Specialty Chemicals Company Reports 24% Revenue Growth; Buy Stock For 25% Return: Edelweiss

Top brokerage firm Edelweiss has given a buy rating to the stock of Navin Fluorine International Ltd. The company posted robust performance in Specialty Chemicals as revenue increased by 45% YoY to Rs. 177 crore, underpinned by strong partnerships, repeat orders from customers, and higher realizations due to price hikes. The company recorded strong volumes and has a healthy pipeline of growth opportunities.

Stock To Buy: Target Price

The Current Market Price (CMP) of Navin Fluorine International Ltd. is around Rs. 4,424. Edelweiss has estimated a Target Price for the stock at Rs. 5,500. This stock has the potential to give a 25% return, in the upcoming 1 year. It is a large-cap stock with a market capitalization of around Rs. 22,264 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 4424
Target Price	Rs. 5500
Potential Upside	25.00%
52-week high share price	Rs. 4,848.35
52-week low share price	Rs. 3,219

Quarterly earnings

During the quarter, revenue came in at Rs. 419 crore, increased by 24% YoY and gained by 5% QoQ. Owing to higher other expenses and employee costs, EBITDA margin contracted 245 bps YoY and 255 bps QoQ to 22.4%; while consolidated EBITDA stood at Rs. 94 crore, up by 11% YoY but down by 5% QoQ. Additionally, its consolidated adj. PAT stood at Rs. 58 crore, fell by 9% YoY and fell by 22% QoQ.

Stock Upside: Edelweiss

According to Edelweiss, "This newly reorganized segment includes refrigerant gas, inorganic fluorides and high-performance products. It reported robust performance, advancing by 76% YoY, and gained by 39% QoQ to Rs. 211 crore, driven by both volume as well as price growth. We slightly cut our FY23E EPS, estimates owing to near term hiccups, but increase FY24E EPS by 7%. We introduce estimates for FY25 and roll forward our valuation to FY25e EPS. We maintain our Buy rating arriving at the target price of Rs. 5,500, based on 43x average EPS for FY24e and FY25e."

Segment-wise growth

Navin Fluorine International Ltd.'s Q2FY23 performance was below our and street expectations on the revenue and bottom-line fronts. However, the gross profit margin (GPM) expanded by +116bps YoY and +206bps QoQ. Revenue contribution from the newly set up hydro fluoro-olefin (HFO) plant led to sequential growth in the top line and helped improve GPM. Both the High-Performance Products (HPP) and Specialty Chemicals (SC) segments continued to report strong performance in this quarter as well, growing +76% and +45% YoY to Rs. 211cr and Rs. 177cr, respectively.

Capex investment & expansion

Through capex investment of Rs. 80 crore, the company plans to set up capacity at Surat to manufacture R32, with revenue potential of around Rs. 200 crore (at peak utilisation) to be commissioned in 1HFY24. The key raw material for the HPP plant is HF, which comes from Surat. While HF capacity debottlenecking is under progress, plans to add new HF capacity at the Dahej plant are also on the cards.

Disclaimer

The above stock was picked from the brokerage report of Edelweiss. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.