By: ICN Bureau
Last updated : August 03, 2023 9:26 am
Navin Fluorine International’s (NFIL) Q1FY24 net profit dipped 17.5% YoY to INR 615mn despite revenue growth of 24% YoY and lower depreciation charges of INR 150mn
Navin Fluorine International’s (NFIL) Q1FY24 net profit dipped 17.5% YoY to INR 615mn despite revenue growth of 24% YoY and lower depreciation charges of INR 150mn. Honeywell supply plant had two months of lost sales due to shutdown and volatility in demand forecast; one molecule for agrochemicals had nil sales due to destocking. Honeywell supplies may be lower in FY24E due to lost production, and price drop from lower input prices with debottlenecking opportunity being pushed to FY26E. Two plants in specialty segment had expected near-peak output, base business is likely to grow from Q2FY24 after three quarters of sharp drop. In FY24, CDMO business to have normalised growth on a high base; however, entry into late-stage product wins ensures CDMO guidance remains unchanged.
Revenues were impacted by slowdown in specialty chemicals and shutdown in Honeywell plant
Consolidated revenue rose 23.6% YoY to INR 4.9bn, but down 30% QoQ as HPP segment revenue dipped 41.5% on Honeywell plant shutdown for almost two months for planned maintenance, and breakdown (distillation columns). The company expects production to resume from Q2FY24; however, prices ‘true down’ has kicked in which has reduced product prices (due to drop in input prices). Further, the company has seen volatile demand forecast from Honeywell which has again made supplies unpredictable. Specialty chemicals segment revenue has grown 12.7% QoQ / 30.7% YoY to INR 2.3bn which benefited from ramp-up in dedicated agro-chemicals plant and MPP-2; however, base business declined due to drop in sales for one-key agro-chemicals. CDMO segment revenue has grown 33% YoY (on low base) to INR 930mn.
R-32 should start contributing to revenue from Q2FY24, however, our channel check suggests prices have dropped to INR 25-350/kg (vs expectation of INR 500/kg). It appears Honeywell debottlenecking opportunity has been pushed to FY26 (from earlier FY25); this also postpones double opportunity post debottlenecking. NFIL is working with Fermion on three products that are late-stage molecule. Immediate opportunity is limited for qualification, and major growth is expected from FY26 onwards.
EBITDA margin dipped 570bps QoQ to 23.3%
Gross margin fell 60bps QoQ to 58.7% due to lower contribution from CDMO business. However, EBITDA grew only 15% YoY (down 43% QoQ) to INR 1.1bn on higher fixed cost, though other expenses dropped 31% QoQ to INR 951mn (base had one-off of INR 150mn). Net profit dipped 17% YoY to INR 615mn despite lower depreciation on rise in useful value of asset. NFIL expects margins to improve as revenue bounces Q2FY24 onwards.
Other highlights
· HPP segment revenue was also impacted by lower R-22 sales due to mild summers in India. The company does not expect to recoup the entire lost sales during seasonally strong quarter (Q1FY24). We believe R-22 has dropped in India significantly ahead of phase down, and is unlikely to recover significantly;
· Honeywell plant had breakdown in distillation column while two reaction and ancillary plants had no issues. Honeywell product forecast has seen major volatility in demand which has also hurt volumes, in our view. NFIL anticipates to sell the entire production for the next two quarters. Volatility in raw material prices has forced companies to work on cost+ basis alignment each quarter (vs earlier annual reset). Lower HPP sales is also a reflection of a drop in HFO realisation. NFIL expects to get approval for debottlenecking from Honeywell which will add 25% capacity in FY25, and revenues FY26 onwards;
· MPP-2 plant has produced all 4+1 products, but utilisation may peak in FY25 with annual revenue of INR 2.7bn. Dedicated agrochemicals (annual revenue of INR 1.6bn) have achieved peak utilisation; GMP-4 plant engineering and designing works have been finalised, and the management will approach for Board approval soon. The visibility of CDMO business has improved from late-stage product approval from Fermion (three products of which one has been supplied for qualification while two will be supplied soon). USD 16mn contract supplies in FY23 has high base and therefore expects normalised CDMO revenue growth for FY24; and
· Working capital days to settle at 90-100days.