Battered Navin Fluorine faces another blow as Jefferies double downgrades stock to hold

Navin Fluorine share price: Navin Fluorine shares, which have given impressive returns of around 485 per cent in the past five years, have been reeling under pressure since the past one week after the resignation of its managing director, Radhesh R. Welling.

The Street looks disappointed by the sudden resignation of the MD, as the firm performed well under Welling’s leadership and the market participants were banking on him big time for future growth as well.

The stock has declined over 20 per cent during the past seven days (September 28, 2023–October 5, 2023).

In its concall on October 4, Navin Fluorine informed investors and other stakeholders that Radhesh R. Welling tendered his resignation on September 28, and the outgoing MD’s last working day would be December 15, 2023.

Welling took charge of the company as MD on December 11, 2018. The company further said that promoter Vishad Mafatlal will shoulder the responsibility until the appointment of the new MD.

Key Takeaways from Concall

Zee Business Research notes that the company's chairman, in the concall, stressed that the business will continue to run; however, he did not give any concrete answer to steps being taken regarding the change in leadership. The company's performance is expected to take a hit in the near term, given the leadership change. Further, the company also hinted that, due to global challenges, the projects are getting delayed. It added that until the company raises new equity, there is no expectation of new CAPEX (capital expenditure). Layoffs and ESOP are working well for the company, it added.

Navin Flourine's performance under MD Radhesh Ratnakar Welling

Radhesh Ratnakar Welling took charge of the company on December 11, 2018. The outgoing MD of the company has over 26 years of work experience, of which 11 are in US-based MNCs. Moreover, between 2013 and 2015, too, Welling was with the company and held the post of President, Marketing, and Corporate Strategy. From 2015 to 2018, Welling served as the CEO and Executive Director of Laxmi Organic Industries.

According to Zee Business Research, Radesh Welling banked on capex-driven growth, and during his tenure, the company did a capex of Rs 2,000 crore. Navin Fluorine registered record revenue and net profit during FY23. The company's revenue increased from Rs 996 crore in FY19 to Rs 2,077 crore in FY23, and its net profit increased from Rs 149 crore in FY19 to Rs 375 crore in FY23.

Jefferies double-downgrades stock to ‘HOLD’

Global brokerage Jefferies has double-downgraded the stock to Hold from Buy and reduced the target price to Rs 3,625 from Rs 5,475. The brokerage has also reduced FY24/25 EBITDA by 13 per cent. EBITDA stands for earnings before interest, taxes, depreciation, and amortisation.

In its rationale, the brokerage said that it has reduced FY24/25 EBITDA due to the resignation of the MD. It has also cut the P/E multiples to 30 times from 40 times earlier. P/E stands for price-to-earnings ratio. P/E is the ratio of the share price of a stock to its earnings per share (EPS). 

Meanwhile, domestic brokerage IDBI Capital, in its report dated October 4, said that although the management did attempt to assuage investor concerns by stating that major capex plans and client engagements stay on track, "we believe that the recent exits of the CDMO head and the CEO are valid concerns warranting a cut in target multiple."

The brokerage has maintained its buy call with a downward revised target price of Rs 4,625 at 40x FY25E (earlier 45x) earnings.

The stock declined as much as 4.5 per cent during the day on the BSE. It eventually ended at Rs 3,695.60, down 3.35 per cent.