HDFC Securities retains its rating on NFIL with a TP of INR 3,400 on the back of (1) earnings visibility, given long-term contracts, and (2) tilt in sales mix towards high-margin high-value business. EBITDA/APAT were 13/14% below our estimates, owing to a 15% lower revenue, higher-than-expected tax outgo, offset by lower-than-expected operating expenses.

Financial performance: Revenue/EBITDA grew 22/25% YoY and 9/2% QoQ to INR 3,240/842mn. EBITDA margin increased by 64bps YoY to ~26% in 4Q. Revenue and EBITDA grew on the back of strong momentum in high- value business and the legacy business meeting normalcy in 2HFY21. The contribution of the high-value business to total revenue was 64% in 4QFY21 and 65% in FY21 (vs 60% in 4QFY20 and 54% in FY20).

Segmental performance: Specialty Chemicals (40% of revenue mix) and CRAMS (24%) business units (BU) grew 26/41% YoY to INR 1,310mn/760mn. Specialty Chemicals continues to show strong growth, driven by mix of new customers, new products, and market share gain. Strong performance in CRAMS BU was driven by new customer acquisition and repeat business from the existing ones. Although, CRAMS and Specialty Chemicals BU were impacted sequentially, owing to logistical challenges in exports fulfilment. Currently, the company is working on 20-22 new molecules in the Specialty Chemicals BU. The company's focus is on development of molecules in which it has core competencies, rather than on import substituting products.

Exceptional items adjustment: The following items have been excluded to arrive at an APAT of INR 540mn in 4Q: (1) marked-to-market gains of INR 8mn; (2) one-off gain of INR 6mn from sale of investments; (3) gain of INR 314mn on account of sale of shares in Convergence Chemicals Private Ltd (JV); and (4) gain of INR 348mn on account of giving up lease rights in land situated at Dahej to Navin Fluorine Advanced Sciences Ltd (100% subsidiary).

Change in estimates: We raised our FY22/23 EPS estimates by 1.3/1.2% to INR 61.2/76.6, to account for the overall performance in FY21.

DCF-based valuation: Our target price is INR 3,400 (WACC 10%, terminal growth 4%). The stock is trading at 42.1x FY23E EPS.