Navin Flourine International Ltd

Transcription

1 Q3FY11 Result Update Enhancing investment decisions

2 Explanation of CRISIL Fundamental and Valuation (CFV) matrix The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP). CRISIL Fundamental Grade Assessment CRISIL Valuation Grade Assessment 5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (1-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-1% from CMP) 2/5 Moderate fundamentals 2/5 Downside (- 1-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (<-25% from CMP) Analyst Disclosure Each member of the team involved in the preparation of the grading report, hereby affirms that there exists no conflict of interest that can bias the grading recommendation of the company. Additional Disclosure This report has been sponsored by NSE - Investor Protection Fund Trust (NSEIPFT). Disclaimer: This Exchange-commissioned Report (Report) is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. The Data / Report are subject to change without any prior notice. Opinions expressed herein are our current opinions as on the date of this Report. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information only of the authorized recipient in India only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person especially outside India or published or copied in whole or in part, for any purpose.

3 Company Navin Flourine name International Ltd Due Tag credit(s) line received! Fundamental Grade Valuation Valuation Grade Grade Industry Industry X/5 2/5 ( (Moderate fundamentals) fundamentals) X/5 3/5 (CMP (CMP is/has is aligned) ) (GICS Code) Chemicals Navin Flourine International Ltd s (Navin s) core business performance in Q3FY11 exceeded CRISIL Equities expectation, but overall results were lower due to timing differences in the sale of carbon credits. As these allocations occurred in December 21 January 211 for Navin, we expect the certified emission reduction (CER) income to spill over from FY11 to FY12. Accordingly, we revise our forecasts and retain the fundamental grade of 2/5 on Navin. Q3FY11 result analysis Despite 5% y-o-y growth in the core business, owing to healthy growth in both realisations and volumes, Navin s Q3 revenues declined 3% y-o-y to Rs 941 mn as the company could not sell its carbon credits. Despite a 1,728 bps y-o-y fall in margins due to lack of CER sales, core business margins improved by ~ 5 bps q-o-q to 16.7%. PAT margins improved 358 bps q-o-q but declined by 1,123 bps y-o-y. Accordingly, EPS fell from Rs 21 in Q3FY1 to Rs 9.9 in Q3FY11. Credit(s) delayed but not denied In our Q2FY11 result update, we had discussed whether the UN is delaying or denying the issuance of carbon credits, and did not revise our earnings estimates. Our decision was vindicated when, in November 21, the UNFCCC decided to lift the suspension on carbon credit issuance imposed earlier in the year. Subsequently, the UN allotted ~2.2 mn credits to Navin. However, we believe it might not be able to sell all the credits allocated to it this fiscal and expect a spill over in CER income to FY12. Hence, we expect CER income to be Rs 75 mn in FY11 and Rs 2,15 mn in FY12, with supernormal profits in FY12. Key developments The management had assured us (refer report dated September 13) of a recovery of its investments in Mafatlal Industries (MI) in FY11 - as MI will sell off its land parcel in Byculla. However, given the expected price correction in Mumbai Metropolitan region and the government s pending ruling on FSI, we have assigned a higher discount of 5% (previously 25%) while valuing this investment. Navin has concluded its share buyback programme as on February 5, 211. It bought back 338,792 shares at a price of Rs 4 per share. Valuations: CMP is aligned with the fair value We continue to value Navin based on the sum-of-the-parts method. In line with our revised forecasts and increased discounting for dues from MI, we revise our fair value estimate to Rs 265. At the current market price of Rs 261, this indicates a valuation grade of 3/5. KEY FORECAST (Rs mn) FY8 FY9 FY1 FY11E FY12E Operating income 2,95 4,29 4,318 4,252 5,789 EBITDA 374 1,26 1,464 1,116 2,258 Adj PAT ,526 Adj EPS-Rs EPS growth (%) (96.3) 7, (1.2) Dividend yield (%) RoCE (%) RoE (%) PE (x) P/BV (x) EV/EBITDA (x) NM: Not meaningful; CMP: Current Market Price Source: Company, CRISIL Equitie s estima te February 16, 211 Fair Value Rs 265 CMP Rs 261 CFV MATRIX KEY STOCK STATISTICS NIFTY 5482 NSE NAVINFLUOR Face value (Rs per share) 1 Shares outstanding (mn) 1.1 Market cap (Rs mn)/(us$ mn) 2,635/58 Enterprise value (Rs mn) /(US$ mn) 1,941/43 52-week range (Rs) (H/L) 368/223 Beta.8 Free float (%) 62.8% Avg daily volumes (3-days) 16,816 Avg daily value (3-days) (Rs mn) 5.6 SHAREHOLDING PATTERN 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% Excellent Fundamentals Fundamental Grade PERFORMANCE VIS-À-VIS MARKET Returns 1-m 3-m 6-m 12-m Navin -6% -11% -6% -17% NIFTY -3% -8% 1% 13% ANALYTICAL CONTACT Sudhir Nair (Head) Suresh Guruprasad snair@crisil.com sguruprasad@crisil.com Arjun Gopalakrishnan agopalakrishnan@crisil.com Client servicing desk Poor Fundamentals % Strong Downside 55.6% 55.5% Valuation Grade 59.8% 6.4% 6.7% 6.8% 2.6% 2.%.4%.4%.4%.4% 37.2% 37.2% 37.2% 37.2% Strong Upside Mar-1 Jun-1 Sep-1 Dec-1 Promoter FII DII Others clientservicing@crisil.com CRISIL EQUITIES 1

