Chemicals Deep Dive 11 07 2023

11 July 2023 India | Chemicals| Sector Update
16 January 202
DEEP-DIVE Chemicals
Time to place the right bets amid the recent slowdown
In our view, the recent slowdown in the chemicals sector does not bring to an end
India’s journey of becoming the next chemicals manufacturing hub. Although we
agree that there is imminent risk of earnings downgrades, especially for non-
contracted businesses, we highlight that these corrections should be treated as buying
 India’s fluorination players to gain as opportunities. We recommend two themes a) acceleration of Europe+1 for
Europe+1 accelerates fluorination players (Navin Fluorine, and SRF); b) continuation of basic chemicals’
 HF capacity on the ground a strategic import substitution (Deepak Nitrite). Navin Fluorine and SRF are our structural top
advantage picks as we believe imminent HFC production cuts in the EU and the US will have a
 Basic chemicals: Import substitution to cascading benefit for India’s fluorine-based complex specialty chemicals players while
continue lifetime-low phenol spreads and upcoming capacities for bisphenol-a and other basic
chemicals make Deepak Nitrite a good BUY candidate. Within our coverage, there are
other differentiated plays such as Clean Science, Aether Industries, and Archean
Chemicals where earnings recovery could occur in 2HFY24.
 Acceleration of Europe+1 for fluorination players: In our view, the imminent cut in HFC
production would mean that European (and also US) players will have to cut their HF
production given that HFC production accounts for ~65-70% of global HF consumption.
Further, HFC alternative HFO requires 50-60% lower HF. Over the last 5 years, Europe’s HFC
production has declined by almost 60%. Hence, to avoid negative operating leverage for
their HF plants, European players seem to have shifted the manufacture of HF-based
fluorospecialty chemicals to India. This is clearly visible in Navin and SRF’s Europe exports
Navin Fluorine CAGR of 26% and 46%, respectively. With an incremental opportunity size north of USD
11-12bn for fluorospecialty agrochemical technicals (including generic, about to be generic,
and patented) and >USD 25bn for recently launched key fluorospecialty APIs, we expect
more orders to come the way of India’s fluorination players.
 HF capacity on the ground – strategic advantage for India’s fluorine players: India’s fluorine
players have been aggressively investing in putting up HF capacity since it is a strategic
advantage in the race for incremental orders/contracts. For instance, within months of
acquiring Tanfac, Anupam started receiving orders for HF based from various MNCs (R&D
and approvals would have taken much longer). Post the HF expansion, India’s HF capacity
would be ~20% of global HF demand and ~35-40% of China’s capacity. This should further
increase India’s fluorine players’ competitiveness compared to China. Moreover, there is
limited threat from new entrants (domestic) given that the key barrier for any player is to
SRF Ltd find customers for HF. For example, in our view, Deepak Nitrite’s entry into fluorination (by
importing HF) would be restricted to a limited number of products where it would require
lower amounts of HF or where it has existing forward integration. In our view, getting long-
term orders for complex molecules (like Navin and SRF) will require HF capacity on the
ground for uninterrupted supplies.
 Basic chemicals’ import substitution to continue: Indian players like Deepak Nitrite, Deepak
Fertilisers, GNFC, etc. have focused on substituting India’s basic chemicals imports. Deepak
Nitrite has had success on the phenol imports front, while Deepak Fertilisers is likely to help
curb nitric acid imports. We expect this trend to continue with Deepak Nitrite capturing
India’s import market for bisphenol-A, MIBK, and MIBC. In our view, it could also look to
manufacture cyclohexanone. Basis these capacities, in future, Deepak could forward
integrate to manufacture several downstream products of these basic chemicals where it
would have a significant cost advantage compared to any other domestic player.
Deepak Nitrite
 Differentiated players could see demand recovery in 2HFY24: Within our specialty chemicals
Krishan Parwani coverage, there are differentiated players like Clean Science, Aether industries, Archean
krishan.parwani@jmfl.com | Tel: (91 96) 62095500 chemicals, etc., who are facing demand headwinds at the moment. However, there is a
We acknowledge the support of Prashanth Kamath in possibility of these players seeing demand revive in 2HFY24. The first signs of demand
the preparation of this report
recovery in these names will act as a positive trigger for them. We also like PI which is the
JM Financial Research is also available on: Bloomberg - only name where there is earnings upgrade possibility even in such a slowdown scenario.
JMFR <GO>, Thomson Publisher & Reuters, S&P Capital
IQ, FactSet and Visible Alpha. Please see Appendix I at However, the near-term upside in the name is likely to be limited, in our view.
the end of this report for Important Disclosures and
Disclaimers and Research Analyst Certification.
JM Financial Institutional Securities Limited

Chemicals | 11 July 2023
Acceleration of Europe+1 for fluorination players

 Fluorine-based patented agrochemicals opportunity size north of USD 7bn: Since 2016,
multiple patented fluorinated agrochemicals have been introduced and several other
launches are expected over the next couple of years. The total market size of a few of the
active ingredients (where available) is north of USD 5bn (Exhibit 3). Nissan Chemicals
plans to launch two new fluorinated agrochemical products NC- 653 (Dimesulfazet) and
NC- 656 (Iptriazopyrid) in 2024 and 2027 - Exhibit 1. Sumitomo launched IDIFLIN
(Inpyrfluxam) in 2020 and has registered two new products that are expected to be
launched soon, ALLES (Oxazosulfyl) and Pyridaclomehyl - Exhibit 2.
Exhibit 1. Two of Nissan Chemicals’ upcoming products are fluorine-based agrochemicals

(NC-653 and NC-656) with a total market size of ~USD 100mn
Source: Nissan Chemicals
Exhibit 2. Three new products (Inpyrfluxam, Oxazosulfyl and Pyridaclomethyl ) in Sumitomo’s

upcoming pipeline are fluorochemicals expected to be launched soon
Source: Sumitomo Chemicals, JM Financial
JM Financial Institutional Securities Limited Page 2

Exhibit 3. There is growing proliferation of patented fluorinated products since 2016 (market size > USD 4.7bn)
AI Year of Introduction Patent Status Off Patent Year Market Size (USD mn) Innovator/Manuacturer Use Case Use Case
Bicyclopyrone 2015 Patent 300 Syngenta Insecticide Maize, Sugarcane
Kappa-Tefluthrin 2016 Patent 235 Cheminova Insecticide
Kappa-bifenthrin 2016 Patent 235 Cheminova Insecticide
Pydiflumetofen 2016 Patent 1000 Syngenta Fungicide Grain, Soybean, Corn, Rape, Peanuts
Flometoquin 2017 Patent NA Meiji Seika / Nippon Kayaku Insecticide F&V, Ornamentals, Cereals
Florpyrauxifen 2017 Patent 20 Dow Herbicide Rice, Freshwater Vegetation
Fluhexafon 2017 Patent NA Sumitimo Insecticide
Triflumezopyrim 2017 Patent NA DuPont Insecticide Cotton, Rice, Corn and Soybean
Ipfentrifluconazole 2017 Patent NA BASF Fungicide Cereals, Row Crops, Speciality Crops
Mefentrifluconazole 2017 Patent 1000 BASF Fungicide Wheat, Barley, Rice, Potato
Fluxametamide 2018 Patent NA Nissan Chemicals Insecticide Vegetables, Cotton, Soybean
Tiafenacil 2019 Patent NA Farm Hannong Herbicide Non Selective, Grapes
Benzpyrimoxan 2019 Patent NA Nihon Nohyaku Insecticide Rice
Quinofumelin 2016 Patent NA Mitsui Chemicals/ Bayer Fungicide Rice
Inpyrfluxam 2020 Patent NA Sumitomo Fungicide Rice, Soybean
Tetraniliprole 2020 Patent 300 Bayer Insecticide F&V, Rice, Potato, Broadacre crops
Fluopimomide 2020 Patent NA Sino-Agri Union Fungicide Cucumber, Potato, Rice
Flupyrimin 2020 Patent NA UPL/Meiji Seika Pharma Insecticide Rice
Pyridachlometyl 2020 Patent NA Sumitomo Fungicide Field Crop and Vegetable
Tyclopyrazoflor 2020 Patent NA Dow Insecticide
Isoflucypram 2020 Patent NA Bayer Fungicide Cereals
Broflanilide 2020 Patent 850 BASF/Mitsui Chemicals Insecticide F&V, Soybean, Cotton, Others
Spiropidion 2021 Patent 400 Syngenta Insecticide
Oxazosulfyl 2021 Patent 50 Sumitomo Insecticide Rice
Fluindapyr 2021 Patent 375 Isagro; now FMC Fungicide Maize, Soybean, Cereals, Rice
Fluoxapiprolin 2022 Patent 160 Bayer Fungicide Grapes, Potatoes and Vegetables
ipflufenoquin 2023 Patent NA Nippon Soda Fungicide Pome Fruit, Almonds
NC-653 2024 Patent 25 Nissan Chemicals Herbicide Rice
NC-656 2027 Patent 75 Nissan Chemicals Herbicide Rice
Total 4725
Source: Industry, JM Financial, Note: NA is Not Available
 Fluorine-based agrochemicals’ (generics or on the verge of becoming generics)

