Nov 07, 2016

Materials-Basic & Diversified Chemicals Navin Fluorine International Ltd

Navin Fluorine International Ltd

Bloomberg Code: NFIL IN

India Research - Stock Broking

BUY
Recommendation (Rs.)
Robust Diversified Portfolio and High Margin Business
CMP (as on Nov 04, 2016) 2424
Strategy to Drive Growth Target Price 2858
Innovation and Strong domestic footprint - Major growth drivers: NFIL Upside (%) 18
has posted robust consolidated revenue growth 14.9% YoY during FY15-16 and Stock Information
we expect that the topline and bottom line to grow at CAGR of 12.6% and 23.7% Mkt Cap (Rs.mn/US$ mn) 23729 / 356
respectively during FY16-18E, while EBITDA to grow at CAGR of ~24.4% during the 52-wk High/Low (Rs.) 2876 / 1262
same period on the back of growing urbanization and increase demand of cooling 3M Avg. daily volume (mn) 25400
products like refrigerator, AC, etc, increased usage of non-emissive feedstock Beta (x) 1.1
for pharma companies, emphasis on high margin business catering to Specialty Sensex/Nifty 27274 / 8434
chemicals and CRAMS businesses. O/S Shares(mn) 9.8
Synergetic Joint Venture led to product mix growth: JV with Piramal for Face Value (Rs.) 10.0
pharma business and tie up with GMDC for ensuring regular supply of Fluorspar- Shareholding Pattern (%)
the key raw material for refrigerants along with orders from Honeywell to help Promoters 38.7
increase topline growth by FY18E. FIIs 10.9
DIIs 17.7
Healthy Balance sheet and Robust Return ratios: NFIL has a strong balance
Others 32.7
sheet with minimum debt and robust return ratios. RoE and RoCE jumped to 13.5%
and 17.2% respectively in FY16 from 9.5% & 12.7% respectively, in FY15 and we Stock Performance (%)
expect that it will grow to 16.6% and 22.0% respectively by FY18E. 1M 3M 6M 12M
Absolute 4 9 21 41
Valuation and Outlook Relative to Sensex 8 11 11 37
We expect the company to sustain its healthy growth momentum in years to come Source: Bloomberg

supported by the companys strategy of focus on high margin business through

Relative Performance*
innovation, expanding market base and strong footprints in traditional business to
180
drive overall sales. The company has low debt and enjoys healthy margin ratios.
Currently, the stock is trading at Rs. 2424, which represents PE 18.6x FY18E EPS of 140

Rs. 130.6. We value the stock at P/E of 21.9x FY18E EPS. We initiate coverage with 100

BUY recommendation on the stock for the target price of Rs. 2858, representing 60
an upside potential of 18.0% for a period of 9-12 months.
May-16
Feb-16
Mar-16
Nov-15
Dec-15

Jul-16
Aug-16
Sep-16

Nov-16
Apr-16

Oct-16
Jan-16

Jun-16

Key Risks NFIL IN Sensex

yyStiff competition. Source: Bloomberg; *Index 100
yyCurrency volatility.

Exhibit 1: Valuation Summary

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Net Sales 4862 5915 6797 7548 8613
EBITDA 660 722 1173 1454 1817
EBITDA Margin (%) 13.6 12.2 17.3 19.3 21.1
Adj. Net Profit 657 546 835 1040 1279
EPS (Rs.) 67.3 55.9 85.4 106.2 130.6
RoE (%) 12.4 9.5 13.5 15.2 16.6
P/E (x) 5.2 15.0 19.8 22.8 18.6
Analyst Contact
Source: Company, Karvy Research; *Represents multiples for FY14, FY15 & FY16 are based on historic market price
Kishor Kumar
For private circulation only. For important information about Karvys rating system and other disclosures refer
040 - 3321 6277
to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>,
Thomson Publishers & Reuters kishor.kumar@karvy.com

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Navin Fluorine International Ltd