4 Q3FY11 Result Summary (Rs mn) Q3FY11 Q2FY11 Q3FY1 q-o-q (%) y-o-y (%) Net sales % -3% Raw material cost % 31% Raw material cost (% of net sales) 49.2% 51.6% 37% (239)bps 1265bps Employee cost % 18% Other expenses % 11% EBITDA % -52% EBITDA margin 16.7% 11.5% 34% 524bps (1728)bps Depreciation % 16% EBIT % -59% Interest and finance charges % 41% Operating PBT % -61% Other income % 25% PBT % -54% Tax % -57% PAT % -53% Adj PAT % -53% Adj PAT margin 1.6% 7.1% 22% 358bps (1123)bps No of equity shares (mn) Adj EPS (Rs) % -53% Q3 sales reflect a growth of 2% on a q-o-q basis in core business The q-o-q improvement in EBITDA margins is attributable to growth in volumes and improvement in average realisations across product categories Source: Company, CRISIL Equitie s Lack of CER income affects sales and margins 45% 4% 35% 3% 25% 2% 15% 1% 5% % (Rs mn) 42% 1,4 32% 34% 1,2 27% 29% 1, 22% 8 17% 12% 13% 6 11% 4 1, , , , Strong core business improves PAT margins in Q3 (Rs mn) 3% 27% 35 25% 3 22% 2% 2% 18% 25 16% 2 15% 11% 1% 15 1% 7% 5% 3% 1 5% % Q2 FY9 Q3 FY9 Q4 FY9 Q1 FY1 Q2 FY1 Q3 FY1 Q4 FY1 Q1 FY11 Q2 FY11 Q3FY11 Q2 FY9 Q3 FY9 Q4 FY9 Q1 FY1 Q2 FY1 Q3 FY1 Q4 FY1 Q1 FY11 Q2 FY11 Q3FY11 Net sales (RHS) EBITDA margin PAT (RHS) PAT margin Source: Company, CRISIL Equitie s Source: Company, CRISIL Equitie s Share price movement Fair value movement since initiation (Rs) (') 1,6 1,4 1,2 1, Feb-8 Apr-8 Jun-8 Aug-8 Oct-8 Dec-8 Feb-9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-11 Sep-1 Sep-1 Oct-1 Oct-1 Nov-1 Nov-1 Dec-1 Dec-1 Jan-11 Jan-11 Jan-11 Feb-11 -Indexed to 1 Navin Fluorine Source: NSE, CRISIL Eq uities NIFTY Total Traded Quantity(RHS) CRISIL Fair Value Navin Source: NSE, CRISIL Eq uities CRISIL EQUITIES 2

5 EARNINGS ESTIMATES REVISED Improvements in core operations in FY11 will help Navin marginally mitigate the spillover of CER revenues to FY12. We expect Navin to book ~ Rs 75 mn of CER income in FY11 and ~ Rs 2,15 mn in FY12. However, with the influx of CER income, we expect profitability in FY12 from core operations to drop significantly, in line with the historical trend (reference points being - FY9 and FY1). Particulars Unit FY11E FY12E Old New % change Old New % change Revenue (Rs mn) 4,639 4,252-8% 5,11 5,789 16% EBITDA (Rs mn) 1,529 1,116-27% 1,714 2,258 32% EBITDA margin % 33.% 26.2% (68)bps 34.2% 39.% 48bps PAT (Rs mn) % 1,174 1,526 3% PAT margin % 21.5% 16.8% (47)bps 23.4% 26.4% 3bps EPS Rs % % CRISIL EQUITIES 3