opportunity size USD 4bn+: Leading fluorine-based agrochemicals introduced between
2000 and 2015 had a total market size of USD 4.3bn, including 12 leading insecticides, 7
leading herbicides, and 7 leading fungicides. This includes Flubendiamide (an insecticide
with a market size of c. USD 430mn, used for treatment against Lepidopterous insect
pests) and Trifloxystrobin (a fungicide with a market size of c. USD 640mn, used for
treating fungal spore germination in sobean and cereals).
Exhibit 4. Market size of leading fluorine-based agrochemical technicals (generic or on the verge of becoming generics) north of USD 8bn
Trifloxystrobin 2000 Off Patent 2011 640 Bayer Fungicide Soybean, Cereals
Florasulam 2000 Off Patent 2013 190 Dow Herbicide Cereals
Picoxystrobin 2001 Off Patent 2008 320 Dupont Fungicide Soybean, Cereals
Fluacrypyrim 2002 Off Patent NA 10 Nippon Soda Insecticides Pome Fruit, F&V
Fluoxastrobin 2004 Off Patent 2018 180 Bayer Fungicide Cereals, Coffee
Penoxsulam 2005 Off Patent 2017 210 Dow Herbicide Rice, Turf
Amidoflumet 2005 Off Patent 2019 10 Sumitomo Insecticides Non-Crop
Diflovidazin 2005 Off Patent 2014 10 Agro-Chemie Insecticides Non-Crop, F&V
Bistrifluron 2005 Off Patent 2016 3 Farm Hannong Insecticides F&V
Noviflumuron 2005 Off Patent NA 3 Dow Insecticides Non-Crop
Hexaflumuron 2005 Off Patent 2016 5 Dow Insecticides Cotton, F&V
Fluopicolide 2006 Off Patent NA 450 Bayer Fungicide Potato
Pyroxsulam 2007 SPC; Patented NA 425 Dow Herbicide Cereals
Tembotrione 2007 Off Patent 2019 210 Bayer Herbicide Maize
Pyrasulfotole 2007 Off Patent 2021 65 Bayer Herbicide Cereals
Flubendiamide 2007 Off Patent 2019 443 Nihon Nohyaku, Bayer Insecticides Soybean, F&V
Saflufenacil 2009 Off Patent 2021 800 BASF Herbicide Maize, Cereals
Bixafen 2010 Patent 2023 1200 Bayer Fungicide Cereals
Fluxapyroxad 2012 Patent 2024 410 BASF Fungicide Cereals, Soybean, Maize
Sedaxane 2012 Patent NA 375 Syngenta Fungicide Canola, Cereal, Grain, Soybean
Penflufen 2012 Patent 2024 150 Bayer Fungicide Potato, Cereals, Rape
Fluazaindolizine 2013 Patent 2033 NA DuPont Insecticide F&V, Turf
Penthiopyrad 2013 Patent NA 650 Mitsui Chemicals Fungicide Agricultural Crops, Turfgrass
Fluopyram 2013 Patent 2023 300 Bayer Fungicide Potato, Sugarbeet
Benzovindiflupyr 2013 Patent 2026 300 Syngenta Fungicide Soybean , Maize
Fluensulfone 2014 Patent NA 10 Adama Insecticides F&V, Potato
Flupyradifurone 2014 Patent 2027 10 Bayer Insecticides F&V, Cotton, Pome Fruit
Halauxifen-Methyl 2014 Patent NA 600 Dow Herbicide Wheat, Barley, Oats, Rye, Soybeans
Momfluorothrin 2014 Patent NA NA Sumitomo Insecticide Control of crawling and flying insects
Pyflubumide 2015 Patent 2034 10 Nihon Nohyaku Insecticides F&V, Horticultural Crops
Total 7989
Source: Industry, JM Financial, Note: NA is Not Available
 Break-up of molecules that went off patent from 2015-19: Of the 27 pesticide products
that came off patent between 2015 and 2019, roughly 52% (14) of all agrochemicals
were fluorine based. This was most evident in insecticides, where 80% of all patent expiry
products were fluorine based, and in fungicides, where 50% of all pesticides expiring
between 2015 and 2019 were fluorinated products.

Exhibit 5. Fluorine-based pesticides contribute to roughly 52% of total pesticides whose

patents expired between 2015 and 2019
Category Total pesticides Fluorine based pesticide Proportion of Fluorine of Total (%)
Insecticide 5 4 80%
Fungicide 12 6 50%
Herbicide 10 4 40%
Total 27 14 52%
Source: Industry, JM Financial
 Relatively lower launches of fluorine-based molecules in the past: 1960-1980s marked

