has the story of navin fluorine come to an end
Navin Fluorine International Ltd (NFIL) is a prominent chemical player in the fluorine space in India. It is a highly respected company and has been a massive wealth creator for its investors. But recently, its share price dropped more than 15% in the span of a week. So what actually happened and is this a good buying opportunity for the investors? Let’s discuss this in more detail.
NFIL primarily produces refrigeration gases, inorganic fluorides, and specialty organofluorines. It also offers contract research and manufacturing services (CRAMS). Below is a revenue split of the company.
The company derives 40% of its revenue from specialty chemicals, 20% from CRAMS, 20% from the refrigeration vertical, and 20% from Inorganic Fluorides. From the geographical point, the company has a 50:50 split between domestic and international business. Some of its high-margin verticals like CRAMS and specialty chemicals are majorly export-focused (CRAMS revenue are 100% from the export while specialty chemical has an export share of around 65%).
Recently NFIL’s share price dropped by more than 13% in a single session after the announcement of the resignation of its well-regarded MD and CEO Radhesh
Welling. You may wonder if the share price always falls when a CEO leaves.
Well, it depends. If the CEO is an industry veteran or very highly regarded, then departure can lead to downfall. And this risk is called “Key Person Risk”. But in some cases, it is cheered as well (for example, VIP industries).
But the real question is “Is NFIL that dependent on its CEO?”. Well, we do not believe so. While CEO departures often raise red flags, NFIL is more than a one-man show. The company boasts a deep pool of managerial and technical talent. This isn't the first time the company has seen leadership changes, and it's managed to weather the storm. Management assures us that NFIL has strong teams across manufacturing, R&D, and technical domains. Customer relationships are distributed organization-wide, reducing dependency on any one individual.
The CEO’s resignation might have been the trigger for the current fall, but the chemical industry is facing headwinds, in general. And that is a bigger worry. NFIL's success can be attributed to its unique position as India's sole high-pressure fluorination specialist in a cGMP setting for the pharma industry. Yet, it's not immune to the industry's downturn. Export-focused companies are facing more pressure as there is a global slowdown in this space and China is dumping in the world markets.
On top of that NFIL was trading at a premium compared to its peers. NFIL generally trades above P/E of 50 while other fluorine players like Gujarat Fluorochem and SRF trade between P/E of 25-35. While other chemical players have seen a price correction in the last 6 months, NFIL was mostly flat and it was priced to perfection.
So we believe that this price fall was a result of three factors.
As a business, NFIL is a robust company. Over the past decade, the company has witnessed a remarkable upsurge in revenues generated from its high-value verticals. In FY22, CRAMS and Specialty chemicals collectively contributed to 61% of the total revenues, a substantial increase from the 27% they represented in FY11. The company boasts high margins compared to its peers and has a very strong global presence. Below is a peer comparison of the company.
However, NFIL's valuations remain high, reflecting substantial growth expectations. The company's growth story is promising, but uncertainties linger. Senior management attrition is another point of concern. While the company faces short-term headwinds, it's critical to prevent execution slippages in ongoing projects. Furthermore, the absence of a CEO might affect near-term plans, including M&A and project approvals.
Hence, investors should wait for some positive news globally from a business perspective and look for a base formation in the price. NFIL is a tier-1 chemical company in India and will certainly do well in the favorable business environment.
While most of the analysts have reduced their target price of Navin Fluorine, almost all of them are still bullish on the company. The table below displays the potential upside as predicted by some analysts.
NFIL, a well-known player in the chemical industry, is currently facing some changes and challenges. The departure of its CEO, Radhesh Welling, has raised concerns, but there are also other issues to consider.
One important thing to note is that NFIL is not solely dependent on one person, and the company has a strong team of experts along with a strong global presence. However, the bigger concern is the state of the chemical industry itself. It's going through some tough times, and this affects NFIL too. Investors can wait for the dark clouds to go away as there are better opportunities in the market.
