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Better pricing and operating leverage drive operating performance

Earnings in line with our estimate

* 1QFY26 was a strong quarter for Navin Fluorine International (NFIL), with revenue rising 39% YoY, supported by strong performance across all three business segments. Revenue in HPP/specialty chemicals/CDMO grew 45%/ 35%/22% YoY. EBITDA grew 2x YoY, driven by operating efficiencies and a better pricing environment.

* We expect this momentum to sustain, supported by the successful commercialization of the R32 project in Mar’25, along with the stable pricing environment of refrigerant gases. Moreover, the launch of three new molecules in specialty chemicals—expected to commence in 2QFY26—and the commissioning of new capacities in 2HFY26 (in HPP and CDMO) are expected to further reinforce growth going forward.

* With new capacities expected to commercialize and the visibility of a strong order book, we broadly maintain our FY26/FY27 earnings estimates and reiterate our Neutral rating on the stock with a TP of INR5100 (45x FY27E EPS)

HPP and specialty chemicals key growth drivers in 1QFY26

* NFIL reported revenue of INR7.3b (est. INR7.8b), up 39% YoY, driven by growth across all three segments.

* Gross margin stood at 57.6% (up 160bp), while EBITDA margin expanded 930bp YoY to 28.5%, driven by operational efficiencies and a better pricing environment.

* EBITDA stood at INR2.1b (est. in line), up 2.06x YoY, and PAT grew 2.3x YoY to INR1.2b in 1QFY26 (est. in line).

* Revenue in the HPP segment (up 45%) was driven by higher volumes and improved realizations in 1Q, supported by the successful commercialization of the R32 project in Mar’25.

* Revenue in the Specialty Chemicals segment grew 35% YoY to INR2.2b, driven by 37% growth in the international business, while the CDMO business continued its growth trajectory in 1QFY26, with revenue growing 23% YoY to INR990m.

* India’s revenue grew 28% YoY, while revenue from the International business grew 44% YoY.

Highlights from the management commentary

* High-purity electronic grade: The company has announced an exclusive partnership with Buss ChemTech AG, Switzerland, to commercialize high-purity electronic grade HF. It is progressing well in engaging with global electronics customers, supporting the development of its broader product portfolio.

* HPP: The company successfully commercialized the R32 project in Mar’25 and is currently running it at optimal capacity. With global demand for R32 accelerating, the company is actively working with international partners to further capitalize on this opportunity.

* Capacity allocation: The AHF capex for INR4.5b at Dahej is expected to be commissioned by the end of 2QFY26, while the Phase 1 capex of INR1.6b for cGMP4 remains on track for commissioning by the end of 3QFY26.

Valuation and view

* We believe the company is well-positioned to sustain its growth momentum in FY26, supported by the commercialization of three new molecules in 2QFY26 and material contributions expected from the Fluoro Specialty unit at Dahej, which commenced operations in Dec’24.

* The medium-term outlook is further supported by: 1) a strategic partnership with Chemours to foray into high-growth advanced materials and 2) the approval of a key molecule by both the US and EU, enabling expanded applications in the CDMO segment.

* We expect a revenue/EBITDA/adj. PAT CAGR of 28%/37%/41% over FY25-27. The stock is trading at ~46x FY27E EPS of INR112.4. and 27.7x FY27E EV/EBITDA. We value the company at 45x FY27E EPS to arrive at our TP of INR5,100. Valuations remain expensive; thus, we reiterate our Neutral rating.

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