Company Financial Snapshot (Y/E Mar) Company Background

Profit & Loss (Rs. Mn) Navin Fluorine International Ltd (NFIL) is one of the largest
FY16 FY17E FY18E manufacturers of integrated specialty Fluorochemical in
Net sales 6797 7548 8613 India; currently headed by Mr. V.P. Mafatlal, the Chairman
having 19+ year of rich experience in Textile and Chemical
Optg. Exp (Adj for OI) 5623 6094 6796
industry. The company commenced its operations in 1967. It
EBITDA 1173 1454 1817
has two manufacturing units located at Surat and Dewas with
Depreciation 225 248 318
state-of-the-art. The company operates mainly in 4 segments:
Interest 38 27 18
Refrigeration gases, Inorganic fluorides, Specialty fluorides,
Other Income 245 266 295 and Contract Research and Manufacturing Services (CRAMS)
PBT 1156 1444 1776 catering to various industries like pharma, agriculture,
Tax 321 404 497 electronics, steel, aluminum, white goods, automotive and
Adj. PAT 835 1040 1279 glass etc. Specialty fluorides and CRAMS business segments
Profit & Loss Ratios are high margin businesses. There are 4 overseas subsidiaries
EBITDA margin (%) 17.3 19.3 21.1 and 2-joint ventures. One of its subsidiaries namely Manchester
Net margin (%) 12.3 13.8 14.8 Organics Ltd (MOL), UK set up to explore its CRAMS business
P/E (x) 19.8 22.8 18.6
across the globe. NFIL has robust distribution channel of over
120 dealers across pan-India and overseas market with 54%
EV/EBITDA (x) 14.6 16.5 13.0
and 46% revenue contributions respectively. The major export
Dividend yield (%) 1.2 1.2 1.2
destinations include USA, Europe, Japan, South East Asia, etc.
Source: Company, Karvy Research

Balance sheet (Rs. Mn) Cash Flow (Rs. Mn)

FY16 FY17E FY18E FY16 FY17E FY18E
Total Assets 9542 9992 11011 PBT 1156 1444 1776
Net Fixed assets 3073 3135 3161 Depreciation 225 248 318
Current assets 3460 3779 4695 Tax (268) (404) (497)
Other assets 3009 3077 3155 Changes in WC (335) (73) (129)
Total Liabilities 9542 9992 11011 Others (57) (266) (295)
Networth 6453 7214 8199 CF from Operations 760 977 1191
Debt 816 545 357 Capex (177) (311) (344)
Current Liabilities 1616 1560 1783 Others (350) 101 (168)
Other Liabilities 656 672 672 CF from Investing (527) (210) (512)
Change in Debt 204 (271) (188)
Balance Sheet Ratios Interest Paid (38) (27) (18)
RoE (%) 13.5 15.2 16.6 Dividends & Others (339) (279) (294)
RoCE (%) 17.2 19.6 22.0 CF from Financing (173) (577) (500)
Debt/Equity (x) 0.1 0.1 0.0 Change in Cash 60 189 179
Equity/Total Assets (%) 67.6 72.2 74.5
P/BV (x) 2.6 3.3 2.9
Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 2: Shareholding Pattern (%) Exhibit 3: Revenue Segmentation (%)

Promoters Refrigerants
38.7% 33.0%

FIIs
10.9%
CRO /
CRAMS
14.0% Specialty
DIIs chemicals
Others 17.7%
32.7% Bulk 38.0%
fluorides
15.0%

Source: BSE, Karvy Research Source: Company, Karvy Research, CRO: Contract Research Organization

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Navin Fluorine International Ltd

Industry Outlook:
Exhibit 4: Fluorochemical Outlook (MT/PA)
6 Global Fluorochemical market demand is expected to reach
5.4 Mn tons by 2024, growing at a CAGR of 4.3% from 2014

5.4
to 2024, with Asia Pacific region growing at the fastest rate.
4
Demand will be driven by robust demand for air-conditioning
3.7

systems and refrigeration equipment, increasing aluminum

2 production, expanding applications in pharmaceuticals,
demand for blowing agents for plastic foaming application
0 in the construction sector and growing adoption of high
FY14 FY24E performance Fluoropolymers in automobile production.
MT/PA

Source: Company, Karvy Research

With strong demand for refrigeration and cooling solutions from residential and automotive usage, global consumption refrigerant
demand is anticipated to grow at 5.2% to reach 1.6 Mn metric tons by FY18E. Gains will be fuelled by economic growth of
developing nations, enhanced standard of living and rising global temperatures.
Specialty fluoride and CRAMS are currently the buzzing segments in the fluorine chain, expanding its footprints into Pharma,
Agrochemical, Abrasive, Automobile, etc. The volume of medicines used globally will reach 4.5 Tn doses by 2020, up 24% from
2015. Global spending on medicines will reach $1.4 Tn by 2020, CAGR of 4%-7% from 2015, driven by greater use of pricier
branded drugs in developed markets and expanding reach of medicines into Pharmerging markets (include Brazil, India, China
and Indonesia).
Increased usage of aluminium and high performance fluoropolymers in automobiles will drive growth in inorganic & specialty
Fluorochemical. Global automobile industry is expected to grow at a CAGR of 4% over 2014-2017, with an increase in production
in China, India and Mexico.

