Navin Fluorine Q2 Results Review - Macro Headwinds To Have An Adverse Short-Term Impact: Motilal Oswal
Overall miss on estimates; margin contracts sequentially
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Motilal Oswal Report
Navin Fluorine International Ltd. reported 29%/28% lower-than-estimated Ebitda/profit after tax due to subdued performances in the specialty chemicals/contract development and manufacturing organisation businesses QoQ.
Gross margin stood at 57.2%, while Ebitda margin dipped 150 basis points YoY to 20.8%. Navin Fluorine lost ~Rs 1 billion in revenue in Q2 due to macro headwinds and deferment of some orders.
At the normal level, revenue could have been ~Rs 5.5-5.7 billion (in line with our estimate.)
The specialty chemical segment disappointed in Q2 primarily due to the deferment of sales of two molecules from Q2 to Q3 led by production problems in Dahej. Revenue from these is expected to accrue in Q3.
Five new molecules are also likely to be launched in the ensuing quarter by Navin Fluorine. Management is confident that the segment is going to be a high-growth one in future.
There were planned and unplanned shutdowns in the hydrofluoroolefin plant in Q1 and the plant has now been stabilised. It is ramping up post-July 2023. There was slower- than-expected stabilisation of the R32 plant, but management expects the same to run at optimal utilization from Q3 onwards.
Pricing pressure in refrigerant gases continued to impact the segment adversely.
The entire revenue in the CDMO segment was from new molecules with detailed engineering of CGMP4 on track. Sales from a campaign were deferred to Q3 from Q2 due to the last minute change in product specification by the customer.
Orders for a couple of large molecules have also been deferred from CY23 to CY24. The segment is anticipated to remain lumpy going forward.
Given the underperformance in H1 FY24, we cut our revenue/Ebitda/earnings per share estimates by 14%/19%/27% for FY24 and by 11%/10%/18% for FY25.
Subsequently, we expect a revenue/Ebitda/profit after tax compound annual growth rate of 27%/31%/23% over FY23-25.
The stock is trading at 34 times FY25E EPS of Rs 99 and 22 times FY25E enterprise value/Ebitda.
We value the company at 35 times FY25E EPS to arrive at our target price of Rs 3,460. We maintain our 'Neutral' rating on the stock.
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