the advent of fluorine-based agrochemicals in the overall agrochemicals segment with 9
leading herbicide products, 7 leading insecticide products and 2 leading fungicide
products (Exhibit 6) totalling USD 2.3bn in market size. In the 1990s, the market showed
strong growth with the introduction of several blockbuster products such as Chlodinafop,
Fipronil and Epoxiconazole (Exhibit 7) with 8 leading herbicide products, 4 leading
insecticide products and 2 leading fungicide products with a total market size of USD
3.3bn.
Exhibit 6. Fluorine-based agrochemicals began with the introduction of Trifluralin, and by 1989, the total market size of leading agrochemicals
was USD 2.4bn
Trifluralin 1964 Off Patent NA 120 Gowam, Nufarm, Adama, Bayer CropScience Herbicide Cereals, Cotton
Ethalfluralin 1970 Off Patent NA 50 Gowam Herbicide Peanuts, Soybean
Oxyfluorfen 1976 Off Patent NA 150 Dow, Adama Herbicide F&V, Plantation Crops
Diflubenzuron 1975 Off Patent 1994-1995 60 UPL Insecticides Soybean, Maize
Acifluorfen 1979 Off Patent 1993 30 UPL Herbicide Soybean, Peanuts
Triflumuron 1979 Off Patent 1997 55 Bayer Insecticides Soybean, Plantations
Fomesafen 1982 Off Patent 1993-1995 180 Syngenta Herbicide Soybean, F&V
Lambda-cyhalothrin 1984 Off Patent NA 595 Syngenta, Adama, Rallis Insecticides Soybean ,Cereals
Lactofen 1984 Off Patent NA 40 Sumitomo, Bayer Herbicide Soybean
Fluroxypyr 1985 Off Patent NA 255 Dow, Adama Herbicide Cereals, Maize
Haloxyfop 1986 Off Patent 2005 155 Dow AgroSciences Herbicide Soyabean,Cotton, Soybean
Bifenthrin 1986 Off Patent NA 280 FMC, Amvac Insecticides Soybean, F&V
Teflubenzuron 1986 Off Patent NA 135 BASF Insecticides Soybean, Maize
Prodiamine 1987 Off Patent NA 30 Syngenta Herbicide Turf, Ornamentals
Triflumizole 1987 Off Patent NA 25 Nippon Soda Fungicide F&V, Pome fruit, Rice
Fluazinam 1988 Off Patent NA 125 Syngenta, Ishihara Fungicide Potato, Cereals
Chlorfluazuron 1989 Off Patent NA 35 Ishihara, Syngenta Insecticides Soybean, F&V, Plantations crops, Cotton
Flufenoxuron 1989 Off Patent NA 30 BASF Insecticides F&V, Vine, Pome Fruit, Soybean
Total 2350
Exhibit 7. The 1990s saw introduction of blockbuster fungicides like Epoxiconazole and Fipronil
Chlodinafop 1991 Off Patent NA 165 Syngenta Herbicide Cereals
Epoxiconazole 1993 Off Patent NA 490 BASF Fungicide Cereals, Soybean
Flumioxazin 1993 Off Patent NA 350 Sumitomo Herbicide Soybean
Lufenuron 1993 Off Patent NA 150 Syngenta Insecticides Soybean, Maize
Fipronil 1993 Off Patent 2008 495 BASF Insecticides Soybean, Rice
Fludioxonil 1994 Off Patent NA 280 Syngenta Fungicide Maize, Vine
Cyhalofop-Butyl 1996 Off Patent NA 165 Dow Herbicide Rice
Sulfentrazone 1996 Off Patent 2006 210 FMC Herbicide Sugarcane, Soybean
Isoxaflutole 1996 Off Patent NA 220 Bayer Herbicide Maize, Sugarcane
Carfentrazone 1997 Off Patent 2010-2011 130 FMC Herbicide Cereals
Diclosulam 1998 Off Patent NA 135 Dow Herbicide Soybean
Flufenacet* 1998 Off Patent 2009 250 Bayer Herbicide Cereals, Maize
Novaluron 1999 Off Patent NA 80 Adama Insecticides Cotton, Soybean
Indoxacarb 1999 Off Patent 2016 210 DuPont Insecticides Soybean, F&V
Total 3330

Indian fluoro-specialty players in a sweet spot

 Some key intermediates made by Chinese players: As demand for fluorine-based
agrochemicals grows, so does the demand for intermediates. Some of the aliphatic
fluorinated intermediates (Exhibit 8) made by Chinese players are a)
Trichlorotrifluoroethane (used in Cyhalothrin, Tefluthrin and Bifenthrin), and b)
Dichlorofluoromethane (used in Flucythrinate and Primisulfuron-Methyl). Some of the
heterocyclic fluorinated intermediates made by Chinese players are a) 3-
Trifluoromethylpyridine (used in Fluazifop-Butyl), and b) 2-Fluoro-6-trifluromethylpyridine
(used in Picoxystrobin).
 Aromatic fluorinated intermediates one of the most imported fluorinated intermediates:

4-Fluoronitrobenzene is one of the most versatile intermediates and is used in Flufenacet
(which in 2016 had a market size of c. USD250mn) and is manufactured by Jitai New
Material, Yongtai Technology, Miaoqiao Chemical and Xieshi New Material. 2,6-
Difluorobenzamide is used in Lufenuron (market size of ~USD 200-250mn), Novaluron
(market size of ~USD 100mn), Flufenoxuron (market size of USD 30mn) and
Hexaflumuron (market size of USD 5mn) and is manufactured by Tianchen Chem,
Shihong Chemical and Nanjiao Chemistry among others. Another versatile intermediate is
Aminobenzotrifluoride, which is used in several pesticides like Fipronil (market size of c.
USD 495mn), Fluazinam (market size of c. USD 125mn) and also other new pesticides like
Norflurazon and Fluorochloride. Aminobenzotrifluoride is manufactured by Dyer, Fuxin
Tehua Chemicals and Tianhao Chemicals among others.
 India’s fluorospecialty chemicals’ production ~35% of China: As per various industry

reports, China produces roughly 50,000MT of aromatic fluorinated intermediates,
10,000MT of aliphatic fluorinated intermediates and 2,000MT of heterocyclic fluorinated
intermediates. Our calculations indicate that India’s production of fluorinated
intermediates could be around ~17,000-20,000MT, which is ~30-35% of China’s
fluorospecialty chemicals’ production. We believe that since India’s players have started
supporting MNCs with their R&D and have supplied without major disruptions, India’s
fluorinated players are in a sweet spot compared to their Chinese counterparts.
Exhibit 8. Use of aliphatic & heterocyclic fluorinated intermediates

Type of Compound Intermediate Used in
Cyhalothrin
Trichlorotrifluoroethane Tefluthrin
Bifenthrin
Flucythrinate
Aliphatic fluorinated Dichlorofluoromethane
Primisulfuron-Methyl
Ethyl 4,4,4-trifluoroacetoacetate Thiazopyr
Fluxapyroxad
Ethyl difluoroacetate
Bixafen
3-Trifluoromethylpyridine Fluazifop-butyl
2-Fluoro-6-trifluoromethylpyridine Picoxystrobin
Fluazuron
Heterocyclic fluorinated 2,3-dichloro-5-trifluoromethylpyridine
Haloxyfop-methyl
3-Chloro-5-(trifluoromethyl) pyridin-2-amine Fluazinam
3-Chloro-N-methyl-5-(trifluoromethyl)pyridin-2-amine Fluopimomide

Exhibit 9. Aromatic intermediates are the most important of the three fluorinated
intermediates and are used in multiple high-value pesticides
Intermediate Type of Active Ingredient Used in
Benthiavalicarb-isopropyl
Fungicide
Quinoxyphen
4-Fluoronitrobenzene Insecticides Pyriproxyfen
Flufenacet
Herbicides
Pyraflufen-ethyl
Metamifop
2-Fluoroaniline Herbicides Carfentrazone-ethyl
Fluthiacet-methyl
5-Bromo-1,2,3-trifluorobenzene Fungicide Fluxapyroxad
Flamprop-methyl
3-Chloro-4-fluoroaniline Herbicides
Flamprop-M-Isopropyl
Lufenuron
Hexaflumuron
2,6-Difluorobenzamide Insecticides
Novaluron
Flufenoxuron
Insecticides Fipronil
Aminobenzotrifluoride
Fungicide Fluazinam
Exhibit 10. Several agro and pharma intermediates manufactured by CAC chemicals
Source: CAC presentation, JM Financial
Exhibit 11. CAC group’s capacity of fluorination products
Source: CAC presentation, JM Financial

