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Long-term growth unfazed by near-term hiccup

* On 28th Sep’23, Mr. Radhesh Welling had tendered his resignation as the Managing Director of the company for personal reasons. The resignation would be effective from 15th Dec’23 and he would continue to serve the company till then ensuring smooth transition.

* The company is searching for an external candidate as Mr. Radhesh’s replacement. In the interim, Mr. Vishad P. Mafatlal would steer the operations of the company.

* The company doesn’t expect any material impact on the company’s existing relationship with customers or on the ongoing and future capex plans of the company due to change in leadership.

* The stock is trading at 31.5x FY25E EPS of INR121 and we value the company at 35x FY25E EPS to arrive at our TP of INR4,245. Valuations are rich and hence, we maintain our Neutral rating on the stock owing to limited upside.

Change in leadership to have minimal impact

* NFIL has maintained strong relationship with customers and suppliers with all large clients having multiple touch points in the company. Hence, the company doesn’t expect any impact on existing relationships due to change in leadership. Discussions with existing customers are in place for supply of incremental volumes by the company.

* NFIL’s operating model of having three different CEOs for three verticals has served the company well since its implementation at beginning of FY23 and the same would continue under the new leadership. Mr. Rajendra Sahu, Mr. Partha Roy Chowdhury and Mr. Amrit Singh are the CEOs of CDMO, HPP and Specialty Chemicals respectively.

* The future capex plans will also remain unchanged despite change in leadership. Moreover, ongoing discussions with customers for future projects would also not be impacted and the company would continue to grow as guided earlier by the management.

Capex plans in place for driving next leg of growth

* The company plans to commission a new Fluorospecialty molecule by Dec’23, with a capital expenditure of ~INR5.4b. Subsequently, it anticipates that revenues from the Specialty Chemicals segment will surpass INR10b by FY24 itself and we expect the segment to contribute 43% to the total revenues by FY25.

* The management is also considering replacement of older, lower-margin products at its MPP plant in Surat with alternative products that have the potential to generate higher profit margins. This proposal is expected to be presented to the board for consideration by the end of CY23.

* In addition to the ongoing expansion projects slated for completion in FY24E, the senior leadership is also formulating a business plan for two new initiatives that will be presented to the Board for approval in CY23. These projects consist of CDMO (cGMP-4) and another venture within the Specialty Chemicals segment.  

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SEBI Registration number is INH000000412