6 VALUATION We continue to value Navin based on the sum-of-the-parts method. We have valued the core business operations on the price-to-earnings (P/E) method and the non-operating assets on a case to case basis. Currently, we value Navin at Rs 265 per share. At this value, the implied P/E multiples are 3.6x FY11E and We revise our fair value estimate for Navin to Rs x FY12E earnings. Change in SoTP valuation: Nature of non-operating asset Valuation - Reasoning Rs per share Cash (excluding core business) - FY Changes on account of the share buy back programme Residual real estate assets in Sulakshana 25 A reduction in number of shares increases the per share value Interest bearing advances to group companies 29 Discounting increased to 5% (25% previously) owing to an expected price correction in Mumbai Metropolitan region and the government s pending ruling on FSI Equity investments in MDL 13 Preference shares in MIL 31 Discounting increased to 5% (25% previously) owing to the uncertainty surrounding the land sale by MI in Byculla Total without core business 225 Core business valuation 4 Based on a P/E multiple of 4 on core business numbers for FY12. Though core operations have seen a significant improvement in 9MFY11, we expect it to take the back seat once the company starts booking CER income Total value of Navin 265 Source: Company, CRISIL Equities estimate One-year forward P/E band (Rs) One-year forward EV/EBITDA band (Rs mn) 7, 6, 5, 4, 3, 2, 1, Jun-7 Aug-7 Oct-7 Dec-7 Feb-8 Apr-8 Jun-8 Aug-8 Oct-8 Dec-8 Feb-9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-11 Jun-7 Aug-7 Oct-7 Dec-7 Feb-8 Apr-8 Jun-8 Aug-8 Oct-8 Dec-8 Feb-9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-11 Navin Fluorine.75x 1.5x Source: NSE, CRISIL Eq uities EV.75x 1.5x 2.25x 3.x Source: NSE, CRISIL Eq uities P/E premium/discount to NIFTY 6% 4% 2% % -2% -4% -6% -8% -1% P/E movement (Times) std dev -1 std dev Jun-7 Aug-7 Oct-7 Dec-7 Feb-8 Apr-8 Jun-8 Aug-8 Oct-8 Dec-8 Feb-9 Apr-9 Jun-9 Aug-9 Oct-9 Dec-9 Feb-1 Apr-1 Jun-1 Aug-1 Oct-1 Dec-1 Feb-11 Jun-7 Aug-7 Oct-7 Dec-7 Mar-8 May-8 Jul-8 Sep-8 Dec-8 Feb-9 Apr-9 Jun-9 Sep-9 Nov-9 Jan-1 Apr-1 Jun-1 Aug-1 Oct-1 Jan-11 Premium/Discount to NIFTY Median 1yr Fwd PE Median PE Source: NSE, CRISIL Eq uities Source: NSE, CRISIL Eq uities. CRISIL EQUITIES 4

7 CRISIL IER reports released on Navin Fluorine Ltd Date Nature of report Fundamental grade Fair value Valuation grade CMP (on the date of report) 13-Sept-1 Initiating coverage* 2/5 Rs 3 3/5 Rs Oct-1 Q2FY11 result update 2/5 Rs 3 3/5 Rs Feb-11 Q3FY11 result update 2/5 Rs 265 3/5 Rs 261 * For detailed initiating coverage report please visit: CRISIL Independent Equity Research reports are also available on Bloomberg (CRI <go>) and Thomson Reuters. CRISIL EQUITIES 5