Investment Rationale
Focus on specialty chemicals and CRAMS businesses - Margin growth drivers:
Exhibit 5: Robust Margin Performance (%)
60% 58.7% 60% NFIL entered into Specialty chemical and CRAMS businesses
56.4%
after traditional business i.e. Refrigerant and Inorganic fluoride
54.2%
40% 53.0%
56%
and the full benefit of these business verticals is expected to
52.2%
51.1%
52%
be visible from FY18E. During FY15-16, NFIL has recorded
21.1%
20% 15.0% 17.3%
19.3% strong margin growth in terms of Gross margin/EBITDA
13.6% 12.2%
48% margin/PAT Margin growing by 309 bps/ 506 bps/ 306 bps
13.5% 12.3% 13.8% 14.8%
7.9% 9.2% respectively during FY15-16. The growth momentum is likely
0% 44%
FY13 FY14 FY15 FY16 FY17E FY18E to be continued going forward.
EBITDA Margin (%) PAT Margin (%)
Gross Margin (%) (RHS)
Source: Company, Karvy Research

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Navin Fluorine International Ltd

Synergetic Joint venture led to product mix growth:

Tie-ups with Piramal and GMDC will help to increase topline growth by FY18E on the back of development, manufacture and
sell specialty fluorine chemical and smoothing import raw material from GMDC.
JV with Piramal Enterprise: NFIL and Piramal have formed a joint venture in the name of Convergence Chemicals Pvt. Ltd
(CCPL) with equity capital in proportion of 49% and 51% respectively. This venture will be commissioned from FY18E and
it is expected to help develop, manufacture and sell specialty Fluorine chemicals with specific focus on advance healthcare
applications at Dahej site (Gujarat). It reinforces pharma intermediates and will add revenue growth in forthcoming years.
JV with Swarnim Gujarat Fluorspar Pvt. Ltd. (SGFPL): JV with SGFPL with equity capital of 25% will help ensure consistency
in long term fluorspar supply and volatility in prices the most critical raw material. It will have production capacity of 40,000
MTPA at Kadipani (Vadodara). The JV is yet to start its operations, and is expected by FY18E.
Partnership with Honeywell: In the bid to increase market share, the company is planning to do additional Rs. 70 to 80 Mn
capex at its Surat site to meet orders from Honeywell to produce HFO-1234yf auto refrigerants by the end of FY16. This will help
to enhance product mix growth for CRAMS.
Manchester Organic Ltd (Revenue share ~7%): The companys subsidiary MOL, situated in UK, provides synergy to the
business in the sense that it provides marketing access to USA, Western Europe and Japan. Currently, MOL is standing more
than 40,000 compounds in its catalogue from 8,000 compounds since 2011. It helps the CRAMS business by developing
advance intermediates for innovative pharma companies.
MOL has got two main activities which include developing custom specific molecule from gram level to 10-20kg and multiple
thereof upto 50-100+ kg, as per customer needs. And, catalogue business where they develop the catalogue chemicals into the
labs then those are sold to various research or pharma companies, electronic companies etc across the globe.

Growth Momentum of existing businesses

Refrigerants: Growing Demand for Non-emissive applications:
Refrigerants business has recorded significant growth from Rs. 1857 Mn to Rs. 2170 Mn during FY15-16, a growth of
15.8% YoY. It has contributed 34.1% revenue to total sales on the back of increase in demand for cooling products like AC,
Refrigerator, etc., The key products of Refrigerants are: HCFC 22, HFC 134A, HFC 404A, HFC 410A, HCFC 22 PTFE Grade,
etc. NFIL has production capacity around 10,000-11,000 tones and utilization rate is around 80% to 100% depending upon the
demand of R-22 gas in the market.
Growth of R22 from long term prospective appears to be proportional to growing urbanization, increased usage of R22 in
non-emissive applications which cater to pharma & agriculture industry, which ensure steady growth in near term and will not
have major impact on volume of phasing out of R22 in coming years. It exports to South-East Asia, Middle East, Saudi Arabia,
Turkey, Egypt & South Africa.

