The stock of the commodity chemicals manufacturer rallied 15 per cent after the company announced a capex plan of Rs 450 crore at Dahej through a wholly-owned subsidiary, which is to be incorporated. In comparison, the S&P BSE Sensex was up 3 per cent during the same period.
On December 12, Navin Fluorine said in a regulatory filing that it was planning a capex programme at Dahej (Gujarat) through a wholly-owned subsidiary with an estimated aggregate capital outlay of over Rs 450 crore over the next 3-4 years.
The said capital expenditure will be funded by the Company out of its internal accruals. The development of the infrastructure will enable the Company to set up various future Greenfield projects in fluorochemicals, it said.
In the past two months, post July-September quarter results (Q2FY20), the stock has outperformed the market by surging 34 per cent against 7 per cent rise in the benchmark index.
Navin Fluorine reported a strong 32 per cent year-on-year (YoY) growth in standalone profit before tax at Rs 68 crore. EBITDA (earnings before interest, tax, depreciation and amortization) expanded by 34.3 per cent YoY on the back of good volume traction from high margin businesses, namely specialty chemicals and Contract Research and Manufacturing Services (CRAMS). EBITDA margin expanded by 479 basis points (bps) YoY despite a 7.2 per cent YoY increase in fluorspar prices owing to product mix churn and better pricing of specialty products.
Analysts at HDFC Securities believe the company’s legacy business should continue to grow at a slower pace as investments are largely flowing into CRAMS and Specialty chemicals. New orders in CRAMS give earnings visibility. The specialty business is also demonstrating robust traction. Both these businesses will boost margins.
“Both specialty chemicals and CRAMS segments should record strong numbers going forward. The CGMP-3 plant commissioning and improved visibility in specialty chemicals segment bode well for future revenue growth,” analysts at Emkay Global Financial Services said in a company update.
Management has sounded optimistic on the growth outlook of specialty chemicals in recent times while remaining confident of its CRAMS business (cGMP-3 plant to operate from Dec’19). The capex will also be for new product developments in the R-gas segment, it added. The stock; however, is trading above the brokerage firm's target price of Rs 958 per share.