Jefferies upgrades Navin Fluorine to ‘buy’, sees 19% upside potential; here’s why

Global research and broking firm Jefferies has upgraded its rating for specialty chemical company, Navin Fluorine to ‘buy’ from ‘hold’.  The broking firm derives its optimism from the management’s strong growth guidance, even in the face of a global agrochem slowdown and a stronger growth outlook in CRAMS (Contract Research and Manufacturing Services) even on the elevated base of FY23.

Despite signs of a slowdown in the global agrochem industry, the company’s management sees limited impact on its portfolio and building on that, guided for a strong growth outlook for its CRAMs vertical. . That’s not all, the management also expects FY24 margins to be marginally better than FY23’s, which was at an 11-yr high of 26.5 percent. The management also believes that going forward, margins should gradually improve for Navin Fluorine as revenue contribution from new, higher margin projects picks-up.

As for the Contract Development and Manufacturing Organization segment, the management sees strong traction with key accounts and expects the current pipeline to translate into strong growth in FY24.

Taking all the triggers into account, Jefferies raised Navin Fluorine’s  FY24/25E PAT estimates by 13/21 percent,  respectively. “We forecast 33 percent PAT CAGR (Compound annual growth rate) over FY23-25, the strongest under our chemicals coverage,” Jefferies stated in its report.

Meanwhile, painting a base case scenario, the brokerage anticipates a revenue CAGR of 33 percent  in over FY23-25E and EBITDA margin at 27 percent in FY24. For such a scenario, Jefferies assigned a target price of Rs 5,610, reflecting over 19 percent upside potential.

Whereas, in the upside case, Jefferies sees a potential of Rs 6,000, anticipating revenue CAGR of around 40 percent from FY23-FY25E.

However, an over 100 basis point contraction in EBIDTA margin can turn negatively for the stock, seeing around 30 percent of of revenue CAGR fall in the next financial years. For such a scenario, Jefferies has assigned a target price of Rs 3,800 for the stock.

On May 15, shares of Navin Fluorine settled 1.11 percent lower at Rs 4,695.40 on the National Stock Exchange.

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