Exhibit 6: Refrigerants: Revenue trend (Rs Mn) Exhibit 7: Refrigerants: Geographic Revenue Breakup (%)
2250
2170

1800
1874

Domestic
1760

1350 62.0%
1540

900

450
Exports
38.0%
0
FY13 FY14 FY15 FY16
Revenue (Rs. Mn)

Source: Company, Karvy Research Source: Company, Karvy Research

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Navin Fluorine International Ltd

Risk:
The key risk for HCFC-22 (R-22 gas) is early phasing out by 2030 under Montreal Protocol, since it has high Global Warming
Potential (GWP) and ozone depletion substances. Therefore, the market for HCFC is expected to decline in longer term with
complete phasing out of the same by 2030.

Phase out timeline: R-22 gas

Phase out timeline: Refrigerant gas

Chlorofluorocarbon Hydro chlorofluorocarbon Hydro fluorocarbon

(CFC) (HCFC) (HCF)

Contains: Carbon, Florine & Contains: Hydrogen, Carbon, Contains: Hydrogen, Florine & Chlorine
Chlorine Florine & Chlorine Environmental Impact: No Ozone
Environmental Impact: High Environmental Impact: Low Ozone depletion potential & high global
Ozone depletion potential & high depletion potential & high global warming.
global warming. warming. Timeframe: Phase down begin by 2019
Timeframe: Phasing out done by Timeframe: To be completely (developed nation) and 2024 (developing
2010. phased out by 2030. nation).

HCFC Phaseout Management Plan

Freeze= 2013 at the base-level

10% reduction in 2015

35% reduction in 2020

67.5% reduction in 2025

100% reduction in 2030 with a service tail of 2.5% annual average during
the period 2030-2040.

Specialty Fluorides- High Margin Business:

Specialty chemicals business has grown at 11% YoY from Rs. 2151 Mn to Rs. 2387 Mn during FY15-16, contributing to 37.5%
growth in overall sales, of which exports contributed roughly 46% on the back of advanced R&D along with enhancing the
reach to new markets. NFIL has successfully commercialized ~15 new fluorinated compounds in the past few years. The key
products are fluorine intermediate which cater to crop protection, pharma, specialty pigment/dye industry, hydrocarbon and
fragrances, etc. We believe that growth momentum will continue during FY16-18E on the back of main focus to develop new high
value fluorine intermediates for Pharma industry and growing Agro industry.
Exhibit 8: Specialty Fluorides: Revenue Trend (Rs. Mn) Exhibit 9: Specialty Fluorides: Geographic Revenue Breakup (%)
2500
2388

2000
2151

Domestic
1500 54.0%
1780

1560

1000

500
Exports
46.0%
0
FY13 FY14 FY15 FY16
Revenue (Rs. Mn)

Source: Company, Karvy Research Source: Company, Karvy Research

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Navin Fluorine International Ltd

Inorganic Fluorides - Muted view:

Despite low demand of inorganic fluoride in domestic market, the company registered 14.8% sales of overall sales to
Rs. 939 Mn during FY15-16 on the back of muted growth due to slowdown in steel industry. To boost up this segment, the
company has entered into new geography with new molecule to expand its business, which will help improve revenue in coming
years. The capacity utilization of Inorganic fluorides is near to 65% to 75%. We expect that there will be further improvement
in capacity utilization which will translate into topline growth during FY16-18E on the back of increased footprints into export
market, introducing new intermediates supported by positive outlook of end user industries- iron and steel.
Exhibit 10: Inorganic Fluorides: Revenue Trend (Rs. Mn) Exhibit 11: Inorganic Flurode: Geographic Revenue Breakup (%)
1200

1000
1130

1051
990

800

940
600
Exports Domestic
400 11.0% 89.0%

200

0
FY13 FY14 FY15 FY16
Revenue (Rs. Mn)

Source: Company, Karvy Research Source: Company, Karvy Research

CRAMS-Scalable Growth through Innovation:

CRAMS business grew almost threefold, despite on a small base to Rs. 865 Mn from Rs. 310 Mn during FY15-16, contributed
to 13.6% of overall sales; of which, exports contribute 100%; supported by business alliance with innovative Pharma companies
to deliver batchwise intermediates.
CRAMS business outlook looks positive on the back of strong order books from its pharma companies. Recent agreement
with Honeywell to develop next generation hydrofluoro-olefin (HFO-1234yf) application for automobile refrigerant, will further
enhance revenue growth.
Exhibit 12: CRAMS: Revenue Trend (Rs. Mn) Exhibit 13: CRAMS: Geographic Revenue Breakup (%)
900
865

