Navin Fluorine: Plenty of growth levers to rule the long-term story

The company is among the frontrunners in specialty chemicals to benefit from the China+1 story.

Navin Fluorine International is India's leading player in the fluorochemicals space, and going by the abundance of upsides to it, nothing but strong growth is expected from the company.

The company has one of the highest earnings per share (EPS) growth projections among specialty chemicals players at around 33 percent over FY23-26E. The company has presence across specialty chemicals (47 percent of the revenue mix), high-pressure processing (37 percent of the revenue mix), and Contract Development and Manufacturing Organisation (CDMO) of butyl molecules (19 percent of the revenue mix).

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Bullish on India

With robust earnings visibility thanks to its long-term contracts, a tilt in sales mix towards high-margin, high-value businesses, extensive capacity expansion-led growth, and a resilient research and development (R&D) infrastructure, Navin Fluorine is sitting pretty, eyeing superior growth trajectory.

What's on offer?

The company enjoys a strong execution track record and mounting demand for fluorine products in user industries only makes things better for the chemicals player. Moreover, the management's commentary also hints towards better times in the future as the company guided for a strong performance as it doesn't see any major demand slowdown in its product categories.

The strong growth picture painted by the management comes as a stark contrast to its peers which anticipate sluggish demand to sustain for a few more quarters. Navin Fluorine, on the other hand, remains confident that its specialty chemicals growth momentum will persist, driven by strong demand, high volumes on commissioning projects, and a pick-up in utilisation at the recently added capacities.

The company is working on multiple Phase I and late-stage molecules in CDMO. It has also recently bagged a multi-year and multi-molecule contract from Finland-based active pharmaceutical ingredients (API) manufacturer Fermion for three patented-stage molecules, which is expected to add sizably to Navin Fluorine's CDMO segment from 2025 onwards. The management has given revenue visibility of $40 million over the three years of the contract.

Besides, the company is well-positioned to fill the void in the global fluorospecialty space created by a clampdown on players in Europe and the US. The changing dynamics within the global specialty chemicals industry, with companies now looking towards suppliers outside of China, opens more gates of growth for Navin Fluorine.

Aligned with that, the chemicals company has also guided expansions in specialty chemicals and CDMO to address growth opportunities, besides ongoing projects.

A new fluorospecialty molecule (agrochemical) project is to be commissioned at the end of 2023. On the newly announced 40,000MT Anhydrous Hydrogen Fluoride (AHF) project, the company is working on basic engineering and technology with a global player. In addition, a new CDMO project is also under wraps, with detailed engineering work going on and expected to go to the board for approval in the coming quarters.

"With improved margins in its traditional portfolio, strong execution, and judicious capital expenditure to support future growth, we expect Navin Fluorine to do well in the long term," brokerage firm Axis Securities believes.

How could growth pan out?

Based on the strong growth triggers for Navin Fluroine, Motilal Oswal Financial Services has pegged revenue/EBITDA/PAT CAGR (Compounded Annual Growth Rate) of 35 percent/41 percent/37 percent over FY23-25.

The stock's current valuations are also largely comfortable, as it is trading at 33 times its FY25 EPS of Rs 138 and 24x times its FY25E EV/EBITDA. Most brokerages anticipate a 10-25 percent return on the stock within the next 12 months. But analysts suggest holding on to the scrip for a much longer time to reap the maximum benefits of its impending growth story.