Specialty Chemical Companies Forecast Modest Q2FY25 Growth: 15.9% YoY Revenue Increase Amid Challenges

Navin Fluorine International Ltd: Navin’s HFO plant is stable and is expected to achieve 1.3x volume growth at current utilization in FY25. Domestic demand for R-32 is strong, and the expansion of R-32 capacity is on track, with the plant expected to be commissioned in Feb’25. The company has also signed a supply agreement for a patented agrochemical product for the Japanese market with revenue potential of Rs200-300mn, starting from CY25. Agrochem segment of the company has been a bit sluggish, but is expected to revive in H2FY25, with meaningful growth expected in FY26. Navin’s CDMO vertical, growth of which was below expectations in FY24 mainly due to deferral in sales of key molecules, has also shown sequential improvement; it has the potential to double its revenue in FY25. We expect revenue/EBITDA to improve by 32.3%/23.6% YoY and 19.2%/21.1% QoQ.

Vinati Organics Ltd: Price of ATBS, key product for the company (30-35% of total revenue), is expected to rise as oil and gas companies are focusing more on enhanced oil recovery, rather than drilling new fields. It also finds application in water treatment. The company is expanding its ATBS capacity from 40,000mtpa to 60,000mtpa, which is expected to be commissioned by Dec’24. This is in line with the significant expansion underway at its major client SNF, which uses ATBS as a copolymer to manufacture polyacrylamides. Additionally, the antioxidant segment is expected to drive growth and double its revenue from Rs1.3bn to Rs2.5bn in FY25 with the launch of new products based on import substitution. We expect revenue/EBITDA/PAT to improve by 18.3%/23.1%/20% YoY, but decline 4.4%/3.1%/1.2 QoQ.

Change in Estimates and Target Prices:
As headwinds in agrochem are expected to persist, we have reduced our EPS estimates for FY25 by 2.2% and TP by 16% for Aarti Industries and maintain ‘Reduce’ with TP of Rs512. We expect 15% YoY improvement in revenue in Q2FY25 for Fine Organic and maintain ‘Accumulate’ rating. We expect margins to slightly improve for Deepak Nitrite as phenol acetone spreads have improved, and the intermediates segment will continue to face pricing pressure, we maintain ‘Reduce’ rating with TP of Rs2,564. We maintain ‘Hold’ rating for Clean Science with TP of Rs1,561. Although improvement in domestic refrigerant prices is a good sign for Gujarat Fluoro, we believe the stock is richly valued and maintain ‘Reduce’ rating with TP of Rs3,771, increased by 30% from Rs2907 due to recent run up seen in the stock price. For SRF, we have increased our estimates by 6%, as prices of domestic refrigerants are on an uptrend, while weakness in agrochemical demand and threat from Chinese competition in the near term remain key concerns for the company, we maintain ‘Reduce’ rating with TP of Rs2,133. We have increased our TP for Jubilant Ingrevia by 30.2%, and continue to maintain ‘Hold’ rating, we believe the stock is richly valued due to steep increase in price seen recently. Due to strong uptick expected in ATBS and contribution from new products like antioxidants, we maintain ‘Accumulate’ rating for Vinati with TP of Rs2,220.