600

Exports
300
140

100.0%
310
260

0
FY13 FY14 FY15 FY16
Revenue (Rs. Mn)

Source: Company, Karvy Research Source: Company, Karvy Research

Raw Material Consumption trend: Fluorspar is key raw material for NFIL. It is first converted
Exhibit 14: Raw materials consumed as % of sales into hydrofluoric acid which is basic raw material for Sulfer
30% acid. Hydrofluoric acid is the base starting material to build
25% 2.5% entire product mix portfolio. The raw material as a % of sales
3.0% 2.5% 3.1% declined by 25.1% in FY16 from 26.4% in FY15. The trend
20% 3.2% 2.2%
4.9%
3.0%
2.0% seems to be continued, led to margin growth in coming years.
15% 6.2% 2.7%
5.4% The Chloroform prices continue to be subject to volatility due
10%
16.3% 15.2% to demand & supply fluctuations. The company continued to
5% 11.6%
9.0% import Fluorspar from China as a part of supply chain security
0% to de-risk dependence on single source.
FY13* FY14 FY15 FY16
Fluorspar Chloromethanes Spor 11 Sulphur Chart shows that there is consistent decline in raw material
Source: Company, Karvy Research, * One time income from carbon credits during FY12 & FY13
consumption, resulted into improving EBITDA margin going
forward.

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Navin Fluorine International Ltd

Marquee Client Portfolio:

NFIL has strong clientele base in India and abroad, including global innovators. NFIL enjoys longstanding relationships with
marquee clients across the world for all segments i.e., Refrigerant, Pharmaceuticals, agrochemical in Specialty chemicals and
CRAMS domain. Some of fortune 500 companies are: Sun Pharma, Novartis, Bayer, Syngenta, Roche, Lupin, Aurobindo, Blue
Star, Samsung, Voltas, Du Pont, BASF, etc.

Source: Company Investor Presentation, Karvy Research

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Navin Fluorine International Ltd

Exhibit 15: Business Assumptions

Y/E Mar (Rs. Mn) FY15 FY16 FY17E FY18E Comments
Revenue is estimated to grow at a CAGR of
12.6% during FY16-FY18E on the back of
increasing cooling products demand, rising global
Revenue 5915 6797 7548 8613
temperature, focus on feedstocks for pharma
companies and strong order visibility for CRAMS
business, led to product mix growth.
Revenue Growth (%) 21.7 14.9 11.1 14.1
Efficient operating expenses and softening in raw
EBITDA 722 1173 1454 1817 material prices are expected to improve EBITDA
at CAGR of 24.4% by FY16-FY18E.
EBITDA Margins (%) 12.2 17.3 19.3 21.1
We have assumed that capex requirement will be
met through internal accurals resulting into reduced
PAT (normalized) 546 835 1040 1279
finance cost which will lead to improvement in PAT
and EPS in forthcoming years.
Fully Diluted EPS (Rs.) 55.9 85.4 106.2 130.6
Fully Diluted EPS Growth (%) (17.0) 52.9 24.4 23.0
Capex is likely to continue its maintenance capex
Capex (ex. Acquisition) - cash capex (622) (177) (311) (344) to meet further increase in its basket of product
offerings.
Net CFO 10 760 977 1191
The company is virtually debt free, which shows its
Net Debt 613 816 545 357
sound financial health.
NFIL will be able to generate cash as capex
Free Cash Flow (612) 583 666 847
requirement is minimum.
Source: Company, Karvy Research

Exhibit 16: Karvy vs Consensus

Karvy Consensus Divergence (%) Comments
Revenues (Rs. Mn)
FY17E 7548 7965 (5.2) We have positive outlook on volume and
realizations growth on the back of product mix
FY18E 8613 9674 (11.0) growth and expected to grow in the range of
11.5% to 15.2% during FY17E-18E.
PAT (Rs. Mn)

FY17E 1040 1044 (0.4) We have assumed that benign raw material
prices and less interest expenses, will lead PAT
FY18E 1279 1326 (3.6) and EPS growth at a CAGR of 25.8% and 25.7%
during FY16-18E respectively.
EPS (Rs.)

