Additional R32 Capacity And AHF Project Will Optimize Costs And Expand Offerings

Key Takeaways

• Ongoing projects, like the Dahej plant and R32 capacity expansion, enhance revenue potential and position Navin Fluorine for future global demand.
  
• New projects and product introductions in specialty chemicals and CDMO business aim to optimize costs and drive sustained revenue growth.
  
• Dependence on key projects and external uncertainties pose risks to Navin Fluorine's revenue stability and profitability margins.

Catalysts

Manufactures and sells specialty fluorochemicals in India and internationally.

• Navin Fluorine successfully commissioned its agro specialty plant at Dahej, which is expected to gradually reach peak revenue of ₹515 crore in the next two years, thereby enhancing revenue potential.
  
• The additional capacity for R32 refrigerants, set to be operational by February 2025, positions the company to capitalize on strong global demand, which is anticipated to boost future revenue and earnings.
  
• High-purity advanced hydrogen fluoride (AHF) project, slated for commissioning by early FY '26, aims to reduce dependency on external AHF purchases and optimize cost structures, potentially improving net margins.
  
• Specialty Chemicals vertical aims to introduce new molecules in upcoming quarters, expanding product offerings and strengthening order book visibility, which could drive future revenue growth.
  
• Significant growth opportunities in the Contract Development and Manufacturing Organization (CDMO) business with secured orders for FY '26 and expansions in the U.S. and European markets, contributing to sustained revenue growth and enhanced earnings.

Navin Fluorine International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Navin Fluorine International's revenue will grow by 25.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.7% today to 16.3% in 3 years time.
• Analysts expect earnings to reach ₹7.2 billion (and earnings per share of ₹143.98) by about March 2028, up from ₹2.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 42.7x on those 2028 earnings, down from 76.5x today. This future PE is greater than the current PE for the IN Chemicals industry at 23.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.71%, as per the Simply Wall St company report.

Navin Fluorine International Future Earnings Per Share Growth

Risks

• The environment in which Navin Fluorine operates continues to be uncertain due to factors such as geopolitics and global macroeconomic issues, which could impact its revenue and earnings.
  
• There are execution risks associated with large-scale projects like the agro-specialty plant at Dahej and the AHF project, considering their complexity and the high capital investment, potentially affecting future revenue and margins.
  
• A significant portion of revenue growth is attributed to price realization and product mix optimization, which may not be sustainable if market conditions change, impacting future net margins.
  
• Dependence on a few large projects and specialized chemicals could lead to volatility in earnings if there are disruptions or delays, affecting order bookings and overall revenue visibility.
  
• External factors like competition, changes in regulatory environments, and input cost volatility (e.g., fluorspar and sulfur) may pose risks to both profitability margins and earnings stability.

Valuation

• The analysts have a consensus price target of ₹4244.154 for Navin Fluorine International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹4850.0, and the most bearish reporting a price target of just ₹3242.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹43.9 billion, earnings will come to ₹7.2 billion, and it would be trading on a PE ratio of 42.7x, assuming you use a discount rate of 13.7%.
• Given the current share price of ₹4071.05, the analyst price target of ₹4244.15 is 4.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.