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Gearing for Growth & Margin Expansion; Upgrade to BUY

Est. Vs. Actual for Q3FY25: Revenue – INLINE; EBITDA– BEAT; PAT – BEA

Change in Estimates post Q3FY25

FY25E/26E/FY27E: Revenue: -2%/0%/4%; EBITDA: 4%/-2%/2%; PAT: 7%/1%/8%

Recommendation Rationale

NFIL reported strong all-around growth during the quarter and a significant margin recovery. Management indicated that these margin levels are sustainable and expressed confidence in achieving continued growth and targeted EBITDA margins by FY27. Despite challenges in the industry, the company's robust performance underscores its ability to meet these targets.

* Volume and Realization Lead Growth in HPP: The company’s HPP segment recorded another strong quarter with 22% YoY revenue growth, driven by volume growth in HFO, R22, R32, and inorganic salts, along with improved price realisation. The additional R32 capacity of 4,500 metric tonnes is expected to be commissioned by Feb’25, while the AHF project remains on track for commissioning by early FY26. The demand outlook for R32 remains strong.

* Improving Utilization in Specialty Chemicals: The specialty chemicals business showed signs of recovery during the quarter, in line with management's commentary from the previous earnings call. The Dahej plant, with a capex outlay of Rs 540 Cr, commenced commercial production in November 2024, and the first dispatch from Surat is expected in Q4FY25. NFIL remains focused on increasing capacity utilization and sees strong order visibility in Q4FY25 and beyond.

* Strong visibility in CDMO: The CDMO business posted 8% YoY revenue growth, with an order book providing clear revenue visibility going forward. The company continues to make progress in the European CDMO business and has received a scale-up order from a major US-based customer. The first phase of the cGMP4 project remains on track for commissioning by Q3FY26.

* Sector Outlook: Neutral

Company Outlook & Guidance

While the company continues to add capacities, it is also focused on maximising capacity utilisation, enhancing productivity, and driving efficiencies across all business lines while strengthening customer relationships. The order book reflects that management sees strong revenue visibility across all three segments. The margin improvement in the current quarter reinforces confidence in achieving or surpassing its EBITDA margin target of around 25%. With ongoing expansion, new molecule launches, and anticipated tie-ups in the CDMO space, the company is well-positioned to deliver strong performance in FY26 and FY27

Current Valuation: 30x FY27E (Earlier Valuation: 27x FY27E).

Current TP: Rs 4,300/share (Earlier TP: 3,570/share)

Recommendation: We upgrade the rating on the stock to BUY from HOLD as the company appears well set for long-term profitable growth.

Financial Performance:

Navin Fluorine International Ltd. (NFIL) reported strong Q3FY25 results, surpassing our estimates on profitability. The company recorded revenue of Rs 606 Cr, broadly in line with our estimate of Rs 594 Cr. EBITDA stood at Rs 147 Cr, exceeding our estimate of Rs 122 Cr. EBITDA margins improved to 24.3% compared to 15.1% in the same quarter last year. PAT came in at Rs 84 Cr, up 7% YoY and 42% QoQ, beating our estimate of Rs 71 Cr.

Outlook:

As expected, NFIL improved revenue visibility during the quarter, with the specialty chemicals segment showing signs of revival while other segments continued to perform well. Wellplanned capex and operational discipline will drive future growth and further improve margins. NFIL's strong track record of establishing international collaborations and strategically adding to its product portfolio bodes well for its long-term prospects. Our estimates continue to reflect expectations of accelerated growth from FY26 onwards as all key growth levers come into play

Valuation & Recommendation:

We have revised our estimates to factor in the margin trajectory and the benefits of utilisation approaching peak levels in FY27. Growth is expected to accelerate over the next few quarters, with performance further improving as projects stabilise and capacity utilisation reaches optimal levels. We now value the stock at 30x FY27E (earlier 27x FY27E) to reflect improved long-term prospects, translating into a TP of Rs 4,300/share (earlier Rs 3,570/share), implying an upside of 10%. Accordingly, we upgrade our rating to BUY from

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