FY17E 106.2 111.9 (5.1)

FY18E 130.6 142.5 (8.3)

Source: Bloomberg, Karvy Research

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Navin Fluorine International Ltd

Revenue to grow at 12.6% CAGR during FY16-18E

Exhibit 17: Revenue (Rs. Mn) & YoY Growth (%)
9000 14.1% 30%
21.7%
14.9%
6000 4.3% 11.1% 20% NFIL sales have grown at CAGR of 11.3% during FY13-16 (excluding,
10% one-time income from carbon credits in FY12 and FY13) on the back of
4862

3000 high demand in Refrigerant & specialty chemicals business units. Going
4929

5915

6797

7548

8613
0%
-1.4% forward, strong orders for CRAM business, we believe that the company
0 -10%
will continue to maintain its CAGR growth rate ~12.6% during FY16-18E.
FY13

FY14

FY15

FY16

FY17E

FY18E

Revenue (Rs. Mn) YoY Growth (%)

Source: Company, Karvy Research

Exhibit 18: EBITDA Vs EBITDA Margin

1890 21.1% 30%

19.3%
17.3% The company has recorded EBITDA YoY growth of 62.5% in FY16 due
1260 20%
15.0% 13.6% 12.2% to softening raw material prices i.e., Fluorspar, Chloroform & Sulfer. We
630 10% believe that EBITDA margin would be in the range of ~19.3%-21.1%
1173

1454

1817

during FY16-18E due to low price in Sulfer, fluorspar, stable position in

827

722
660

0 0% Chloroform prices and low logistics cost supported by JV with GMDC

FY13

FY14

FY15

FY16

FY17E

FY18E

during the same year.

EBITDA (Rs. Mn) EBITDA Margin (%)

Source: Company, Karvy Research

Exhibit 19: PAT and PAT Margin

1500 14.8% 20%
13.8%
1200 13.5% 15%
12.3%
7.9% 9.2%
900
10% PAT grew at CAGR of 24.3% during FY13-16. Bottom line is boosted by
600 robust margin expansion during the same year. We believe that the PAT will
1040

1279

5%
likely to grow at CAGR of ~25.7% on the back of rise in sales volume and
546

835

300
434

657

0 0% reduction in finance cost.

FY13

FY14

FY15

FY16

FY17E

FY18E

PAT (Rs. Mn) PAT Margin (%)

Source: Company, Karvy Research

Exhibit 20: RoE Vs RoCE

25% 22.0%
19.6%
20% 17.2%
13.0% 12.3% 12.7%
15%
15.2% 16.6% Return ratios RoE and RoCE, likely to expand by over ~305 bps and
10%
12.4% 13.5% ~480 bps respectively during FY16-18E to reach 16.6% and 22.0% levels
8.8% 9.5%
5% on the back of steady PAT growth by FY18E.
0%
FY13 FY14 FY15 FY16 FY17E FY18E

RoE (%) RoCE (%)

Source: Company, Karvy Research

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Navin Fluorine International Ltd

Exhibit 21: Healthy Dividend Payout ratio

300 26.8% 23.0% 40%

33.7% 28.6%
23.8% 24.6% 30%
200
20% Over the years, NFIL has consistently distributed stable dividends with
100
10% healthy payout ratios. We believe that the company is likely to continue its
146

156

156

206

279

294
0 0% high dividend payout policy.
FY13

FY14

FY15

FY16

FY17E

FY18E
*Dividend (Rs. Mn) Dividend Payout (%)

Source: Company, Karvy Research, * Proposed Dividend

Exhibit 22: Current ratio and Quick ratio

2.5 2.3
2.3
2.1
1.9
2.0 1.8 1.8 NFIL has registered current ratio and quick ratio of 1.8x and 1.4x during
1.9 1.9 FY15-16, respectively. And, we believe that current ratio and quick ratio
1.5
1.6 would reach 2.3x and 1.9x by FY18E, which indicate good short-term
1.3 1.4 1.4 financial strength and strong liquidity position of the company.
1.0
FY13 FY14 FY15 FY16 FY17E FY18E

Current Ratio (x) Quick Ratio (x)

Source: Company, Karvy Research

Exhibit 23: EPS

140
130.6

105
106.2

70 We expect that EPS would grow at CAGR of 23.7% during FY16-18E due
85.4

to increase in PAT growth during this period.

