Buy Navin Fluorine International, target Rs 880: IIFL

IIFL has a buy call on Navin Fluorine International with a target price of Rs 880.

The current market price of Navin Fluorine International is Rs 720.

Time period given by the brokerage is one year when Navin Fluorine International price can reach the defined target.


Investment rationale by the brokerage-
Confluence of headwinds weighed on FY19 earnings: We estimate that FY19ii EPS will end down 4 per cent YoY, due to: 1) deferment of CRAMS orders because of a shift in customer schedules; 2) runaway price inflation in key raw materials, particularly fluorspar, and a lag in passing this on to customers; and 3) normalisation in other income off the high base of FY18, when NFIL booked MTM gains on equity holdings (comprising sister companies NOCIL and Mafatlal Industries).

Headwinds now turning into tailwinds: Fluorspar prices have corrected by nearly 20 per cent in March 2019, while the INR has also appreciated; this should ease cost pressures for NFIL, even as the company has been raising finished product prices. Hence, margins should improve significantly in coming quarters. CRAMS revenue should grow in FY20 on rising customer enquiries, and commissioning of the new unit at Dewas should also contribute from Aug 2019. Finally, other income should stabilise at the lower base of FY19.

Room for re-rating: We believe that resumption of earnings growth, combined with capex announcements in specialty chemicals and/or other divisions, could drive a re-rating of the stock. We understand that new management is also exploring adjacent growth areas within fluorine chemistry. Scalability potential is, therefore, ample. Production cuts in refrigerant gases (effective 1-Jan-2020) are a risk, but we expect gas prices to rise, thereby protecting profits.