Motilal Oswal has given Neutral recommendation for Navin Fluorine with a target price of Rs. 4195 in its research report issued on Dec 23, 2021

Motilal Oswal’s research report on Navin Fluorine

In continuation of our recent study on the ever increasing use of fluorine in Life Sciences/Pharmaceuticals, we dive into its Agrochemical applications. Similar to our findings in the Pharmaceutical space, currently ~53% of Agrochemicals are organofluorine compounds (compared to a 40% in 2000). Organofluorine compounds have emerged as attractive synthetic building blocks in both the Pharmaceutical and Agrochemicals industry. The similarities between them include the design of target molecules and biological functions, and the considerations to Lipinski’s rules to estimate the probability of success. Fluorinated herbicides and fungicides have some similarities to fluoro-pharmaceuticals, whereas insecticides and acaricides are different; although a major differentiator/key consideration is the increase in costs, which limits their use in Agrochemicals, especially in developing countries. In this report, we discuss about the uses of fluorine in the Agrochemical space. NFIL has recently entered into a five year (INR8b) contract with a global MNC for supply of a key Fluoro-Agrochemical intermediate.

Outlook

The stock is trading at 45x/38x FY23E/FY24E EPS of INR89/INR105, with an expected improvement in return ratios to ~22% (up 500bp v/s FY21), despite a huge capex (INR7b over the next three years). We value the company at 40x FY24E EPS to arrive at our TP of INR4,195 and maintain our Neutral rating. We await a right entry point on dips, highlighting our aforementioned optimism on fluorination chemistry.

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