67.3

55.9

35
44.5

0
FY13 FY14 FY15 FY16 FY17E FY18E
EPS (Rs.)

Source: Company, Karvy Research

Exhibit 24: Debt/Equity (x)

0.20
0.17

0.15 0.13
0.10 0.10 The company is expected to reduce debt/equity level from 0.13x in FY16
0.08
0.10 to 0.04x in FY18E on account of generating good PAT and fulfilling capex
0.05
0.04 requirement from internal accruals during the same period. Virtually, NFIL
is debt free company.
0.00
FY13 FY14 FY15 FY16 FY17E FY18E
Debt / Equity (x)

Source: Company, Karvy Research

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Navin Fluorine International Ltd

Exhibit 25: Improving Return of Assets

14% 12.2%
12% 10.6%

10% 8.7%
9.2% Return on Assets has increased from 5.8% in FY13 to 9.2% in FY16 and
6.7%
to reach 12.2% by FY18E. RoAs are expected to improve on account of
8%
5.8% higher product realization from commissioning of new plants by end of
6%
FY17E.
4%
FY13 FY14 FY15 FY16 FY17E FY18E
RoA (%)

Source: Company, Karvy Research

Exhibit 26: Cash conversion cycle

100
94.6

75
87.0

50 The company has improved upon its cash conversion cycle over the period
59.5

52.9

of time and it is likely to continue with this trend.

25

0
FY13 FY14 FY15 FY16
Net working capital days
Source: Company, Karvy Research

Exhibit 27: Healthy Operating and Free cash flow

(Rs. Mn)
1200
1191

700
977

847
760
735

Going forward, we expect CFO & FCF to record Rs. 1191 Mn & Rs. 847 Mn
666
556

583
10

200
by FY18E respectively owing to expansion in profitability and we believe
any funding requirement for the company to be met by internal accruals.
-622
-612

-300
-177
-179

-311

-344

-800
FY14 FY15 FY16 FY17E FY18E
Operating Cash Flow Capex Free Cash flow

Source: Company, Karvy Research

Exhibit 28: Company Snapshot (Ratings)

Low High
1 2 3 4 5
Quality of Earnings 33
Domestic Sales 33
Exports 33
Net Debt/Equity 33
Working Capital Requirement 33
Quality of Management 33
Depth of Management 33
Promoter 33
Corporate Governance 33
Source: Company, Karvy Research

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 Nov 07, 2016
Navin Fluorine International Ltd

Valuation & Outlook

We expect the company to sustain its healthy growth momentum in years to come supported by the companys strategy of
focus on high margin business through innovation, expanding market base and strong footprints in traditional business to drive
overall sales. The company has low debt and enjoys healthy margin ratios. Currently, the stock is trading at Rs. 2424, which
represents PE 18.6x FY18E EPS of Rs. 130.6. We value the stock at P/E of 21.9x FY18E EPS. We initiate coverage with BUY
recommendation on the stock for the target price of Rs. 2858, representing an upside potential of 18.0% for a period of 9-12
months.

Exhibit 29: PE Band

30 30

25 25

20 20

15 15

10 10
Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16
Average 1SD 2SD P/E (x) (RHS) -1SD -2SD

Source: BSE, Karvy Research

Exhibit 30 (a): Comparative Valuation Summary

CMP Mcap EV/EBITDA (x) P/E (x) EPS (Rs.)
(Rs.) (Rs. Mn) FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E
NFIL 2424 23729 11.8 14.6 16.5 13.0 15.0 19.8 22.8 18.6 55.9 85.4 106.2 130.6
SRF 1703 97810 11.1 9.8 11.4 10.0 18.8 17.8 20.6 17.5 52.7 73.7 89.6 106.0
Source: Bloomberg, Karvy Research

Exhibit 30 (b): Comparative Operational Metrics Summary

CAGR % (FY16-18E) RoE (%) Price Perf (%) Net Sales (Rs. Mn)
Sales EBITDA EPS FY15 FY16 FY17E FY18E 3m 6m 12m FY15 FY16 FY17E FY18E
NFIL 12.6 24.4 23.7 9.5 13.5 15.2 16.6 9.4 20.9 40.9 5915 6797 7548 8613
SRF 12.0 14.7 19.9 13.9 17.0 17.4 17.6 13.3 27.5 28.1 44924 45308 50363 56863
Source: Bloomberg, Karvy Research

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 Nov 07, 2016
Navin Fluorine International Ltd

Peer Comparison

Exhibit 31: EV/EBITDA (x) Exhibit 32: P/E (x)

18 30
16.5

16 14.6 25 22.8

14 13.0 19.8
18.6
11.8 20
12
15
10 15.0

8 10
FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

NFIL SRF NFIL SRF

Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 33: EPS (Rs.) Exhibit 34: RoE (%)

140 130.6 20

120 106.2
15 16.6
100 85.4 15.2
13.5
80
10
55.9
60 9.5

40 5
FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E

NFIL SRF NFIL SRF

Source: Company, Karvy Research Source: Company, Karvy Research

Key Risks
yyStiff competition.
yyCurrency volatility-continued economic uncertainties in Euro zone & US.

