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Weak near-term demand; maintain REDUCE

NFIL’s Q2 revenue was up 10% YoY at Rs5.2bn (flat QoQ), owing to: i) higher R32 sales and improved R22 realizations in HPP business; ii) lower contribution from the specialty chemical business due to cautious outlook and competitive pressure; and iii) improved contribution from the CDMO business with focus on late/commercial-stage molecules. EBITDA was in line with estimates at Rs1bn (up 9% YoY/7% QoQ) with margin at 20.7% (flat YoY). While growth in HPP business will be driven by the new R32 plant in FY26, the management has order visibility in spec chem from Q3 and maintains CDMO guidance of USD100mn revenue by FY27. We cut our FY25/26/27E EPS by 9%/3%/3% to factor in weak near-term demand and delay in commissioning of dedicated agro specialty plant. We maintain REDUCE with TP of Rs3,500 (35x Dec-26E EPS).

High Performance Product (HPP) plants continue running at optimal utilization

The HPP segment generated revenue of Rs2.9bn (+23% YoY; +4% QoQ) on steady utilization in the HFO plant (Honeywell contract) and optimum utilization in the R32 plants with better exports in Q2. R32 volumes witnessed uptick domestically, while the realizations for R22 improved moderately QoQ. The current R32 plant is running optimally, and the focus is on adding 4,500MT capacity, while the progress schedule remains on track for commissioning by Feb-25. The management is evaluating debottlenecking existing capacity for achieving higher quota. However, quota for this new R32 capacity will be around 60% after the baseline period as per on our calculations. The AHF capex of Rs4.5bn is scheduled for commissioning by end-FY25/early-FY26.

Specialty Chemicals saw subdued exports on weak global macros

Specialty Chemicals reported revenue of Rs1.6bn (-15% YoY; -2% QoQ) on inventorylevel rationalization delaying purchase decisions and stiff competition. NFIL’s capex progression for a new molecule at Surat is on track with annual peak revenue potential of Rs400-500mn for 3 years. The company will be launching 2 new molecules in Q3FY25. The agro specialty capex of Rs5.4bn is expected to be commissioned by Nov-24, and the revenue is expected to ramp up from end of Q3FY25. The company witnessed higher growth in share of domestic spec chem due to one-off opportunistic sales in pharma.

CDMO guidance of USD100mn revenue by FY27 stays

CDMO reported revenue of Rs0.7bn (+42% YoY; -16% QoQ) on higher share from the domestic business. cGMP-4 capex of Rs2.9bn remains on track to be commissioned by end-CY25, with initial outlay of Rs1.6bn. The management has done sampling to an EU major for process performance qualification for a late-stage molecule. The company is in process to supply a commercial-stage molecule for a US major in Q3FY25. NFIL expects to achieve peak revenue potential for the MSA signed with Fermion earlier than projected, with increase in drug application in select therapeutic areas. The management reiterated its strategy to achieve its revenue guidance of USD100mn from this business by FY27.

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