This chemical company have lost about one-third in market value since the resignation of its Managing Director (MD) last year. JM Financial in its latest note said the heightened pessimism on the counter over the MD exit and order deferrals after June quarter are overdone, as it suggested 30 per cent upside potential on the counter. This is Navin Fluorine International Ltd.
JM Financial said most Indian chemical companies such as Deepak Nitrite Ltd, Aarti Industries Ltd, Atul Ltd, Vinati Organics Ltd, Clean Science Ltd and Aether Industries Ltd are also currently run by promoters. It said several agrochemical majors such as FMC, Nufarm and Corteva in their recent commentaries have highlighted that stabilisation in global agrochem should be expected in the second half of calendar 2024.
"In that case, we believe demand recovery for Indian contracted players (Navin, SRF, etc.) servicing these clients should be visible from mid-1QFY25, accounting for the shipping time.
For FY26, JM Financial has built in a large part of the growth kicking in from CDMO and HFC capex and incremental volume of agro specialty facility.
"In fact, there could be upside risks to our estimates if the base business recovers. Basis this, we expect 23 per cent sales CAGR over FY24E-26E. Further, on account of positive operating leverage, Ebitda margin is likely to revert to 26 per cent in FY26E. This is likely to result in 37 per cent/41 per cent Ebitda/EPS CAGR over the same period," JM Financial said.
It suggested a 'Buy' rating on the stock with an unchanged target price of Rs 4,105.
"Navin Fluorine’s contract wins (from Honeywell or agro majors) during Mr Welling’s tenure were more of an enhancement of the company’s existing relationship with these clients. The company has been supplying boron trifluoride to Honeywell for a number of years. Likewise, it has been servicing crop protection majors (Bayer, BASF, Corteva, etc.) for many years now," JM Financial said.
The stock is down 29 per cent since the MD exit and 36 per cent over its May 2023 high of Rs 4,922 on BSE.
In January, Senior Vice President - HSE & Head - Sustainability Deepak Naik resigned. Welling resigned on September 28 and the effective date of his resignation was December 15, 2023. Before that, Ravi Venkataramanan resigned as the chief executive officer of CDMO business in July 2023 and Basant Kumar Bansal as chief financial officer of the company.
It believes that were it not for the deferrals in the CDMO and Honeywell orders, Navin would have reported flattish YoY Ebitda in FY24. In FY25, of the 24 per cent YoY top line growth, it is building in Rs 200 crore from agro specialty contract for that Navin already has firm orders in hand, Rs 130 crore from deferred CDMO volumes, Rs 80 crore from higher utilisation of Honeywell plant, and rest from peak utilisation of MPP plant and contribution from Rs 30 crore capex at Surat.
"Given commentaries from agro majors, there is unlikely to be downward revision to our estimates. In fact, if the base business recovers in FY25, there could be upside risk to our estimates," JM Financial said.
Meanwhile, in an unrelated subject, Samir Arora of Helios said:
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