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 Nov 07, 2016
Navin Fluorine International Ltd

Financials

Exhibit 35: Income Statement

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Revenues 4862 5915 6797 7548 8613
Growth (%) (11.6) 21.7 14.9 11.1 14.1
Operating Expenses 4203 5193 5623 6094 6796
EBITDA 660 722 1173 1454 1817
Growth (%) (20.2) 9.4 62.5 23.9 25.0
Depreciation & Amortization 218 201 225 248 318
Other Income 308 295 245 266 295
EBIT 750 816 1193 1471 1794
Interest Expenses 55 33 38 27 18
PBT 694 783 1156 1444 1776
Tax 148 200 321 404 497
Adjusted PAT 657 546 835 1040 1279
Growth (%) 13.5 9.2 12.3 13.8 14.8
Source: Company, Karvy Research

Exhibit 36: Balance Sheet

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
Cash & Cash Equivalents 379 281 287 354 533
Trade Receivables 905 1199 1499 1489 1699
Inventories 656 761 755 833 863
Loans & Advances & Others 1020 1634 2229 2317 2428
Investments 2303 1713 1699 1864 2327
Net Block 2532 2933 3073 3135 3161
Total Assets 7794 8519 9542 9992 11011
Current Liabilities & Provisions 956 1303 1616 1560 1783
Debt 576 613 816 545 357
Other Liabilities 708 727 656 672 672
Total Liabilities 2240 2643 3089 2778 2812
Shareholders Equity 98 98 98 98 98
Reserves & Surplus 5456 5779 6356 7116 8101
Total Networth 5553 5877 6453 7214 8199
Total Networth & Liabilities 7794 8519 9542 9992 11011
Source: Company, Karvy Research

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 Nov 07, 2016
Navin Fluorine International Ltd

Exhibit 37: Cash Flow Statement

YE Mar (Rs. Mn) FY14 FY15 FY16 FY17E FY18E
PBT 694 783 1156 1444 1776
Depreciation 218 201 225 248 318
Finance Costs 55 33 38 27 18
Tax Paid (107) (196) (268) (404) (497)
Inc/dec in Net WC (30) (687) (335) (73) (129)
Other Income (95) (123) (63) (266) (295)
Other non cash items (1) (1) 6 0 0
Cash flow from operating activities 735 10 760 977 1191
Inc/dec in capital expenditure (179) (622) (177) (311) (344)
Inc/dec in investments (33) 675 (459) (165) (463)
Others (45) (19) 110 266 295
Cash flow from investing activities (257) 34 (527) (210) (512)
Changes in Debt (261) 36 204 (271) (188)
Dividend paid (169) (183) (216) (279) (294)
Interest paid (55) (33) (38) (27) (18)
Others (0) (33) (123) 0 0
Cash flow from financing activities (486) (214) (173) (577) (500)
Net change in cash (9) (170) 60 189 179
Source: Company, Karvy Research

Exhibit 38: Key Ratios

YE Mar FY14 FY15 FY16 FY17E FY18E
EBITDA Margin (%) 13.6 12.2 17.3 19.3 21.1
EBIT Margin (%) 15.4 13.8 17.6 19.5 20.8
Net Profit Margin (%) 13.5 9.2 12.3 13.8 14.8
Dividend Payout Ratio (%) 23.8 28.6 24.6 26.8 23.0
Debt/Equity (x) 0.1 0.1 0.1 0.1 0.0
RoE (%) 12.4 9.5 13.5 15.2 16.6
RoCE (%) 12.3 12.7 17.2 19.6 22.0
Source: Company, Karvy Research

Exhibit 39: Valuation Parameters

YE Mar FY14 FY15 FY16 FY17E FY18E
EPS (Rs.) 67.3 55.9 85.4 106.2 130.6
DPS (Rs.) 16.0 16.0 21.0 28.5 30.0
BVPS (Rs.) 569.2 601.6 659.5 737.1 837.7
PE (x) 5.2 15.0 19.8 22.8 18.6
P/BV (x) 0.6 1.4 2.6 3.3 2.9
EV/EBITDA (x) 5.2 11.8 14.6 16.5 13.0
EV/Sales (x) 0.7 1.4 2.5 3.2 2.7
Source: Company, Karvy Research; *Represents multiples for FY14, FY15 & FY16 are based on historic market price

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 Nov 07, 2016
Navin Fluorine International Ltd

Stock Ratings Absolute Returns

Buy : > 15%
Hold : 5-15%
Sell : <5%

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