Navin Fluorine International - Company Update - Sushil Finance

We came out with a stock review on Navin Flourine on 04/06/2014 ( Rs 420) with a BUY call and target price of Rs 590.Subsequently the target price was achieved. There has been couple of positive development since we recommend BUY on the stock and the earnings visibility of the company has improved compared to what it was a year back.

New facility in Dewas likely to start by Q3FY16: Based on the initial success of contract research work the company took a bold decision of putting up a pure Contract Research Manufacturing facility for its prospective clients at Dewas in Madhya Pradesh. So far the company was manufacturing in K.G. levels for its clients and based on the demand it is expected to ramp up to Tons for each of the product and hence the Dewas facility is likely to contribute significantly to the growth of the company in FY16/17. The facility with a capex of Rs 60 cr can achieve an asset turnover of ~3x at peak utilization levels. However, would take time to do so. We believe once the audit by its clients are over the Dewas unit should start contributing from Q3FY16.

Expect 20% CAGR in existing business for the next three years: Specialty chemicals division witnessed strong growth of 38%, while refrigerant business grew by a healthy 26% in FY15. In organic fluoride division however witnessed slowdown declining by 7% YoY. We believe the management can deliver 20% CAGR in each of the segment for the next three years. The Company would also supply raw materials to the JV with Piramal and hence would see decent growth in existing business.

Margins to be maintained in existing products, while higher contribution from CRAMs will enable better overall margins in FY16/17: The basic raw materials for the company like Fluorspar and Chloroform continues to be volatile, with Cholroform prices on a rising trend. The company reported a 192 bps drop in EBITDA margins to 11.6%. However, with a favorable product mix and higher contribution from the CRAM (16% by FY17 vs 6% in FY15) segment we expect EBITDA margin to expand by 135 bps /155 bps over FY16/17.We expect 24% /28% revenue growth over FY16/17, while EBITDA growth is expected to be 38%/44% on the back of higher margins. However, with new capacity coming up depreciation charges is also likely to be higher and hence PAT growth is likely to be 35.5% / 37% in FY16 / 17.

JV with Piramal proves NFIL's ability and expertise in Fluorine molecules and also ensures assured business: NFIL formed a JV with Piramal Enterprises with a 49%:51% ratio, which would develop and manufacturer specialty Fluorochemicals for the health care segment. The JV have committed an investment of Rs 140 cr is also progressing on schedule and likely to start contributing from Q1FY17. Though it is early to say, we still believe the JV will have much higher margins vis a vis NFIL's existing margin profile. The entire output will be bought out by Piramal which ensures assured business for the JV.

At the CMP of Rs 818 the stock is trading at 12.9x /9.4x its FY16/17 EPS of Rs 63.5/Rs87.1 respectively. On EV/EBITDA basis it is trading at 9.7x/ 6.5x its FY16/17 EBITDA respectively. The stock price of the company has appreciated over 110% over the last one year. However, we believe the earnings visibility of the company has improved due on time completion of Dewas plant and its JV with Piramal Enterprise. We expect the ROE and ROCE of to improve to 13.2% and 13.6% by FY17 from 7% & 8.9% respectively due to higher contribution from the high margin CRAMs business. Considering higher earnings visibility with better return ratios we believe the stock still has potential for re-rating and hence we have valued the stock at 12x its FY17 EPS & arrived at a revised target price of Rs 1050 (upside 28%) and Maintain BUY on it.

Shares of Navin Fluorine International Limited-$ was last trading in BSE at Rs.882 as compared to the previous close of Rs. 865. The total number of shares traded during the day was 1263 in over 168 trades.

The stock hit an intraday high of Rs. 886 and intraday low of 867.25. The net turnover during the day was Rs. 1109372.

Source : Equity Bulls

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