 Fluorinated intermediates for Indian players to target: We feel that as the global market
for these pesticides grows, there will be growing demand for intermediates. We believe
that India’s mainstream fluorine players could look to target (some of them are already
making some of these) some of the intermediates highlighted in Exhibit 12. The market
size of these pesticides not only bodes well for Indian manufacturers of these active
ingredients but also for the manufacturers of the intermediates. Trifloxystrobin, for
example, has a global market size of USD 640mn and requires 0.6kg of intermediate for
each kg produced.
Exhibit 12. We believe that India’s agrochemical players could target the following intermediates
Active Ingredient Intermediate Intermediate required per Kg of AI AI Market Size (USD mn)
Fipronil Sodium Trifluoro methane sulfinate 0.38 495
Carfentrazone 2-(5-amino-4-chloro-2- fluorophenyl)-4- (difluoromethyl)-2,4- dihydro-5-methyl-3H-1,2,4-triazole-3-one 0.79 130
Picoxystrobin 2-Hydroxy-6- (trifluromethyl) Pyridine 0.10 320
Penoxsulam 2-(2,2-difluoroethoxy)-6- trifluro methyl benzene sulfonyl chloride 0.75 210
Fluxametamide DCAP 0.65 NA
Indoxacarb Carbonic acid, N-(chloro carbonyl)-N-[4-(trifluoromethoxy)phenyl]-methyl ester 0.80 210
Novaluron 2,6-Difluorobenzoyl Isocyanate; 3-chloro-4-[1,1,2-trifluoro-2- (trifluoromethoxy) ethoxy]benzenamine 0.34 80
Transfluthrin TFBA 0.23 218
Trifluoromethanesulfinyl chloride Sodium Trifluoromethane sulfinate 1.20 NA
Amisulbrom 6-FMI 0.36 NA
Quinoxyfen p-Fluoro phenol 0.46 NA
Diflubenzuron 2,6 Diflurobenzonitril 0.90 60
Sulfentrazone Freon 0.38 210
Indoxacarb TFMA 0.63 210
Trifloxystrobin HF 0.47 640
Tembotrione Trifluoro Ethanol 0.43 210
Fipronil KF 1.08 495
Trifloxystrobin (1E)-N-hydroxy-1-[2- (Trifluromethyl)phenyl]ethanimine 0.60 640
Picoxystrobin 2-Chloro -6-trifluoro Methyl Pyridine 0.48 320
Bixafen 5-Fluoro-2-nitrobenzoic acid 1.10 1200
Fluxapyroxad 3-(Difluoromethyl)-1- methyl-1-H-pyrazol-4- carbonyl chloride 0.54 410
Penflufen 5-fluoro 1,3-dimethyl pyrazole-4-carboxylic acid 1.00 150
Benzovindiflupyr 3-Difluromethyl-1H-pyrazole 4-carbonyl chlorid 0.54 300
Flupyradifurone 2,2-Difluoroethylamine 0.42 10
4-Fluoro-meta Phenoxy Benzaldehyde (FPBD) 4-Fluro Benzaldehyde 0.96 NA
Flumethrin 4-Fluro 3-Phenoxy Benzaldehyde 0.43 NA
Penthiopyrad THF 3.10 NA

HF: The key to all fluorinated products

 HF capacity on ground – right to win for Indian players: We believe that HF capacity on
the ground has helped Indian manufacturers win several contracts especially from
European MNCs. Europe+1 theme has actually been prominent over the last few years;
Navin and SRF’s exports to Europe grew by 26% and 46% CAGR respectively over CY18-
22 (Exhibit 13-14) as European players seem to have shifted some of their production
volumes to Indian players. We expect this trend to continue as Indian manufacturers are
putting more HF capacities and becoming even more competitive compared to European
players. Not just Europe, within months of acquiring Tanfac, Anupam started receiving
orders from various MNCs from US, Japan, etc.
Exhibit 13. NFIL’s exports to Europe increased from USD 25.3mn in Exhibit 14. SRF’s exports to Europe increased from USD 65.8mn in
CY18 to USD 64.4mn in CY22 CY18 to USD 301.5mn in CY22
Source: Company Source: Company
 Aggressive capacity expansion in India: Navin Fluorine is expanding its HF capacity to

60KTPA (from existing 20KTPA) at a cost of INR 4.5bn (or USD 55mn) while TANFAC is
doubling its HF capacity to 29,700TPA at a cost of INR 1.0bn (or USD 12mn). Moreover,
Gujarat Fluorochemicals had also announced that it is expanding its HF capacity to
72,600MT (220TPD*330days) from existing 39,600MT (120TPD*330days). We believe
SRF will also be looking to expand its HF capacity to meet incremental internal demand.
Exhibit 15. Indian players to aggressively expand HF capacity

Manufacturer Existing Capacity (MT) Capacity post expansion (MT)
Navin Fluorine 20,000 60,000
Tanfac 14,850 29,700
Gujarat Fluorochemicals 39,600 72,600
SRF Ltd. 60,000-70,000 60,000-70,000
Total 134,450-144,450 222,300-232,300

 Key barrier for HF capacity addition is offtake: According to several industrial estimates,
global HF demand was around 1.1-1.3MMT in CY19. Of this, per our calculations, around
800-900KTPA is used to manufacture various HFC refrigerant gases (given global HFC
production is around 900KTPA and widely used HFCs such as HFC-32, HFC-134a, HFC-
125 require 0.7-1kg of HF). Besides this, around 200-250KTPA of HF is used for
producing ~300-350KTPA of fluoropolymers globally. Further, around 10-20KTPA of
global HF is required to produce fluoroelastomers. Hence, only ~80-100KTPA of HF is
used for fluorospecialty chemicals (i.e., including agro, pharma and other specialty
chemicals). As a result, for putting up HF capacity, internal offtake acts as a key entry
barrier.
Exhibit 16. Global HF demand stood around 1.1-1.3MT in CY19
Exhibit 17. Global hydrofluoric acid usage break-up
Source: Industry, JM Financial, Note: the above break-up differs from our calculations

 HF capacity is concentrated in regions across the world: Due to the requirement of

finding customers for HF, players with either refrigerant capacity, fluoropolymers, or
fluoroelastomers have HF capacities across the world, in most cases. In the US, till 8-10
years ago, there were only two HF manufacturers, namely Dupont with a capacity of
around 80-90KTPA and Honeywell with a capacity of around 130-140KTPA. In the whole
of Europe, there were around 9-10 producers of HF (1 in France, 1 in the UK, 5 in
Germany, 1 in Spain, and 2 in Italy) while in Canada, there was only 1 producer till several
years back. Moreover, due to high transportation costs, China’s major HF exports are to
adjacent countries like Japan and Korea. Besides, Mexico and Canada primarily export to
the US.
Exhibit 18. HF capacity is concentrated in regions across the world

Country List of Manufacturers
Czech Republic Spotchemie (Usti nad Labem)
France Arkema (Pierre-Benite)
Lanxess (Leverkusen)
Fluorchemie (Dohna)
Germany Fluorchemie (Stullin)
Honeywell (Seelze)
Solvay Fluor (Bad Wimpfen)
Navin Fluorine (Gujarat)
TANFAC (Acquired by Anupam Rasayan) (Tamil Nadu)
India
Gujurat Fluorochemicals (Gujarat)
SRF Ltd. (Gujarat)
Bonelli (Trevigilo)
Italy
Solvay Ausimont (Porto Marghera)
Asahi Glass (Ichihara)
Central Glass (Ube)
Japan Daikin Industries (Settsu)
Morita Chemicals (Sakai)
Steila Chemifa (Sakai)
Industrias Quimicas( San Luis Potlsl)
Solvay Fluor Mexico (Juarez)
Mexico
Quimbasicos (Monterray)
Quimica Fluor (Matamoros)
South Africa AEC (Pelindaba)
Spain Derivados Dek Fluor (Onton)
UK Ineos Fluor (Runcorn)
USA DuPont (Laporte)
Honeywell (Geismar)
 Putting up HF capacity in India is significantly cheaper: Arkema, last year, had announced
a capex of USD 150mn for putting up a 40KTPA HF plant in North Carolina. The Saudi
Arabian government had come out with an investment proposal to put up a 40-45 KTPA
HF plant in Saudi Arabia with an expected investment of USD 176mn. This is significantly
high (almost 3x) compared to the recent announcements by Indian players such as Navin
Fluorine (40KTPA plant at a capex of USD 55mn) and Tanfac (~15KTPA plant at a capex
of USD 12mn). This clearly indicates a huge cost advantage for India’s HF producers.