8 FINANCIALS Income statement Balance Sheet (Rs mn) FY8 FY9 FY1E FY11E FY12E (Rs mn) FY8 FY9 FY1E FY11E FY12E Operating income 2,95 4,29 4,318 4,252 5,789 Liabilities EBITDA 374 1,26 1,464 1,116 2,258 Equity share capital EBITDA margin 12.7% 24.4% 33.9% 26.3% 39.% Reserves 1,926 2,177 2,878 3,32 4,668 Depreciation Minorities EBIT ,351 1,5 2,93 Net worth 2,27 2,278 2,979 3,399 4,766 Interest Convertible debt Operating PBT , ,58 Other debt Other income (41) 37 (22) Total debt Exceptional inc/(exp) (51) (135) Deffered tax liability (net) PBT ,35 1,74 2,289 Total liabilities 3,91 2,976 3,33 3,983 5,349 Tax provision Assets Minority interest Net fixed assets 1,718 1,633 1,664 1,513 2,553 PAT (Reported) ,526 Capital WIP Less: Exceptionals (51) (135) Total fixed assets 2,8 1,914 1,942 1,653 2,693 Adjusted PAT ,526 Investments Current assets Ratios Inventory FY8 FY9 FY1E FY11E FY12E Sundry debtors Growth Loans and advances ,186 Operating income (%) (1.5) 36.2 Cash & bank balance ,925 1,833 EBITDA (%) (23.7) 12.2 Marketable securities Adj PAT (%) (.4) (13.1) Total current assets 2,214 2,139 2,554 3,61 4,127 Adj EPS (%) (.4) (1.1) Total current liabilities 1,456 1,34 1,359 1,446 1,637 Net current assets ,194 2,164 2,49 Profitability Intangibles/Misc. expenditure EBITDA margin (%) Total assets 3,91 2,976 3,33 3,983 5,349 Adj PAT Margin (%) RoE (%) Cash flow RoCE (%) (Rs mn) FY8 FY9 FY1E FY11E FY12E RoIC (%) Pre-tax profit ,34 1,74 2,289 Total tax paid (18) (253) (441) (358) (763) Valuations Depreciation Price-earnings (x) Working capital changes (31) (151) (418) Price-book (x) Net cash from operations (85) 571 1, ,273 EV/EBITDA (x) Cash from investments EV/Sales (x) Capital expenditure (221) (33) (142) 177 (1,25) Dividend payout ratio (%) Investments and others Dividend yield (%) Net cash from investments (82) 63 (71) 177 (1,25) Cash from financing B/S ratios Equity raised/(repaid) (136) - Inventory days Debt raised/(repaid) (7) (391) (413) 26 - C reditors days Dividend (incl. tax) (47) (118) (165) (16) (16) Debtor days Others (incl extraordinaries) (16) (2) Working capital days Net cash from financing (7) (79) (536) (35) (16) Gross asset turnover (x) Change in cash posiiton (237) (75) 657 1,117 (92) Net asset turnover (x) Closing cash ,925 1,833 Sales/operating assets (x) C urrent ratio (x) Quarterly financials Debt-equity (x) (Rs mn) Q3FY1 Q4FY1 Q1FY11 Q2FY11 Q3FY11 Net debt/equity (x).3.2 (.2) (.5) (.3) Net Sales 968 1, Interest coverage Change (q-o-q) -15% 25% -28% -9% 2% EBITDA Per share Change (q-o-q) -32% -52% 6% -64% 75% FY8 FY9 FY1E FY11E FY12E EBITDA margin 34.% 13.1% 29.2% 11.5% 16.7% Adj EPS (Rs) PAT C EPS Adj PAT Book value Change (q-o-q) -32% -85% 393% -64% 81% Dividend (Rs) Adj PAT margin 21.9% 2.6% 17.6% 7.1% 1.6% Actual o/s shares (mn) Adj EPS Note: All ratios are computed on Adj PAT Source: Company, CRISIL Equities estimate CRISIL EQUITIES 6

9 CRISIL Independent Equity Research Team Mukesh Agarwal Director +91 (22) Tarun Bhatia Director, Capital Markets +91 (22) Chetan Majithia Head, Equities +91 (22) Sudhir Nair Head, Equities +91 (22) Nagarajan Narasimhan Director, Research +91 (22) Ajay D'Souza Head, Research +91 (22) Aparna Joshi Head, Research +91 (22) Manoj Mohta Head, Research +91 (22) Sridhar C Head, Research +91 (22) sridharc@crisil.com CRISIL s Equity Offerings The Equity Group at CRISIL Research provides a wide range of services including: Independent Equity Research IPO Grading White Labelled Research Valuation on companies for use of Institutional Investors, Asset Managers, Corporate Other Services by the Research group include CRISINFAC Industry research on over 6 industries and Economic Analysis Customised Research on Market sizing, Demand modelling and Entry strategies Customised research content for Information Memorandum and Offer documents

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