Navin Fluorine: Emkay Global sets 'Reduce' rating on stock; here's why

Emkay Global has expressed caution regarding Navin Fluorine International Limited's (NFIL) business outlook, retaining a 'Reduce' rating due to concerns over the evolving refrigerant gas pricing environment. Emkay Global stated, "Navin Fluorine's FY25 annual report focused on its 3P business model—viz product, platform, partnership—as it scales up business operations led by already-commissioned assets (R32; fluorospecialty capex) in FY25 and projects (AHF; cGMP-4; immersion cooling fluid project) set to commission in FY26/27."

The firm's financial health remains a point of interest, as Navin’s revenue, Ebitda, PAT CAGR stood at 19%, 15%, and 4%, respectively, over FY21-25, according to Emkay Global. Despite consistent revenue growth, "PAT remained depressed due to higher leverage from FY23 onward and increase in depreciation." 

Emkay said the company commissioned its fluorospecialty capex of Rs 540 crore and R32 capex at Surat in FY25, highlighting significant capital investments. Navin Fluorine's management anticipates a ramp-up in both projects by FY26, with robust traction expected from export markets. Further expansions include the cGMP-4 capex, expected to commission in early-CY27, and the AHF capex, scheduled for Q2FY26. These projects indicate a forward-looking strategy to enhance operational capabilities and strengthen the company's position in the global market.

Emkay Global noted, FY22-23 saw limited cash generation due to significant infusion in working capital, led by the rising refrigerant gas/raw material pricing environment. Over FY21-25, Navin invested Rs 2,600 crore towards capex, resulting in a negative free cash flow of approximately Rs 1,000 crore. During this period, capex was financed through external borrowings. Despite this, Navin generated an operating cash flow (OCF) of Rs 570 crore in FY25, offering promising prospects for future capex funding and indicating a potential improvement in financial stability.

Emkay Global remarked, "NFIL’s R&D expenditure saw a spike in FY24 and reached 6 per cent of revenue, led by capex at its Dewas R&D facility." In FY25, R&D spending was Rs547mn, constituting 2.3% of revenue. The company continues to focus on transitioning early-stage innovations into commercial operations, supporting sustained growth and competitiveness in an ever-evolving industry landscape.

Environmental, Social, and Governance (ESG) initiatives also form a crucial part of Navin's strategy. Key endeavours include enhancing energy efficiency by 251,209 kWh, reducing water usage by 0.8mn Kl, and recycling 81% of waste. Such efforts underscore the company's commitment to sustainable business practices and responsible environmental stewardship, aligning with global trends towards greener operations.

Emkay Global's insights highlight director remuneration at approximately 5.1% of profit before tax (PBT), reflecting NFIL's governance priorities. This aligns with the company's overall strategic focus on balancing growth with prudent financial management, ensuring that executive compensation is tied to performance and accountability.

In summary, while Navin Fluorine demonstrates strong operational and strategic initiatives, Emkay Global's cautionary stance on refrigerant gas pricing remains a critical factor influencing its market rating. The company's future performance will likely hinge on successfully navigating these pricing challenges while executing its ambitious expansion plans, potentially reshaping its competitive edge in the industry.