Maintain ADD on Navin Fluorine International - Promising future - HDFC Securities

Mr. Harshad Katkar & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities.

Navin Fluorine International (Q4FY20): Promising future. Maintain ADD
(TP Rs 1,721, CMP Rs 1,600, MCap Rs 79 bn)

We retain our ADD rating on NFIL with a TP of INR 1,721 on the back of (1) Earnings visibility given the long term contract, and (2) Tilt in sales mix towards high margin customised products. The stock is currently trading at 24.6x FY22E EPS, which is low, given the RoIC of 20.0/23.0% in FY21/22E.

View on the result: 4Q EBITDA/PBT were 19/7% above estimates owing to higher than anticipated raw material cost and lower other income.

Tax adjustment: NFIL received favourable appellate orders courtesy which the company was liable to pay tax on book profits on capital receipts from FY08-FY13. Accordingly, NFIL availed MAT Credit of INR 736mn and wrote back excess tax provisions of INR 1,413mn for earlier years.

CRAMS Business Unit (BU): Q4 revenue from this BU grew by 25.6/14.9% YoY/QoQ to INR 540mn. For FY20, revenue stood at INR 1.7bn (-2.8%) and comprised 16.9/18.6% of FY20/19 revenue mix. With a strong order pipeline and a growing customer base, we are confident that the BU will contribute ~26% to the top line in FY22E i.e. INR 3.88bn.

Specialty Chemicals BU: The BU continued to support margin and volume growth. It generated INR 1bn in revenue (+50.7/7.2% YoY/QoQ) and formed 39% of 4Q revenue mix. Demand from the pharma/agro-chemical/industrial customers that contribute 40/40/20% in the BU's customer mix drove earnings. In FY20, the BU generated INR 3.8bn in revenue (+27.0% YoY) and formed 37% of revenue mix. We expect the current traction to continue and that revenue will grow to INR 4.8/6.0bn in FY21/22 and form 40% of the mix.

Update on the newly commissioned at Dewas facility: The company has a strong order book position and enquiry inflow in FY21. We expect full utilisation in FY23 and revenue contribution of INR 2.6bn at peak utilisation.

Outlook for FY21/22: We expect high value business units (54/50% of revenue mix in FY20/19), i.e. Specialty Chemicals and CRAMS BU to be the growth drivers in FY21/22. EBITDA should grow by 30.4/43.0% to INR 3/5bn led by unabated demand from pharma/agrochemical customers. EBITDA margins should expand to 27.2/31.2% in FY21/22 vs. 24.8% in FY20 with tilt in product mix towards high margin high value business.

View on consolidated balance sheet: Debt contracted by 66%YoY to INR 14mn and cash and equivalents jumped 56%YoY to INR 3,513mn, taking the company's net cash position to INR 3,500mn from INR 2,212mn in FY19. In the current uncertain scenario, NFIL is in a comfortable position to meet its financial commitments and capex plans.

Change in estimates: We tweak our FY21/22E EPS estimates by +3.1/3.7% to INR 46.9/65.0 to factor-in the company's performance in 4QFY20.

Shares of Navin Fluorine International Limited was last trading in BSE at Rs.1600.55 as compared to the previous close of Rs. 1561.55. The total number of shares traded during the day was 35758 in over 4332 trades.

The stock hit an intraday high of Rs. 1655 and intraday low of 1587.95. The net turnover during the day was Rs. 57926689.

Source : Equity Bulls

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