Navin Fluorine - Foundation for further growth laid; upgrading to Buy

To strengthen its specialty chemicals division and for growth, Navin Fluorine announced Rs 1.95 bn capex in agro and pharma, expected to be funded through internal accruals and debt.  The multi-purpose plant at its wholly-owned subsidiary, Navin Fluorine Advanced Sciences, at Dahej, Gujarat, is expected to be commissioned in H1 FY23, with 1.4x asset turnover. Navin Fluorine expansion would help launch products of complex fluorinated chemistry and strengthen customer relations. Anand Rathi upgrades rating to Buy with a higher target of Rs 3000, valuing the stock at 34x FY23e EPS, earlier Rs 2500.

Navin Fluorine Product launches:

With this multi-purpose plant, Navin Fluorine will have capacity to manufacture five products, specifically in agro. Of five products, three will be developed in-house and two with clients (according to their specifications). Navin Fluorine has another seven products in the pipeline catering to pharma and agro. Management said the EBITDA margin would be higher than at present and the RoCE would be in a similar range. The expected payback period would be four years, with revenue of Rs 2.6 bn - 2.8 bn at peak utilisation.

Navin Fluorine Outlook:

Out of five products, three would be sold to domestic customers to produce final formulations; two would be exported. Based on progress and customer requirement, the company may look at forward integration and set up plants dedicated to such products. Further, it has, with environmental clearance, enough land for expansion.

Raising Navin Fluorine FY23 Estimates:

Navin Fluorine management said construction is expected to be complete by Apr’22 and take two months to stabilise. Hence, commercial production would start from Jun’22. We have raised our FY23e revenue and PAT 7% and 8% respectively, considering the plant operating for about nine months in FY23.

Navin Fluorine Valuation:

Anand Rathi upgrades rating to a Buy with a higher target of Rs 3000, at an implied multiple of 34x FY23e EPS and 26x FY23e EV / EBITDA. 

See Zee Business Live TV Streaming Below:

Navin Fluorine Risks: 

Delay in capex implementation and a pick-up in its past business.