Navin Fluorine International - AGM Note
vikram ag
Navin Fluorine International Ltd.
CMP Rs.249, Not Rated.
Navin Fluorine International Ltd. (NFIL), an Arvind Mafatlal Group Company, operates the largest integrated fluorochemicals complex in India since 1967. It offers one of the widest ranges of fluorochemicals in the bulk & specialty segments. It also is one of the first few companies from India to register their Clean Development Mechanism (CDM) project on reduction of HFC 23 by thermal oxidation, with UNFCC & is expected to accumulate huge cash flow by selling about 2.8mn CERs every year. The company recently declared its Q4FY08 numbers, which were highly impressive given that the benefits from the CDM project started reflecting into its numbers from Q4FY08 onwards.
Key takeaways from the AGM held on 23/6/08
§ Major Landmark – the CDM project commissioned in FY08 & earned some revenues in Q4FY08. FY09 will be the first full year of Revenues from the same. The company expects substantial jump in revenues & profits from the CERs, which will be sold from FY09 onwards.
§ The CDM project – the company will receive more than 2.8 mn CERs every year till 2012. Even after reducing a cost of 0.4mn CERs as technology & consultancy fees, the company will be left with a significant 2.4mn CERs per year.
§ The management has chosen to remain silent on profits which can be generated from CERs, but as per our calculation, the yearly PBT from CERs can be as high as Rs.280crs per year (2.4mn CERs x 18 Euros per CER x Rs. 65 per Euro). There could be some CERs where the company could have pre-fixed the pricing at lower levels, but we believe that a large part of the volumes may be sold at the current spot prices. Overall, we believe it is possible for the company to earn more than Rs.200crs at the PBT level per year. Its current M-cap is about Rs.260 crs.
§ Strategic review is being done to decide on the deployment of funds to be generated from CERs. Any large deployment from the same may happen only after 18 to 24 months.
§ The company has a revenue (gross) target of Rs.400 crs (Rs.250crs from domestic market & Rs.150 crs from exports) from its core business in FY09 against Rs.314crs in FY08.
§ Refrigerant gases Business – CFC & HCFC. CFC – expect an accelerated phase out over the next 2 years as per Montreal protocol - will lead to about Rs.4 - 5crs compensation from the same. HCFC business growing fast & replacing the volume loss of CFC business, management sees significant growth in this business going forward.
§ Both the bulk Fluoride (Aluminum Fluoride) & hydrochloric acid business has seen good improvement & are expected to show good growth in FY09.
§ The company has a revenue target of Rs. 100 crores in FY09 from its Specialty Chemicals business (Rs.85 crs in FY08). This business segment is expected to be the key growth driver for the company over the coming years, it's a low volume high value –high margin business, with Pharma & Agrochemical companies as the key clients.
§ The company is leveraging on their strong R&D capabilities and is investing Rs. 10crs in a new R&D centre which will be functional from October 2008.
§ Settlement with labour for past 10 years completed with liabilities already paid off, no compensation rise till 2011 as per the settlement.
§ Capex will not be much in Fy09.
§ Company had paid & written off about 90crs of cash to MIL is the past few years. Looking at the MIL's operations, it is hopeful to recover a part of this amount, which was earlier looking doubtful.
§ We have a Positive view on the company & believe the stock can deliver excellent returns over the coming 18 to 24 months.
KEY FINANCIALS
|
Revenue |
APAT |
AEPS |
EPS |
PER |
ROCE |
ROE |
EV/EBIDTA | |
|
FY 06 |
2,327.6 |
97.6 |
9.7 |
(46.1) |
25.7 |
11.2 |
5.6 |
11.6 |
|
FY 07 |
2,604.9 |
113.8 |
11.3 |
16.5 |
22.1 |
13.5 |
6.1 |
9.2 |
|
FY 08 |
2,909.7 |
133.8 |
13.3 |
17.6 |
18.8 |
12.7 |
7.0 |
9.5 |