by In this article, we will do a fundamental analysis of Navin Fluorine, as usual, we will cover the company and the management of Navin Fluorine, its competitors, its key risk, future growth prospects, and financials based on the analysis we will decide if Navin Fluorine is fundamentally strong or not then we will do the valuation analysis of Navin Fluorine to decide if it is worth investing in the company at current levels or not.
Disclaimer: This article is only for educational purposes. I do not recommend buy or sell so please consult your advisor and do your own research before investing.
Introduction
Navin Fluorine is a part of the Padmanabh Mafatlal Group and is the largest specialty fluorochemical company in India. It has 50 plus years of experience in manufacturing specialty compounds and is currently the largest producer of refrigerant gas in India.
The company operates three main divisions namely crams, inorganic fluorides, and refrigerants, and specialty chemicals.
The contract research and manufacturing services crams is a division that focuses on R&D and Commercialization of new compounds has been generating revenue for the company since FY 2013.
As the ratings are based on long-term past performance. They are relevant for at least three years in the future until FY 2022.
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Fundamental Analysis of Navin Fluorine
Fundamental Analysis of Navin Fluorine is differentiated into different categories are as follows, all units are in millions except ratios and per share data.
Economic Model
- The company has been focused on both operational excellence as well and R&D in the past years.
- This has given them extensive expertise in specialty fluorine manufacturing.
- They have also developed a backward integration for raw material through a 25 joint venture with the only flu or spa beneficiation company in India.
- This helps them to get tighter control over the supply chain and diversified sourcing away from China.
- The company has manufacturing units in Surat, Gujarat, and Madhya Pradesh.
- The plants are strategically located near major ports helping it to cater to the export markets.
- The company’s long-standing relationships with the customers helped them to optimize raw material costs.
- Overall the company has emerged out to be the largest player in specialty fluorine which is a niche business.
- The infrastructure R&D and customer base give them a solid economic model.
- Therefore this category gets four stars in Navin Fluorine fundamental analysis.
Business Model and Management
- The company has two major manufacturing plants in India and two R&D centers.
- The business model is such that 20% of the revenue comes from crams.
- 50% comes from traditional refrigerants, and fluorides and the remaining 30% comes from specialty chemicals.
- The chemical complex at Surat is spread over 135 acres and houses refrigerant, inorganic fluorides, and specialty chemicals plants.
- The company also has DSIR approved R&D center which supports in-product addition and process efficiency across all business units.
- Around 50% of sales come from international business and the company has zero debt in its capital structure.
Management of Navin Fluorine
- Mr. Radhesh R Welling is the managing director and has 22 years of work experience in the chemicals industry.
- In his previous role, he was CEO and executive director of Lakshmi Organic industries ltd where he was responsible for leading a 1400 rupees crore specialty chemicals company.
- Mr. Vishad P Mafatlal is the chairman and the grandson of late Shri Arvind Mafatlal he represents the promoter stake in the company and has more than two decades of experience in the field of textiles and chemicals industries.
- Overall the management has shown interest in the shareholder’s wealth and has given a sustainable growth trajectory to the company.
- Therefore this category gets five stars in Navin Fluorine fundamental analysis.
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Company Financials
Company Financials of Navin Fluorine are as follows:
Growth Ratios
- The revenue has shown a consistent growth of 8% CAGR over the last 10 years.
- The operating income and net income have also shown an increase of 7% CAGR and 16% CAGR respectively this shows improved profitability for the company.
- The working capital has also been increasing which means a surplus of current assets and more liquidity.
- The capital expenditure has also improved for the company in recent years.
- Therefore this category gets five stars in the fundamental analysis of Navin Fluorine.
Profitablity Ratios
- The gross margins have improved because of the backward integration by the company which helps them to lower the raw material costs.
- The EBIDTA and net income margins have also improved significantly.
- The return on assets has also increased which shows more efficient use of assets.
- Overall the company has witnessed high growth in profitability and therefore this category gets five stars in fundamental analysis of Navin Fluorine.
Cash Flow Ratios
- The operating cash flow has seen a sharp increase in recent years and the net income margin has also improved.
- The free cash flow as a percentage of net income has gone negative due to capex and investments in working capital the free cash flow growth rate has therefore gone negative.
- Overall the cash position of the company has not deteriorated much and will be recovered once the capex is realized.