Exhibit 19. KSA’s proposal for setting up a 40-45 KTPA HF plant
Exhibit 20. Arkema announced 40,000MTPA HF capacity at a capex of USD 150mn

Limited threat from domestic new entrants

 Limited domestic competitive threat to India’s fluorination players: In our view, India’s
fluorination players (especially Navin Fluorine and SRF) are unlikely to face tough domestic
competition in fluorospecialty chemicals, primarily for agro and pharma segments. In
order to be competitive against existing players, new players will have to find offtake
avenues for the indigenous HF. That, in our view, is going to be next to impossible, given
they will have to either invest in refrigerant gas capacity or in fluoropolymers. Both of
these pose severe challenges – HFC capacity additions won’t be possible post end-CY23
while production of fluoropolymers has its own set of challenges (GFL took several years
before getting the right grade of PTFE while SRF has been facing setbacks in
commercialisation since the last 8-9 months or so).
 Limited threat from fluorination announcement by Deepak Nitrite: Deepak Nitrite had
announced that it was going in for fluorination to manufacture one of the fluorinated
intermediates (BTF from BTC and HF). The key rationale for this investment is that Deepak
has been supplying TFMAP (a key intermediate of Trifloxystrobin, forward integration of
BTF) since the last 7-8 years, per our understanding. Navin has also started manufacturing
this product as Bayer seems to have completely shut its own capacity. Hence, Deepak
might import HF and make BTF in-house in order to protect its supply of TFMAP. In our
view, since Deepak is already supplying one particular product, importing HF would not
hurt that much for one product. However, finding a competitive edge for other HF-based
products might be difficult for Deepak. Hence, we don’t see this as a material threat to
existing fluorination players.
 Mainstream fluorination players have limited KF-based products: There are several
fluorination products that are made using KF instead of HF. When there is a nitrogen
protection in the benzene ring, KF can be used to introduce F on it to manufacture
several aromatic fluorinated intermediates such as fluoro anilines, fluoro phenols, fluoro
toluenes, etc. Since KF transportation is easier and cheaper, production of these
intermediates could be relatively easier compared to HF-based intermediates. However, KF
is a forward integration of HF. Hence, that way, mainstream fluorination players (Navin
Fluorine, SRF, GFL, Anupam through Tanfac) could still have advantage in KF chemistry as
well. But Navin and SRF have limited KF-based products while Anupam has a reasonable
number of KF-based products that it had prior to the Tanfac acquisition.
 Imminent HFC production cuts in EU could have further cascading benefits for India’s
players: EU’s HFC production has declined considerably from 33,380MTPA in CY16 to
12,526MTPA in CY21. This means that EU HF producers would clearly be struggling to
find customers for HF (given HFCs consume almost 60-70% of global HF). This would
have led to lower utilisation rates for existing HF plants in Europe, resulting in negative
operating leverage. In our view, this is probably one of the reasons numerous contracts
have been flowing to Indian players (having HF capacity) from European agro majors. We
expect this Europe+1 trend to pick up pace post the imminent HFC phase-down by EU.
We could see some production shifts from the US as well given that in terms of HF
capacity India has almost 40-50% of China’s capacity. We believe China will focus on
using existing HF capacities to grow domestic demand of HFCs amid no possibility of an
increase in supply.
Exhibit 21. EU HFC production has been declining continuously since CY16
Gas Group (MT) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
HFCs 55,235 38,519 33,106 43,792 41,040 40,854 36,708 31,050 32,339 33,380 27,713 19,270 18,499 15,009 12,526
Others 2,863 2,840 2,017 2,648 2,990 3,366 3,193 2,999 3,038 2,779 2,632 2,517 2,661 2,210 2,153
Total Fluorinated Gases 58,098 41,359 35,123 46,440 44,030 44,220 39,901 34,049 35,377 36,159 30,345 21,787 21,160 17,219 14,679

Several Fluorinated APIs have an opportunity size > USD 25bn
Exhibit 22. Several recently launched fluorine based APIs have a peak estimated sales of
>USD 5bn
API Innovator Expected Peak Sales (USD mn)
2022
Lenacapavir Gilead Sciences 1,080
Oteseconazole Mycovia Pharmaceuticals NA
2021
Atogepant Abb Vie 766
Piflufolastat F 18 Progenics Pharmaceuticals NA
Sotorasib Amgen 326
Umbralisib TG Therapeutics 1,000
Vericiguat Bayer AG and Merck & Co. 500
2020
Berotralstat Biocryst Pharmaceuticals 1,000
Cedazuridine Otsuka Pharma NA
Pralsetinib Blueprint Medicine 700
Selumetinib Astra Zeneca 250
Tauvid Eli Lilly NA
Exhibit 23. Several Fluorinated APIs launched over CY16-19 have a peak estimated sales of
~USD 20bn
API Innovator Expected Peak Sales (USD mn)
2019
Alpelisib Novartis 1,900
Lemborexant Purdue Pharma 1,300
Pexidartinib Daiichi Sankyo Inc. 900
Ubrogepant Allergan 486
2018
Apalutamide University of California / Janssen 1,600
Baloxavir Marboxil Xofluza 204
Binimetinib Array Biopharma 200
Doravirine Merck & Co. 250
Fostamatinib Rigel Pharmaceuticals 350
Ivosidenib Servier 170
Talazoparib Pfizer 850
Tezacaftor Vertex Pharms Inc. 2,600
2017
Abemaciclib Eli Lilly 4,600
Delafloxacin Melinta 200
Enasidenib Celgene -
Glecaprevir Abb Vie Inc. 500
Letermovir Merck & Co. 370
Pibrentasvir Abb Vie Inc. 1,900
Voxilaprevir Gilead Science NA
2016
Rucaparib Clovis Oncology 316
Sofosbuvir Gilead Science NA

