Why Navin Fluorine is stock pick of the week

Navin Fluorine International, one of the leading speciality chemical manufacturers in India, has surprised the street with y-o-y revenue and net profit growths of 18% and 30% respectively in the third quarter of 2020-21. Though total revenue was in line with the market expectations, what surprised the market was the change in its components. Its revenues from high margin segments like speciality chemicals were up 26% y-o-y and Contract Research and Manufacturing Services (CRAMS) was up by 50%. The increased export share of 77% recorded in the third quarter as compared to around 50% normally was also because of the higher contribution by speciality chemicals and CRAMS.On the other hand, its revenues from inorganic f luoride grew only by a modest 12% y-o-y while revenues from the refrigerant gas segment fell by 18% y-o-y. This increased contribution from high margin speciality chemicals helped Navin Fluorine to report Ebitda and net profit growth.Analysts' views: Buy: 13Hold: 4Sell: 2The specialty chemicals segment, which contributes around 41% of its revenues now, is expected to report higher growth in the coming years as well. To augment its speciality chemical capacity, Navin Fluorine plans a capex of around Rs 200 crore and the same is expected to be commissioned in the second half of 2022. Though its speciality chemical plants are working close to full capacity now, analysts believe that management could generate additional growth till then by increasing capacity through debottlenecking.CRAMS business, which contributes around 24% of the company’s revenues now, is also its fastest growing segment. Navin Fluorine’s massive share price jump of 100% during the last one year can be attributed to the better visibility in its CRAMS division. CRAMS is a decade long opportunity because global innovators (even mid and small pharmaceutical companies from the US and Europe) are increasingly moving towards Asian CRAMS players due to cost and time efficiencies. Analysts believe that it’s revenue from this segment is expected to grow by more than 30% CAGR in the next 2-3 years.Though Navin Fluorine has jumped in the recent past, analysts see continued opportunity as the fall in contribution from low margin segments and higher contribution from high margin segments, is expected to continue in future as well. In addition to higher profits, this revenue share shift should also result in better valuation multiples. It is still quoting at reasonable valuation compared to other speciality chemicals manufacturers. 80599150Navin Fluorine is compared with ET Chemicals. Stock price and index values normalised to a base of 100. Source: ETIG and Bloomberg.Selection methodology: We pick up the stock that has shown the maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it.

from Economic Times https://ift.tt/2YMuDhc