Q1FY24 Review: Navin Fluorine Intl: Blip in growth momentum

2 Aug 2023 , 11:46 AM

For NFIL, Q1FY24 was a subdued quarter as revenue and Ebitda missed estimates by ~9-20%. The miss was largely on account of a shutdown in the HFO plant, due to an issue in the downstream section. In the annual report, management has cautioned shareholders to calibrate growth expectations, as the company endeavours to balance consistent growth with risk management. Analysts of IIFL Capital Services trim FY24-25 EPS by 6-5.5%, to factor the impact of the breakdown of HPP unit and weak refrigerant gas volumes. TP, rolled over to Sep’24, moves up to Rs3,910 (30x Sep-25 P/E). Maintain REDUCE. 

NFASL operating at similar margins as the parent: 

In the financials of NFASL, analysts of IIFL Capital Services observe that the company operated at ~25% margins in FY23 (similar to the ~26% margin of the parent entity). However, they note that the Refrigerants business enjoyed tailwinds in FY23 and margins of the parent may cool off in FY24. Sales from the parent to NFASL amounted to ~Rs1.2bn; the parent entity has extended a ~Rs13.4bn corporate guarantee on NFASL’s behalf. 

Calibrating growth expectation: 

Management has stated that the company has historically ramped up new capacities faster than the industry. That has meant that the base to continue growing has become large. While the market opportunity for NFIL remains large, management has cautioned that one needs to calibrate growth expectations accordingly. The company endeavours to strike a balance between consistent growth and prudent risk management. 

Maintain cautious view on the stock: 

While analysts of IIFL Capital Services forecast revenue/Ebitda growth forecasts of 22%/24% over FY23-26, they note that global challenges may dampen performance. Management is in process of seeking Board approvals for cGMP-4 and a specialty chemical project. At ~38x/33x FY25/26 P/E, valuations are very rich and factor in traction in earnings from upcoming growth projects, thereby leaving no room for disappointments.