11 July 2023 India | Chemicals | Company Update
SRF | BUY
Ref gas weakness to offer a good entry point
We agree that there is an imminent downside risk to SRF’s earnings if refrigerant gas demand Krishan Parwani
and prices do not pick up meaningfully over the next couple of months. However, we krishan.parwani@jmfl.com | Tel: (91 96) 62095500
highlight that the company’s incremental capex is being inclined towards fluorospecialty,
We acknowledge the support of Prashanth Kamath in
fluoropolymers, and HFO-1234yf post patent expiry. This should reduce HFC revenue/EBIT the preparation of this report
contribution significantly, going forward. Within fluorospecialty chemicals, SRF a) is ramping
up on strong patented fluorinated and even non-fluorinated agrochemical intermediates
(three intermediates alone could command a market size north of USD 300-400mn), b)
could look to commercialise agrochemical technicals with a market size >USD 1.5bn, and c)
could target pharma intermediates for fluorinated APIs launched 10-15 years ago. Moreover,
HFO-1234yf could provide the company a USD 2bn market opportunity to tap into where it
could make 55-60% gross margin, as per our calculation. We maintain BUY with a Jun’24 TP
of INR 3,380 (SoTP based). Recommendation and Price Target
Current Reco. BUY
 Ramp-up of strong agrochemical intermediates pipeline; demonstrating the capability to Previous Reco. BUY
develop patented non-fluorine intermediates: As per our understanding, SRF is ramping Current Price Target (12M) 3,380
up supply of many agrochemical intermediates for several patented active ingredients Upside/(Downside) 54.5%
Previous Price Target 3,380
such as Cyclobutrifluram, Tetraniliprole, Pinoxaden, etc. The combined market size of
Change 0.0%
these three active ingredients is around USD 800-1,000mn. Our analysis also indicates
that the market size for intermediates is ~USD 270-300mn. For example, the Pinoxaden Key Data – SRF IN
active ingredient’s market size is ~USD 420mn and its global tonnage is around 3,400 Current Market Price INR2,175
MT, as per our calculations. To make 1kg of Pinoxaden, the key intermediate (DAODAP) Market cap (bn) INR648.5/US$7.9
required is ~0.8kg. Hence, intermediate tonnage comes out to 2,660 MT and global Free Float 46%
market size for intermediate comes out to USD 140mn. We estimate SRF to have ~15- Shares in issue (mn) 296.2
Diluted share (mn) 296.2
20% market share in this intermediate. Taking this into consideration, we believe SRF 3-mon avg daily val (mn) INR1,241.3/US$15.0
could ramp up on these intermediates. The key thing to note here is that Pinoxaden is a 52-week range 2,865/2,082
non-fluorine patented agrochemical developed by Syngenta. This is a clear indication of Sensex/Nifty 65,344/19,356
SRF’s capabilities in the non-fluorine field as well. Besides this, as per our understanding, INR/US$ 82.6
it could also launch intermediates for technicals such as Fluoxastrobin, Bicyclopyrone, etc.
Price Performance
 Agrochemical technical pipeline more than USD 1.5bn: As per our understanding, SRF has % 1M 6M 12M
a pipeline of agrochemical technicals such as Flonicamid (for which it already makes an Absolute -10.0 -3.6 0.6
Relative* -13.7 -11.4 -16.3
intermediate, per our understanding; technical market size ~USD 100-150mn), Lufenuron
* To the BSE Sensex
(market size USD 150-200mn), Fluxapyroxad (technical market size of USD 490mn; for
which it makes an intermediate), Bicyclopyrone (market size of ~ USD 250-300mn), and
Sulfentrazone (market size of USD 250-300mn). In our view, launch of these active
ingredients could give SRF has a long runway for growth.
 SRF could initially target intermediates for fluorinated APIs launched 10-15 years ago: To
achieve its aim of taking the pharma revenue contribution to ~25% over the next 2-3
years from ~12-15% currently, we believe SRF could initially target intermediates for APIs
such as Sitagliptin, Pantoprazole, etc. As per our understanding, the key intermediates
used for manufacturing Sitagliptin are ((2,4,5-trifluorophenyl) acetic acid; 0.462kg
required to make 1 kg of Sitagliptin), 3-(Trifluoromethyl)-5,6,7,8- tetrahydro [1,2,4]
triazolo[4,3-a]pyrazine hydrochloride; 0.556 kg required to make 1 kg of Sitagliptin).
Financial Summary (INR mn)
Y/E March FY22A FY23A FY24E FY25E FY26E
Net Sales 1,23,128 1,45,918 1,68,688 1,97,453 2,33,317
Sales Growth (%) 48.4 18.5 15.6 17.1 18.2 JM Financial Research is also available on:
EBITDA 31,759 35,292 42,382 49,712 59,126 Bloomberg - JMFR <GO>,
EBITDA Margin (%) 25.5 23.7 25.1 25.2 25.3
Adjusted Net Profit 18,889 21,623 24,265 27,813 33,501
Thomson Publisher & Reuters,
Diluted EPS (INR) 63.8 73.0 81.9 93.9 113.1 S&P Capital IQ, FactSet and Visible Alpha
Diluted EPS Growth (%) 57.6 14.5 12.2 14.6 20.5
ROIC (%) 19.0 18.2 18.0 18.2 19.1 Please see Appendix I at the end of this
ROE (%) 24.5 22.9 21.3 20.3 20.4
report for Important Disclosures and
P/E (x) 34.3 30.0 26.7 23.3 19.3
P/B (x) 7.6 6.3 5.2 4.3 3.6 Disclaimers and Research Analyst
EV/EBITDA (x) 21.3 19.3 16.0 13.7 11.4 Certification.
Dividend Yield (%) 1.7 1.9 2.2 2.5 3.0
Source: Company data, JM Financial. Note: Valuations as of 11/Jul/2023

SRF 11 July 2023
Pantoprazole manufacturing involves key intermediates such as 5-(difluoromethoxy)-2-

mercapto-1H-benzimidazole and 5-difluoromethoxy-2-{[(3,4-dimethoxy-2-
pyridinyl)methyl]thio}-1H-benzimidazole. It could also launch non-fluorine intermediate
for Lamivudine, per our understanding. Besides this, for targeting intermediates for recent
fluorinated APIs such as Sofobuvir, Delafloxacin, Fostamatinib, etc., it will look to acquire
a suitable CDMO player.
 HFO-1234yf likely a USD 2bn addressable market with 55-60% gross margin for SRF: In
our view, SRF could easily make more than 50% gross margin in HFO-1234yf once it
starts manufacturing it, post patent expiry. Our calculation indicates that at USD 30/kg of
HFO-1234yf (likely post patent price) and purchases of R-22 and R-124 from the market,
gross margin could be 50%. However, SRF has full backward integration for R-22 and R-
124. Hence, it is quite possible that SRF could make 55-60% gross margin due to the
backward integration. On the demand front, HFO-1234yf is likely to be used in more than
150-160 million vehicles by CY25-26 (from current ~70-80million vehicles), per our
calculations. This translates to 90-100 KTPA of HFO-1234yf demand from current 45-60
KTPA. Moreover, if the HFO-1234yf price corrects to USD 30/kg, based on our
calculations, the addressable market for SRF is going to be ~USD 2bn.
 Correction owing to possible decline in ref prices should be taken as BUYing opportunity:
We believe that, with the current slowdown, the possibility of cooling off of refrigerant
prices should not be neglected. In such a scenario, SRF could end the year with 6-8%
chemicals EBIT growth (assuming 30% chemicals EBIT margin, 25% growth in specialty
chemicals revenue and 15-18% decline in ref gas revenue). This is the scenario we had
indicated in our Sep’22 report (click here). Beyond FY24, with continued capex in
specialty chemicals on account of the robust pipeline discussed above, pick-up in
fluoropolymers and likely launch of HFO-1234yf should reduce the earnings contribution
from HFCs considerably. Hence, in our view, investors should look to BUY the stock in a
correction.
Exhibit 24. We believe SRF’s active ingredients pipeline has a market size of >USD 1.5bn
Active Ingredients USD m n Innovator
Flonicamide 100-150 Ishihara
Lufenuron 150-200 Syngenta
Fluxapyroxad 490 BASF
Bicyclopyrone 250-300 Syngenta
Sulfentrazone 250-300 FMC
Total ~1,300-1450
Exhibit 25. 0.556kg of below intermediate is required to make 1kg of Sitagliptin

SRF 11 July 2023
Exhibit 26. 0.462kg of 2,4,5-trifluorophenyl acetic acid is required to make 1kg of Sitagliptin
Exhibit 27. Manufacturer without R-22 and R-124 backward integration could make 50% gross margin in HFO-1234yf post patent expiry
Exhibit 28. Pinoxaden developed by Syngenta has a market size of USD 421mn and patent
validity till CY26
Source:agribusinessglobal.com, JM Financial

