR6.1b (est. INR6.5b, +21% YoY) and GM at 56.6% (+250bp YoY). EBITDAM came in at 24.3% (+920bp YoY), with EBITDA at INR1.5b (est. of INR1.4b, +95% YoY). Adjusted PAT stood at INR836m (est. of INR745m, +131% YoY). NFIL declared an interim dividend of INR5/share (FV of INR2 each).

* For 9MFY25, revenue stood at INR116.5b (+13% YoY), EBITDA at INR3.6b (+23% YoY), and adjusted PAT at INR1.9b (+22% YoY). EBITDAM was at 21.5% in 9MFY25 (+180bp YoY).

* The HPP business posted a revenue of INR3.1b (+22% YoY); higher volumes were seen for HFO and R32 with improved realization across products. The Specialty Chemicals business posted a revenue of INR2.2b (+26% YoY), with strong order visibility in 4QFY25 and FY26. TheCDMO business reported a revenue of INR790m (+8% YoY); the order book remains strong for 4QFY25 with orders in hand for CY25 w.r.t. European CDMO MSA.

* The revenue mix in 3QFY25 stood at 50% for the HPP business (flat YoY), 13% for the CDMO business (15% in 3QFY24), and 36% for the Specialty Chemicals business (35%).Domestic sales accounted for 54% of total revenues in 3Q, while exports accounted for 46% (68% in 3QFY24). Further, domestic sales from the HPP business were 46% and from the Specialty Chemicals business 75%. Meanwhile, domestic sales for the CDMO business were 25%.

Valuation and view

* The CDMO business is expected to drive robust growth (clocking a 33% CAGR over FY24-27) due to the increasing use of fluorine in the Pharma and Agro space, battery chemicals, and performance materials (Solar grid HF, Semiconductor grade HF, etc). The company has already identified various opportunities, such as: 1) a capability capex in Specialty Chemicals with INR360m in peak revenue (first dispatch in 4QFY25); 2) Fermion contract with a value of USD30m over three years (starting from end-CY24); and 3) an additional R32 capacity to be commissioned by Feb’25, among others.

* We expect a revenue/EBITDA/adj. PAT CAGR of 17%/25%/26% over FY24-27. The stock is trading at ~48x FY26E EPS of INR81 and ~30x FY26E EV/EBITDA. We value the company at 40x FY27E EPS to arrive at our TP of INR3,715. Valuations remain extremely expensive, thus we maintain our Neutral rating.

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