HDFC Securities has selected Navin Fluorine International Ltd. (NFIL) as a Diwali stock pick for Samvat 2081, recommending a buy range of ₹3,059-3,396 and setting a target price of ₹3,948. The company is expected to benefit from strong growth in its CDMO (Contract Development and Manufacturing Organization) and specialty chemical segments, alongside expansion of its high-performance products (HPP) portfolio.
About the Company
Navin Fluorine International Ltd., part of the Padmanabh Mafatlal Group, is one of India’s largest fluorochemical companies, with a diversified portfolio of over 60 fluorinated compounds. These compounds find application across industries like agrochemicals, pharmaceuticals, aluminum smelting, and refrigeration. NFIL’s business operates across three major verticals: High-Performance Products (HPP), Contract Manufacturing (CDMO), and Specialty Chemicals. The company continues to focus on moving higher up in the value chain, with 46% of its revenue coming from HPP, 41% from specialty chemicals, and 13% from CDMO in FY24.
Valuation and Recommendation
NFIL expects revenue to grow at a 23.5% CAGR, driven by its robust CDMO and specialty chemical businesses. The company’s EBITDA margins are expected to expand by 750 basis points (bps), reaching 25% by the end of FY25. HDFC Securities sees significant margin improvement, driven by better product mix and scalability in specialty chemicals. The brokerage recommends buying NFIL stock in the ₹3,059-3,396 range, with a target price of ₹3,948 (40.5x FY26E EPS) by next Diwali.
Key Financials (FY23-FY27E):
- Revenue: ₹2,077 crore (FY23) to ₹3,887 crore (FY27E)
- EBITDA: ₹550 crore (FY23) to ₹1,040 crore (FY27E)
- EBITDA Margin: 26.5% (FY23) to 26.8% (FY27E)
- Profit After Tax (PAT): ₹375 crore (FY23) to ₹663 crore (FY27E)
- Earnings Per Share (EPS): ₹75.4 (FY23) to ₹133.8 (FY27E)
- Return on Equity (RoE): 18.3% (FY23) to 19.8% (FY27E)
Key Triggers
- Expansion of CDMO and Specialty Chemicals: The company’s CDMO business saw subdued performance during FY24, but management has signed multiple multi-year contracts with European CDMO players, which are expected to ramp up by FY27. Specialty chemicals are also set to benefit from agrochemical capacity expansion.
- Reduced Dependence on China: NFIL is reducing its reliance on China for early-stage molecules, with 60-70% of its products expected to be sourced domestically over the next 2-3 years. The company is also scaling its hydrogen fluoride and R32 capacities, which will support growth.
- Strong Demand for R32: R32, a key refrigerant, is expected to see continued domestic and global demand, particularly as air-conditioning manufacturers ramp up production.
Key Concerns
- Raw Material Price Fluctuations: NFIL’s margins are vulnerable to significant changes in raw material prices, especially given the volatility in the availability of fluorspar in China.
- Competitive Pressure: NFIL faces stiff competition from Chinese manufacturers in the refrigerant gas segment, which could pressure margins.
- Expansion Delays: Any delay in ramping up CDMO or HPP projects could impact NFIL’s revenue growth and profitability.
Disclaimer: Investments in the stock market are subject to market risks. The views and recommendations provided in this article are based on analysis from HDFC Securities and do not constitute investment advice. Investors are advised to perform their own research and consult with financial advisors before making any investment decisions. Past performance is not indicative of future results, and the author and publication are not responsible for any losses incurred based on this information. Please read all scheme-related documents carefully before investing.