SRF 11 July 2023
Assumptions and Estimates

Exhibit 29. Key assumptions
INR mn FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Segment revenues
Technical textiles 20,102 18,388 17,349 13,576 12,401 20,852 18,939 19,873 21,264 22,753
Chemicals 17,214 16,114 24,454 29,750 36,447 52,408 74,109 89,169 108,567 133,871
Packaging films (including alum. foil) 14,092 17,823 26,533 26,040 32,917 47,792 51,828 55,424 63,184 72,029
Others 730 4,573 2,716 2,783 2,320 3,403 3,926 4,320 4,536 4,763
Unallocated 43 49 57 54 87 119 99 99 99 99
Total 52,096 56,849 70,996 72,094 83,998 124,337 148,703 168,688 197,453 233,317
YoY growth (%)
Technical textiles 6% -9% -6% -22% -9% 68% -9% 5% 7% 7%
Chemicals 5% -6% 52% 22% 23% 44% 41% 20% 22% 23%
Packaging films 4% 26% 49% -2% 26% 45% 8% 7% 14% 14%
Others -44% 526% -41% 2% -17% 47% 15% 10% 5% 5%
Unallocated -40% 15% 16% -4% 60% 37% -17% 0% 0% 0%
Total 4% 9% 25% 2% 17% 48% 20% 13% 17% 18%
Revenue contribution (%)
Technical textiles 39% 32% 24% 19% 15% 17% 13% 12% 11% 10%
Chemicals 33% 28% 34% 41% 43% 42% 50% 53% 55% 57%
Packaging films 27% 31% 37% 36% 39% 38% 35% 33% 32% 31%
Others 1% 8% 4% 4% 3% 3% 3% 3% 2% 2%
Unallocated 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Segmental EBIT
Technical textiles 2,543 2,529 2,615 1,515 1,769 4,714 2,617 1,987 2,339 2,503
Chemicals 3,273 2,694 3,843 5,115 7,281 13,969 23,407 27,197 31,485 37,484
Packaging films 1,970 2,298 4,115 5,556 8,977 9,463 5,562 6,097 7,898 9,004
Others 1 444 218 318 256 204 348 302 318 333
Total 7,787 7,964 10,790 12,504 18,283 28,350 31,934 35,583 42,039 49,324
EBIT margins (%)
Technical textiles 13% 14% 15% 11% 14% 23% 14% 10% 11% 11%
Chemicals 19% 17% 16% 17% 20% 27% 32% 31% 29% 28%
Packaging films 14% 13% 16% 21% 27% 20% 11% 11% 13% 13%
Others 0% 10% 8% 11% 11% 6% 9% 7% 7% 7%
Total 15% 14% 15% 17% 22% 23% 21% 21% 21% 21%
Source: JM Financial, Company

SRF 11 July 2023
Exhibit 30. Sales expected to rise at 17% CAGR over FY23-26E Exhibit 31. EBITDA expected to see 19% CAGR over FY23-26E
Source: Company, JM Financial Source: Company, JM Financial
Exhibit 32. PAT expected to grow at 16% CAGR over FY23-26E Exhibit 33. RoCE likely to be stable despite rising capex intensity

SRF 11 July 2023
Valuation
Exhibit 34. Our Jun’25 TP for SRF stands at INR 3,380/share
Value (INR bn) Value (INR/share)
Jun'25 EBITDA EV/EBITDA
Segm ents
(INR bn) m ultiple (x)
Technical Textile Business 3 6 19 63
Chemicals Business 38.494 25 943 3,184
Packaging Films Business 11 6 64 217
Others 1 6 4 15
Total Business EBITDA 53 1,030 3,478
Less: Gross Debt 50 170
Add: Cash & Cash Equivalents 21 70
TP 1,001 3,380
Jun'25E consolidated EPS 99
Im plied P/E m ultiple 34
Source: JM Financial
Exhibit 35. SRF is currently trading at ~41x 1-year forward consensus P/E multiple
Source: Company, JM Financial

SRF 11 July 2023
Financial Tables (Consolidated)

Income Statement (INR mn) Balance Sheet (INR mn)
Y/E March FY22A FY23A FY24E FY25E FY26E Y/E March FY22A FY23A FY24E FY25E FY26E
Net Sales 1,23,128 1,45,918 1,68,688 1,97,453 2,33,317 Shareholders’ Fund 85,654 1,03,271 1,24,745 1,49,360 1,79,008
Sales Growth 48.4% 18.5% 15.6% 17.1% 18.2% Share Capital 2,974 2,974 2,974 2,974 2,974
Other Operating Income 1,209 2,784 0 0 0 Reserves & Surplus 82,679 1,00,296 1,21,770 1,46,385 1,76,034
Total Revenue 1,24,337 1,48,703 1,68,688 1,97,453 2,33,317 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 61,711 71,252 84,344 98,726 1,16,659 Minority Interest 0 0 0 0 0
Personnel Cost 7,800 8,138 9,684 11,137 12,807 Total Loans 35,394 43,541 46,541 49,541 52,541
Other Expenses 23,067 34,020 32,278 37,877 44,725 Def. Tax Liab. / Assets (-) 6,659 7,906 7,906 7,906 7,906
EBITDA 31,759 35,292 42,382 49,712 59,126 Total - Equity & Liab. 1,27,706 1,54,717 1,79,191 2,06,806 2,39,455
EBITDA Margin 25.5% 23.7% 25.1% 25.2% 25.3% Net Fixed Assets 98,416 1,21,681 1,39,354 1,59,775 1,78,605
EBITDA Growth 48.0% 11.1% 20.1% 17.3% 18.9% Gross Fixed Assets 1,04,017 1,25,744 1,50,744 1,80,744 2,10,744
Depn. & Amort. 5,172 5,753 7,327 8,784 10,374 Intangible Assets 1,194 1,147 1,147 1,147 1,147
EBIT 26,587 29,539 35,055 40,928 48,752 Less: Depn. & Amort. 23,512 29,265 36,592 46,171 57,341
Other Income 428 749 0 0 0 Capital WIP 16,716 24,055 24,055 24,055 24,055
Finance Cost 1,159 2,048 2,702 3,843 4,083 Investments 3,209 5,027 5,027 5,027 5,027
PBT before Excep. & Forex 25,856 28,240 32,353 37,085 44,669 Current Assets 56,026 60,651 70,934 82,526 1,01,829
Excep. & Forex Inc./Loss(-) 0 0 0 0 0 Inventories 21,385 22,743 26,292 30,775 36,365
PBT 25,856 28,240 32,353 37,085 44,669 Sundry Debtors 17,925 17,856 20,643 24,163 28,551
Taxes 6,966 6,617 8,088 9,271 11,167 Cash & Bank Balances 4,594 6,080 10,028 13,617 22,941
Extraordinary Inc./Loss(-) 0 0 0 0 0 Loans & Advances 2,346 2,459 2,459 2,459 2,459
Assoc. Profit/Min. Int.(-) 0 0 0 0 0 Other Current Assets 9,776 11,513 11,513 11,513 11,513
Reported Net Profit 18,889 21,623 24,265 27,813 33,501 Current Liab. & Prov. 29,944 32,642 36,124 40,522 46,006
Adjusted Net Profit 18,889 21,623 24,265 27,813 33,501 Current Liabilities 23,850 25,606 29,088 33,486 38,970
Net Margin 15.2% 14.5% 14.4% 14.1% 14.4% Provisions & Others 6,095 7,036 7,036 7,036 7,036
Diluted Share Cap. (mn) 296.2 296.2 296.2 296.2 296.2 Net Current Assets 26,081 28,009 34,810 42,004 55,822
Diluted EPS (INR) 63.8 73.0 81.9 93.9 113.1 Total – Assets 1,27,706 1,54,717 1,79,191 2,06,806 2,39,455
Diluted EPS Growth 57.6% 14.5% 12.2% 14.6% 20.5% Source: Company, JM Financial
Total Dividend + Tax 2,117 2,487 2,790 3,199 3,853
Dividend Per Share (INR) 36.3 42.7 47.9 54.9 66.1
Cash Flow Statement (INR mn)

Dupont Analysis
Profit before Tax 25,856 28,240 32,353 37,085 44,669
Net Margin 15.2% 14.5% 14.4% 14.1% 14.4%
Depn. & Amort. 5,172 5,753 7,327 9,579 11,169
Asset Turnover (x) 1.1 1.0 1.0 1.0 1.0
Net Interest Exp. / Inc. (-) 1,159 2,048 2,702 3,843 4,083
Leverage Factor (x) 1.5 1.5 1.5 1.4 1.4
Inc (-) / Dec in WCap. -6,645 -559 -2,853 -3,605 -4,494
Others -469 -1,388 0 0 0 RoE 24.5% 22.9% 21.3% 20.3% 20.4%
Taxes Paid -4,016 -5,077 -8,088 -9,271 -11,167

