2 November 2019

Navin Fluorine Stock Analysis

Navin Fluorine International Ltd. is a part of the Padmanabh Mafatlal group. The company is one of the largest speciality fluoro-chemical company and has a strong presence in the refrigerant gas segment in India. The business was established in 1967.

Business & Industry

The company’s sources of revenues and their FY 19 revenues are:
  • Specialty Chemicals (Rs 300 Crores)
  • Refrigerants (Rs 280 Crores)
  • Inorganic Fluorides (Rs 197 Crores)
  • CRAMS (Rs 178 Crores)
Navin Fluorine’s client base includes companies operating in the life sciences, crop sciences, air conditioning, stainless steel and petrochemical space. Navin Fluorine’s key raw materials are Fluorspar and Chloroform. China is the leading producer of Fluorspar. Earlier, due fluorine was frowned at because of pollution issues. But now fluorine plays an important role in pharma

Financials

Over the last five years, the revenue has grown at ~ 15.% while the PAT has grown at ~ 17.8%. Till FY13, the company generated significant revenues from the sale of carbon credits. However, post the ban on sale of carbon credits the company stopped generating revenues from this sale. The company entered into the CRAM space almost a decade back and this segment has grown into a major revenue source for the company. Under the Montreal protocol, the company’s main refrigerant product HCFC-22 is under a phasedown since FY15. By FY30, there will be a complete phasedown of HCFC-22.

  • Navin Fluorine has earned a PAT of Rs 1,084 Crores over the last 10 years. The OCF during this period has been Rs 919 Crores
  • The company has spent Rs 534 Crores on capital expenditure between FY10 and FY19
  • In FY19, fluorspar and chloroform prices increased by 45%, thus impacting the EBITDA margins


  • The company doesn’t have a heavy working capital requirement; the debtor days have reduced over the last 5 years
  • The margins are volatile due to heavy dependence on raw materials; there is a lag in the hike in raw material prices and the hike in selling price; the company has improved margins over the last few years; the management expects to keep the EBITDA margins in the 22% to 26% range
  • The company has earned a ROE > 15% in only 5 out of last 10 years; in FY19 the other income was lower due to M2M losses on investments

Refrigerants

The refrigerants segment contributes ~ 30% of the revenues. In 2011, the segment contributed ~ 55% of the revenues. From January 1, 2020 this segment will witness production cuts in the R-22 gas by 25% as per the montreal protocol. The major AC manufacturers are shifting away to other gases. The company expects to recoup some of the loss in revenues by catering the derivatives of R-22 to pharma and crop sciences companies. Also exports to the middle east would make up for some loss in volume. The company is working on new molecules to replace the old generation gases.

CRAMS

The contract research and manufacturing services (CRAMS) segment has witnessed excellent growth over the last 9-10 years. However, the division slowed down in FY19 due deferment of business by clients. The management expects this division to maintain a high growth rate for the foreseeable future.

Navin Fluorine Investment Opportunity

The company has neared the completion of a Rs 115 Crore capital expenditure program. The new plant at Dewas (MP) is expected to contribute to the topline from H2FY20. The company also has a JV with Piramal Enterprises at Dhaej (Gujarat) and this JV has turned profitable by Q4FY19. The CRAMS business is expected to pick up growth in the second half of FY20.
The stock trades at a PE of 27 which is not cheap for a specialty chemical company. However, Navin Fluorine enjoys a healthy balance sheet and operates in a niche business which isn’t easy to enter. The promoter holding is very low at 31.03% and the promoters have been trimming their stake in the company.
Navin Fluorine has the potential to deliver good returns in the next 1.5 – 2 years but due to the volatile margins and nature of business, investors should hold the stock with a stoploss and have a low allocation to the stock in their portfolio.

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