- Therefore this category gets four stars in fundamental analysis of navin fluorine.
Liquidity and Solvency Ratios
- The company has no long-term debt therefore the debt-to-equity ratio is almost zero there is some short-term working capital debt which is also very insignificant.
- The leverage has also gone down inrecent years this shows a high solvency in the company.
- The current ratio has also increased significantly indicating a surplus of current assets over current liabilities.
- The quick ratio has also gone up in recent years.
- Overall this improves the liquidity of the company therefore this category gets five stars in Navin Fluorine fundamental analysis.
Efficiency Ratios
- Overall the business efficiency has not shown any significant improvement over the years.
- The payables period has gone down slightly from 100 days to 98 days and the receivable days has increased from 44 days to 72 days.
- The inventory days has also increased significantly from 64 days to 126 days this makes the cash conversion cycle to go up and the company needs additional working capital.
- Therefore this category gets only three stars in navin fluorine fundamental analysis.
ROE and ROCE
- The average adjusted leverage is going down for the company and the interest burden ratio is almost 100 this is due to the zero debt in the capital structure of the company.
- The asset turnover has shown stability and the operating margin has improved consistently this leads to an increased return on equity for the company and a strong financial position.
- If you look at the profitability of the company.
- The latest ROE for FY21 is 19.72% and ROCE is 27%.
- It means the profitability is flat over the years.
- Therefore this category gets five stars in Navin Fluorine fundamental analysis.
Future Growth Prospects
- Some insights for the coming years from the analysis management discussions and con calls are as follows:
- Navin Fluorine received its largest ever multi-year deal when which is a seven-year contract worth 410 million US dollars approximately rs 3000 cr to manufacture and supply a high performance productthat is HPP to a large MNC.
- This has significantly improved the earnings expectation from the company this is a completely new product for Navin Fluorine and the management highlighted that the company will be the sole producer of this HPP other than the original MNC that has the patent for this product.
- The Covid-19 lockdown and Chinese export disruption will not have any significant impact on the company apart for a few months of production loss.
- This is only temporary and production impact can be in double digits from a long-term perspective the outbreak will be highly beneficial for indian chemical companies.
- Navin Fluorine also stands to gain from this as it has started receiving new inquiries from companies looking forward to supply chain diversification out of China.
- Overall the company indicates high-growth prospects with a focus on financial stability and operational excellence.
- Therefore this category gets five stars in Navin fluorine fundamental analysis.
Shareholding Pattern of Navin Fluorine
- If you look at the shareholding pattern.
- Its promoter has 30.22% stake in the company.
- Foreign institutions hold a 26.65% stake.
- Domestic institutions hold 15.18%.
- General public holds a 27.95% stake.
Strengths and Limitations
Strengths and Limitations are as follows:
Strengths
- The company has shown a good profit growth of 18.69% for the Past 3 years.
- Company has been maintaining healthy ROE of 22.37% over the past 3 years.
- Company has been maintaining healthy ROCE of 23.51% over the past 3 years.
- Company is virtually debt free.
- Company has a healthy Interest coverage ratio of 288.72.
Limitations
- The company has shown a poor revenue growth of 9.06% for the Past 3 years.
- The company is trading at a high PE of 62.88.
- The company is trading at a high EV/EBITDA of 48.89.
Valuation
- The company’s stock has seen an increase in valuation multiples over the last few years this is due to increased profitability and future growth prospects.
- The stock however has undergone some correction in recent times because of the major sell-off across the global markets due to the covid-19 outbreak.
- Navin Fluorine has diversified sourcing and hence it will not get affected much due to trade disruptions in China.
- The stock is currently trading at attractive multiples
- Therefore this category gets five stars in fundamental analysis of Navin Fluorine.
The overall rating is arrived at by taking the average of the above 10 category ratings and round it up if it is above 0.5 and rounded down if it is below 0.5. The overall fundamental rating of Navin Fluorine is 4.6 out of 5. Therefore it is a five-star stock.
Conclusion
Overall if we conclude Navin Fluorine has an excellent business and its management, strong competitive advantage, and good financial and bright growth prospect which makes it a fundamentally good company.
It is currently available at a fair valuation. What is your take on Navin Fluorine have you invested in it do let me know in the comment box. I hope you find this analysis useful, and if yes please share it with your friends and family.
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