Q2FY24 Review: Navin Fluorine Intl: Expectations moderating

1 Nov 2023 , 02:40 PM

Navin Fluorine’s Q2FY24 earnings missed estimates largely due to revenue shortfall of ~Rs1.0bn as the company encountered production related issues in Dahej and order deferment in CDMO business. Though most of the new project business remain contracted, the challenges arising out of industry wide slowdown are not entirely ruled out. Having said this, the company continues to evaluate growth opportunities and is keen to foray into newer business verticals. It endeavors to strike a balance between consistent growth and prudent risk management. Post the recent correction, valuations are now less frothy, in our opinion, while the earnings growth outlook remains fairly healthy, with an FY23-26 EPS Cagr at 18%. This is what underpins our change in view. However,  analysts of IIFL Capital Services would await dips and remain wary of overpaying, given: 1) the near term industry headwinds; and 2) the management transition. TP, rolled over to Dec’24, comes down to Rs3,520, (30x Dec-25 P/E) upside of 2%. Upgrade to ADD. 

Misses estimates: 

Despite revenue was up 13% YoY, it missed analysts of IIFL Capital Services and consensus estimates due to slower ramp-up of HPP post shut down in Jun-Jul; deferment of sales for Dahej facility to Q3 due to production related issues in spechem business and order deferral in CDMO business. Further, the company incurred expense of Rs60mn towards corrective measures in Dahej. This along with lost sales impacted operating margins. Though most of the lost sales are expected to recoup in Q3, capacity constraints will limit full recovery in Q3. 

AHF facility on track: 

The Company is going ahead with 40ktpa AHF facility at Dahej and intends to utilise it for 1) captive consumption for expanded capacities 2) Merchant sales and 3) New business vertical. Being a non-revenue generating capex to a large extent, analysts of IIFL Capital Services believe the company will have to foray/announce into newer verticals/capex to make this investment RoI accretive in the medium term. 

Q2 miss drives earnings Cut: 

Analysts of IIFL Capital Services trim their FY24-26 estimates by 12- 22% to factor near-term challenges, gradual ramp-up of HPP unit, deferment of campaigns in both specialty chemicals and CDMO business. Despite this, they see a fairly healthy earnings growth outlook with an FY23-26 EPS Cagr of 18%.