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On Monday, Citi analysts revised their stance on Navin Fluorine International Ltd (NFIL:IN), downgrading the stock from a Buy to a Sell rating, alongside a reduction in the price target to INR 4,125 from INR 4,500. This decision follows Navin Fluorine’s reported fourth-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA), which showed a significant year-over-year increase.
Navin Fluorine’s fourth-quarter EBITDA rose by 62% compared to the same period last year, reaching INR 1.79 billion, which surpassed Citi’s estimate of INR 1.70 billion. The growth was attributed to higher revenues from the contract development and manufacturing organization (CDMO) and domestic refrigeration gas segments. The EBITDA margin also improved, hitting 25.5% compared to 24.3% in the previous quarter and 18.3% in the fourth quarter of the prior fiscal year, aligning with management’s guidance.
Despite the strong earnings report, Citi analysts pointed out that Navin Fluorine’s stock has already seen a substantial increase of 42% year-to-date. The current valuation, at approximately 25 times the fiscal year 2027 enterprise value to EBITDA and around 40 times the fiscal year 2027 price to earnings, is similar to the five-year average multiples for specialty chemical producers. Considering this, Citi suggests that much of the upside has already been incorporated into the stock price.
Citi also raised concerns about potential competitive pressures from China, which could present downside risks to both their own and consensus estimates for Navin Fluorine. The firm has been actively investing in its business, having commissioned multiple projects over the past three years, resulting in a more than fourfold increase in its gross block compared to the fiscal year 2022. While some of these capacities have already ramped up, the rest are expected to do so over the next few years. However, due to the stock’s significant rise and the looming competitive threats, Citi has opted to downgrade the stock and adjust the price target accordingly.
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