PI Industries vs Navin Fluorine: Which stock is better for long term?

Indian specialty chemical industry is staring at weak prospects in the near term, led by weak global demand and destocking of inventory in advanced markets of Europe and the US. In addition, declining chemical prices and increased competition from China post opening of the Chinese economy are putting pressure on their margins. Amid challenges, firms emphasising on specialty chemicals/molecules and increased capital expenditure may show improved performance, say experts.

Amid this backdrop, let's analyse between specialty chemical stocks PI Industries and Navin Fluorine, which has better growth opportunities for the long term.

Stock Price Trend

In the last one year, both Navin Fluorine and PI Industries gave similar returns. Shares of Navin gained 8.2 percent in this period while PI Industries rose 7.7 percent.

Meanwhile, in 2023 YTD, PI Industries advanced 13 percent giving positive returns in 5 of the 8 months so far in the current calendar year. Furthermore, Navin Fluorine added 6 percent giving positive returns in 4 of the 8 months so far in the current calendar year.

PI Industries surged the most in April, up 11.69 percent while shed the most in January, down 12.36 percent. Meanwhile, Navin also jumped the most in April, up 13.57 percent and declined the most in July, down 5.27 percent.

Currently trading at ₹3,698.40, PI Industries is 7.7 percent away from its 52-week high of ₹4,010, hit on June 21, 2023, while it has surged 29 percent from its 52-week low of ₹2,870, hit on March 28, 2023.

On the other hand, currently trading at ₹4,627.70, Navin is now around 6 percent away from its 52-week high of ₹4,922, hit on May 15, 2023, whereas it has gained 23 percent from its 52-week low of ₹3,766.45, hit on January 27, 2023.

Meanwhile, in the long term, 3 years, Navin has emerged as the winner, delivering multibagger returns. It has soared over 136 percent in this period while PI Industries rallied 97 percent.

Of 24 experts polled by MintGenie, 10 have ‘strong buy’ while 11 have ‘buy’ calls on PI Industries. However, 2 have ‘hold’ and 1 ‘strong sell’ call.

Of 22 experts polled by MintGenie, 9 have ‘strong buy’ while 7 have ‘buy’ calls on Navin Fluorine. However, 5 have ‘hold’ and 1 ‘sell’ call.

Earnings

Agro-chemicals maker PI Industries posted a 46.2 percent jump in its net profit at ₹382.9 crore for the first quarter ended June 30, 2023, versus ₹262 crore last year. Its total revenue rose around 24 percent to ₹1,910.4 crore during the quarter under review as against ₹1,543 crore in the year-ago period. At the operating level, EBITDA jumped 35.4 percent to ₹467.8 crore in Q1FY24 as compared to ₹346 crore last fiscal, while, EBITDA margin stood at 24.65 percent in the reporting quarter as compared to 22.4 percent in the corresponding period in the previous fiscal.

On the other hand, Navin Fluorine posted an over 17 percent decline in its net profit at ₹61.50 crore for the April-June period versus ₹74 crore in the year-ago period. Meanwhile, its revenue rose 23.5 percent to ₹491.1 crore as against ₹397 crore. The decline in profit came on the back of high-cost inventory destocking, and subdued export demand. EBITDA for the quarter came at ₹114.1 crore, up 15 percent from ₹99 crore of the corresponding quarter last year while its operating profit margin also contracted to 23 percent from 24.9 percent seen in the same quarter last fiscal.

Which stock has a better long-term growth opportunity?

Suman Bannerjee, CIO, Hedonova, prefers PI Industries between the two.

PI Industries stands out as a solid option for a long-term investment in the specialty chemical sector. With a diverse business portfolio that spans agri inputs, fine chemicals, and Contract Research and Manufacturing Services, the company has the potential to maintain stability across different market conditions. Moreover, their focus on agrochemicals is a strategic move given the ongoing demand in the agricultural sector.

T Manish, Research Analyst, SAMCO Securities, as well, picked PI Industries.

Amidst a challenging landscape, PI Industries achieved a remarkable 24 percent YoY revenue growth, highlighted by Custom Synthesis Manufacturing (CSM) exports. The company’s diversification into Pharma Contract Research Organization (CRO) and Contract Development and Manufacturing Organization (CDMO) services would enhance its client offerings, leading to improved top and bottom-line performance. Navin Fluorine faced challenges such as plant shutdowns and weak refrigerant gas sales globally and domestically, which might trigger price corrections due to these ongoing issues. Further, worrisome factors include limited promoter holding and a gradual rise in pledged shares. Navin Fluorine with a 10-year median PE of 28 and a current PE of 63.3, appears overvalued. PI Industries with a 10-year median PE of 40.3 and a current PE of 41.6 seems fairly valued. Considering the given valuations and growth potential, PI Industries appears favorable with cautiously optimistic anticipation of 18-20 percent revenue growth. This company offers a better risk-to-reward ratio at the current stock price levels.

Gaurav Bissa, VP, InCred Equities, also believes PI Industries has better long-term growth opportunities.

PI Industries looks much better compared to Navin Fluorine on the long-term charts. PI Ind is trading in a 10-year ascending channel pattern on the monthly charts. The stock is also in the formation of higher highs and higher lows implying the stock is in a strong multi-year uptrend. This continuation structure will ensure the fall in the stock will be limited and the stock can give a gradual and consistent rise till 5,500-6,000 levels in the coming months."

Prathamesh Sawant, Senior Research Analyst - Chemicals & Mid-Cap Opportunities, Axis Securities, as well, chose PI Industries between the two.

Both stocks have good long-term prospects and have been strong players in the Custom Synthesis Manufacturing (CSM) segment with good order books and execution track records. However, given the broader value unlocking expected in the global crop protection post a few major agrochemical products coming off-patent from FY25 onwards, we would bet on PI Industries between the two.

Vinit Bolinjkar, Head of Research - Ventura Securities, also chose PI Industries over Navin Fluorine.

PI Industries presents a more favorable prospect for long-term investment compared to Navin Fluorine. PI Industries' strategic plans for business expansion and the anticipated completion of its capex cycle by FY24 offers better growth opportunity. On the contrary, Navin Fluorine might encounter a period of subdued revenue performance in FY24 (due to the plant shutdown of its client), attributable to the impending impact of entering a new capex cycle, which could impact its short to medium-term free cash flow.

PI Industries is actively investing ₹900 crore into the agrochemical segment and an additional ₹100 crore into the pharmaceutical segment during FY24. The company is also seeking inorganic expansion opportunities to bolster its pharmaceutical division. Additionally, plans are underway to establish just-in-time facilities in the US and Europe, aimed at serving its global clientele efficiently. The majority of the capex is projected to conclude by FY24, setting the stage for increased production capacities in FY25. With an envisioned 18-20 percent growth in revenue over the upcoming 2-3 years, the management expresses confidence in maintaining an EBITDA margin ranging from 22 percent to 24 percent.

Conversely, Navin Fluorine's revenue performance in FY24 might experience a downturn, primarily due to a two-month plant shutdown at Honeywell International Inc., one of Navin Fluorine's major clients. Furthermore, Navin Fluorine is actively deliberating an investment for expanding its production capacity, given that the existing capacity is operating at full utilisation, posing constraints on revenue growth for the subsequent 2 years.

PI Industries is trading FY26 P/E of 26.4X, while Navin Fluorine is trading at FY26 P/E of 29.5X. This indicates that Navin Fluorine is relatively pricier compared to PI Industries.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.