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Strong performance led by Specialty and HPP businesses

-      Navin Fluorine’s (NFIL) EBITDA/PAT grew 13%/42% YoY in 4QFY24, higher than our estimates. The beat was driven by a strong performance in the Specialty Chemicals business, which was well supported by growth in the HPP segment. Gross margin was 50%, while EBITDA margin dipped 10.7pp YoY to 18.3%.

-      The Specialty Chemicals business posted strong revenue growth of 26% YoY, led by higher utilization at the Surat plant and the addition of new molecules (one in Dahej and two in Surat). Management highlighted that it is much better placed with long term take-or-pay contracts with its customers. Currently, 80% of the revenue is contributed by the agrochemicals sector. NFIL anticipates launching 3-4 new molecules every year in this space.

-      The HPP business grew 3% YoY, led by R22 and R32 plants that are running at full capacity, with positive pricing trends being seen in the domestic market for R32. Management seeks to double the R32 capacity that is expected to be commissioned by Feb’25. The HFO plant has stabilized, and the volumes are higher than the previous three quarters. Management also highlighted that the Ref Gas market is showing signs of recovery.

-      Navin Molecular continued its weak performance with a revenue decline of 76% YoY in 4Q, and some deferral in molecules while some molecules did not get timely approvals by the customers. Despite this, management mentioned that it has a strong late-stage pipeline/commercial opportunities in the business. The BoD has also approved a capex of INR2.9b for its cGMP-4 plant with Phase-1 outlay of INR1.6b that is likely to be commissioned by end-CY25.

-      We have not made any material changes to our estimates as of now. Subsequently, we expect a revenue/EBITDA/PAT CAGR of 23%/34%/39% over FY24-26. The stock is trading at 38x FY26E EPS of INR89 and 25x FY26E EV/EBITDA. We value the company at 35x FY26E EPS to arrive at our TP of INR3,110. We reiterate our Neutral rating on the stock.

Beat led by lower-than-expected operating costs, EBITDAM improves sequentially

-      NFIL reported a revenue of INR6b (est. INR5.3b, -14% YoY). EBITDAM came in at 18.3% (-10.7pp YoY), with EBITDA at INR1.1b (est. of INR976m, -45% YoY).

-      Reported PAT stood at INR704m (est. of INR497m, -48% YoY). Other income was higher as it included INR12m of interest on the refund of income tax. Tax expenses also included a reversal of excess tax provisions for earlier years amounting to INR170m.

-      For FY24, revenue stood at INR20.7b (-1% YoY), EBITDA was INR4b (-28% YoY), and reported PAT was INR2.7b (-28% YoY). Adjusted PAT came in at INR2.3b (-39% YoY), with EBITDAM at 19.3% (-720bp YoY).

-      The Board declared a final dividend of INR7/sh (350% of FV) for FY24. An interim dividend of INR5/sh plus a one-time special dividend of INR3/sh were also announced during the year.

Segmental highlights

-      The HPP business posted revenue of INR3b (+3% YoY). The business saw increased sales from R32 capacity, which was offset by lower export realization and reduced HFO. The HFO sales were significantly higher than 9MFY24.

-      The Specialty Chemicals business posted revenue of INR2.6b (+26% YoY). Utilization at the Surat plant was higher with the addition of new molecules. One molecule was added at Dahej and two in Surat. Chemical charge was initiated from the Agro specialty molecule with firm orders for FY25 in place.

-      Navin Molecular reported a revenue of INR480m (-76% YoY). Deferral of molecules in 4Q led to weak business performance. There was an order visibility from existing MSA, with a European CDMO major for FY25. The company has a strong late-stage pipeline/commercial opportunities. cGMP capex of INR2.9b was approved by the BoD with Phase-I outlay of INR1.6b (to be commissioned by end-CY25).

-      The revenue mix in 4QFY24 was 49% for HPP business (42% in 4QFY23), 8% for Navin Molecular (29%), and 43% for Specialty Chemicals business (29%)

-      Domestic sales were 34% of the total revenues in 4QFY24, while 66% was exports (78% in 4QFY23). Domestic sales from the HPP business stood at 42% and sales from the Specialty Chemicals business was 24%. The same for Navin Molecular was at 41%.

Valuation and View

-      The Specialty Chemicals and Navin Molecular businesses should drive robust CAGR at 29% and 45%, respectively, over FY24-26, with increasing use of fluorine in the Pharma and Agro space, battery chemicals, and performance materials (Solar grid HF, Semiconductor grade HF, et al).

-      The company has already identified various opportunities, such as 1) a capability capex in Specialty Chemicals with INR450m in revenue expected every year starting FY25, 2) Fermion contract with value of USD40m over three years (starting CY24), and 3) an additional R32 capacity to be commissioned by Feb’25, among others.

-      We expect a revenue/EBITDA/PAT CAGR of 23%/34%/39% over FY24-26. The stock is trading at 38x FY26E EPS of INR89 and 25x FY26E EV/EBITDA. We value the company at 35x FY26E EPS to arrive at our TP of INR3,110. We reiterate our Neutral rating on the stock.

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