While the company’s long-term growth visibility remains intact given strong performance by contract research and manufacturing services (CRAMS) and speciality chemical businesses, analysts are unsure if the stock can see any solid upside in the near to medium-term as they see near term headwinds from rising crude oil prices.
The consensus recommendation from 17 analysts for the stock is ‘hold’, with an average broker target upside of just 6 per cent.
Brokerage JM Financial expects Navin Fluorine’s CRAMS business to scale up meaningfully over the next 3-4 years, with revenue from the segment expected to touch $100 million by FY26.
“Further, on the ramp-up of its specialty chemicals sales and HFO refrigerant gas sales, Navin’s overall revenue could post a 26 per cent CAGR over FY22E-25E. EBITDA is likely to post a 31 per cent CAGR over FY22-25 and PAT is likely to register a 32 per cent CAGR over FY22-25,” the brokerage said while maintaining a buy’ rating and a target price of Rs 4,400, suggesting a 9 per cent upside over the last close.
The speciality chemical business constitutes 40 per cent of overall company revenue followed by CRAMS (25 per cent) and the rest comes from refrigerant (18 per cent) and inorganic fluoride (17 per cent) businesses. The company, which is one of the largest integrated fluorochemicals manufacturers in India, has facilities in Surat, Dewas and Dahej.
“Navin’s CRAMS molecules are key intermediates of several patented pharmaceutical drugs. As per industry estimates, sales of these patented drugs are likely to peak by CY25-26. Hence, in our view, with the ramp-up of these patented drugs, Navin’s CRAMS revenue could demonstrate a 29 per cent CAGR over FY22E-25E and reach $87 million by FY25E and surpass $100 million by FY26E,” Dayanand Mittal and Krishan Parwani, analysts at JM Financial said.
Navin Fluorine has a strong pipeline in the speciality chemicals segment from the agro-chemical and non-agro and non-pharma industries. JM Financial expects the recent capex for this business to see a quick ramp-up as the demand environment remains robust.
That said, analysts see higher raw-material cost for the company as a key risk to margin if they are unable to pass it on to customers.
An unprecedented rise in crude prices has resulted in an intermediate surge in prices of most base chemicals. Given crude is still hovering at $100 per barrel, it is prudent to see how most chemical companies will be able to pass on input price inflation in Q1FY23E.
“Speciality chemical firms had a dream run over 18-36 months. On a 6-12 month basis, these stocks are in a consolidation mode, meaning the positives are already priced in. The main concern is how these companies will manage their input costs,” said Kranthi Bathini, Director, WealthMills, adding that investors can look to enter in a staggered manner as these stocks can show their mettle in the long term given strong businesses.
Meanwhile, Atul Suri, Founder & CEO, Marathon Trends – PMS said: While definitely this space gets affected by commodity prices, we feel very strongly that this is a sector which will be able to navigate through this. From our research, we get a sense that these companies will do well and that is why even when the markets have corrected, most of the stocks are still pushing toward lifetime highs.
On Friday, the stock closed at Rs 4028, 7 per cent away from 52-week high of Rs 4,339.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
