Q3FY24 Review: Navin Fluorine Intl: Pain exacerbates

7 Feb 2024 , 02:59 PM

NFIL’s Q3FY24 earnings missed estimates by a wide margin as the company grappled with slower ramp-up at Dahej, slowdown in speciality, pricing pressure in ref gas export and sales deferment to Q4. Though there are challenges in the near term, management commentary was optimistic as there is enough visibility on most of the new project business for FY25 and FY26. It continues to endeavour to strike a balance between consistent growth and prudent risk management and has announced Rs3.7bn capex towards expansion of R32 capacity and cGMP4 facility. Analysts of IIFL Capital Services expect stock to remain range bound in the near-term and await dips for buying as we remain wary 1) of near term industry headwinds; and 2) management transition. Given significant underperformance in Q3, analysts of IIFL Capital Services cut their FY24-26 estimates by 13-36%. TP, rolled over to Mar’25, comes down to ₹3,200 (down from ₹3,520). 

Misses estimates by a wide margin: 

Navin’s Q3 revenue/Ebitda/Apat declined 11%/51%/66%YoY. Slower ramp-up of Dahej facility (largely HFO), slowdown in speciality and CDMO, pricing pressure in ref gas export and orders deferment to Q4 impacted sales. Gross margin eroded by 340bps QoQ as weak pricing in ref gas and high cost rm inventory took toll. Ebitda margin contracted by 570bps QoQ on the back of higher opex related to production and fixed related expenses. 

CDMO capex takes shape: 

The board approved CDMO capex worth Rs2.8bn spanning over two phases. Rs1.6bn will be incurred in Phase-1 which is expected to get completed by end of CY2025. Though CDMO business is currently encountering challenges on the back of postponement of sales to next fiscal, visibility for FY25 and FY26 is fairly healthy. The company has entered into a partnership with a US based CDMO player and has expanded existing MSA with European API client for supplying two new molecules. 

Q3 underperformance drives significant cuts: 

Analysts of IIFL Capital Services cut FY24-26 estimates by 13-36% to factor in Q3 weakness and near-term headwinds. Though there are challenges in the near term, management commentary was optimistic as there is enough visibility on most of the new project business for FY25 and FY26. They expect stock to remain range bound in the near-term and await dips for buying as analysts of IIFL Capital Services remain wary 1) of near term industry headwinds; and 2) management transition.