Navin Fluorine International’s (NFIL) Q3FY21 EBITDA grew 26% YoY on strong growth in CRAMS revenue (up 51% YoY), steady print in specialty (up 26% YoY) and lower costs.

However, we are a tad disappointed on gross margin dip despite rising mix of CRAMS and specialty, says ICICI Securities.

“CRAMS had a strong print driven by commercialisation of two products, and there is visibility for two more. This increases our confidence in the business. We note that rising contribution from commercialised products helps improve customer engagement, maintain plant utilisation and reduce volatility. FY22 revenue growth guidance is steady, and capacity constraints don’t seem to hurt NFIL. We maintain our estimates and increase our target price for the stock to Rs2,338 (from Rs2,086) on valuation rollover to FY23E,” it adds.

CRAMS drives revenue growth: Standalone revenues rose 17.9% YoY to Rs3bn driven by CRAMS revenue rise of 51% to Rs0.7bn, and specialty chemicals revenue growth of 25.8% to Rs1.2bn. Ref-gas revenues were down 17.5% YoY to Rs470mn while inorganic fluoride revenues grew 11.8% YoY to Rs570mn. CRAMS business was aided by supply for one commercialised product, and another product close to commercialisation. Company is seeing traction in two other molecules with commercialisation potential.

Gross margin shrunk despite higher revenues from CRAMS/specialty: Gross margin dipped 100bps YoY / 325bps QoQ to 54.2%. EBITDA rose by a strong 26% YoY to Rs823mn on continued cost benefit and operating leverage while EBITDA margin came in at 27.8% (up 185bps YoY). Employee costs rose only 0.2% YoY and other expenses dipped 2%, which benefited EBITDA. Net profit grew 29.6% YoY to Rs587mn.

Steady revenue growth outlook for FY22: NFIL has guided for a steady FY22 with low teens growth in ref-gas and inorganic fluoride driven by volumes. Ref-gas should benefit from higher sale for non-emissive use and likely better realisations, and inorganic fluoride from addition of new customers. Specialty segment should continue to grow at 20% p.a. despite capacity constraints on debottlenecking. Company aims to reduce volatility in CRAMS and is targeting steady revenues of at least US$10mn each quarter.  

Other highlights: NFIL targets to achieve >2x asset turn on Rs2.15bn investment in CRAMS by FY23.

2) Two new customers have been added in the inorganic segment, one each in India and the US, who provide good visibility for growth; NFIL saw early teens growth even in Q4FY21.

3) R-22 non-emissive sales comprised 20% of volumes and it is expected to ramp up over the next few years as emissive volumes are cut.

4) Present molecule portfolio is 20-25, and it has qualified molecule of 15 in the pipeline, which should get commercialised in the next two years.

5) NFIL sees >20% revenue growth for specialty segment in Q4FY21

6) In CRAMS, NFIL competes for small molecules used as intermediates for pharma products. The initial demand for these molecules is <100tpa, and don’t see immediate need for dedicated facilities. However, NFILis in talks with innovators on understanding the demand cycle for the products that are commercialised.