Operating Cash Flow 21,057 29,017 31,441 37,631 44,260 Key Ratios
Capex -18,321 -28,382 -25,000 -30,000 -30,000 Y/E March FY22A FY23A FY24E FY25E FY26E
Free Cash Flow 2,737 635 6,441 7,631 14,260 BV/Share (INR) 289.1 348.6 421.1 504.2 604.3
Inc (-) / Dec in Investments 1,028 -1,642 0 0 0 ROIC 19.0% 18.2% 18.0% 18.2% 19.1%
Others 1,416 410 0 0 0 ROE 24.5% 22.9% 21.3% 20.3% 20.4%
Investing Cash Flow -15,877 -29,614 -25,000 -30,000 -30,000 Net Debt/Equity (x) 0.3 0.3 0.3 0.2 0.1
Inc / Dec (-) in Capital 2 0 0 0 0 P/E (x) 34.3 30.0 26.7 23.3 19.3
Dividend + Tax thereon 0 0 0 0 0 P/B (x) 7.6 6.3 5.2 4.3 3.6
Inc / Dec (-) in Loans 622 1,736 3,000 3,000 3,000 EV/EBITDA (x) 21.3 19.3 16.0 13.7 11.4
Others -2,669 459 -5,493 -7,042 -7,936 EV/Sales (x) 5.4 4.6 4.0 3.4 2.9
Financing Cash Flow -2,058 2,196 -2,493 -4,042 -4,936 Debtor days 53 44 45 45 45
Inc / Dec (-) in Cash 3,122 1,599 3,948 3,589 9,324 Inventory days 63 56 57 57 57
Opening Cash Balance 1,383 4,481 6,080 10,028 13,617 Creditor days 83 72 75 75 75
Closing Cash Balance 4,505 6,080 10,028 13,617 22,941 Source: Company, JM Financial

11 Jul 2023 India | Chemicals | Company Update
Navin Fluorine | BUY

Pathway in place for taking advantage of HF capacity expansion
Navin fluorine’s HF capacity expansion would help it venture out to fluoropolymers, HFO
blends, performance materials which require relatively higher quantities of HF compared to Krishan Parwani
krishan.parwani@jmfl.com | Tel: (91 96) 62095500
fluorospecialty chemicals. On the specialty chemicals front, company seems to be well placed
to double its specialty chemicals revenues by FY26E given it has a robust pipeline of We acknowledge the support of Prashanth Kamath in
intermediates for several leading agrochemical technical. Further, we believe Navin would be the preparation of this report
able to achieve its target of ~50% revenues from supplying intermediates for commercialised
APIs given some of the APIs it supplies intermediates could get commercialised, soon (click
here). We highlight that recent correction in the name provides a good long term investment
opportunity. We maintain BUY with a Jun’24 TP of INR 5,495/share on account of long-term
growth visibility from its multi-year contracts in HFOs and robust outlook for its CDMO
business.
 HF capacity expansion could help cater to new projects: Navin Fluorine is expanding its HF Recommendation and Price Target
capacity by 3x to 60,000MT (from 20,000MT currently) to cater to new projects. In our Current Reco. BUY
Previous Reco. BUY
view, this expansion will help the company provide for the incremental ~4,000MT
Current Price Target (12M) 5,495
requirement from the R-32 project, ~6,000-8,000MT requirement from 120% expansion Upside/(Downside) 23.1%
of the HFO project, ~3,000-5,000MT requirement from several announced agrochemicals Previous Price Target 5,495
intermediates, and INR 6.0bn contract and CDMO projects. Hence, Navin would have Change 0.0%
~23,000MT of unused HF capacity to cater to future projects it undertakes, as per our

Key Data – NFIL IN
understanding. Large quantities of HF are only required for fluoropolymers and refrigerant Current Market Price INR4,463
gases. This indicates Navin could look to venture into either of these projects. Some part Market cap (bn) INR221.2/US$2.7
of this additional HF volume could also be used to manufacture chemicals for lithium Free Float 69%
batteries, solar panels, etc., as highlighted in the annual report. Shares in issue (mn) 49.4
 Well placed to double its specialty chemicals revenue by FY26E: As per our understating, 3-mon avg daily val (mn) INR741.3/US$9.0
currently, Navin Fluorine has several intermediates in the pipeline for actives such as 52-week range 4,950/3,667
Sensex/Nifty 65,344/19,356
Flazaindolizine, Fluopicolide, Amisulbrom, etc. Some of these intermediates could already INR/US$ 82.6
be part of the existing expansions that the company has announced under its MPP and
dedicated agrochemical projects. We believe ramp-up of these along with intermediates Price Performance
such as TFMAP (majorly used for Trifloxystrobin) should help Navin achieve its target of % 1M 6M 12M
Absolute 0.1 13.6 17.0
doubling specialty chemicals revenue over the next 3 years, as highlighted in the FY23
Relative* -4.1 4.5 -2.6
annual report. In our view, TFMAP supply is a clear demonstration of Europe+1 given * To the BSE Sensex
Bayer seems to have completely outsourced its captive production of around 1,000-
1,200MTPA.
 Upping the ante in CDMO business: Navin Fluorine currently has 30% of CDMO revenue
from the commercial pharma APIs. The company intends to take this proportion to 50%
over the next few years. We believe this might not be a difficult task for the company
given it has several intermediates in the pipeline for the APIs such as Finerenone (used to
treat adults with chronic kidney disease associated with type 2 diabetes), Trifluperidol,
Spiperone, etc.

Net Sales 14,534 20,774 27,373 33,887 40,193
EBITDA Margin (%) 24.4 26.5 27.1 27.6 28.3
Diluted EPS Growth (%) 6.5 42.6 47.2 27.9 28.1
ROE (%) 15.1 18.6 23.0 24.4 25.6
P/E (x) 84.1 58.9 40.0 31.3 24.4
Dividend Yield (%) 0.2 0.4 0.5 0.7 0.9

Navin Fluorine 11 July 2023
Exhibit 36. Manufacturing process of flazaindolizine
Source: NCBI, JM Financial

Exhibit 37. Key Assumptions
INR m n FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E
Segm ent-w ise revenue contribution (INR m n)
CRAMS 310 865 1,374 2,575 1,780 1,730 2,790 3,470 4,480 5,600 7,000 8,750
Specialty Chemicals 2,151 2,388 2,279 2,258 3,000 3,810 4,530 5,660 7,430 9,213 10,227 12,783
Inorganic Fluorides 1,051 940 1,203 1,482 1,980 2,070 1,930
Refrigerant Gases 1,874 2,170 2,158 2,419 2,790 2,610 2,080 5,400 8,860 11,060 11,860 12,660
HFO
New INR 6.0bn contract 1,500 4,800 6,000
Total 5,387 6,362 7,014 8,734 9,550 10,220 11,330 14,530 20,770 27,373 33,887 40,193
Segm ent-w ise revenue contribution (%)
CRAMS 6% 14% 20% 29% 19% 17% 25% 24% 22% 20% 21% 22%
Specialty Chemicals 40% 38% 32% 26% 31% 37% 40% 39% 36% 34% 30% 32%
Inorganic Fluorides 20% 15% 17% 17% 21% 20% 17%
Refrigerant Gases 35% 34% 31% 28% 29% 26% 18% 37% 43% 40% 35% 31%
HFO
New INR 6.0bn contract 5% 14% 15%
Segm ent-w ise export revenue (INR m n)
CRAMS 310 865 1,374 2,575 1,780 1,730 2,790 3,470 4,480 5,600 7,000 8,750
Specialty Chemicals 797 1,098 980 858 1,200 1,600 1,812 2,490 3,418 4,238 4,704 5,880
Inorganic Fluorides 95 103 201 193 198 248 232
Refrigerant Gases 787 824 712 847 1,228 1,148 957 2,700 4,873 6,083 6,523 6,963
HFO
New INR 6.0bn contract* 1,500 4,800 6,000
Total export revenue 1,989 2,891 3,267 4,472 4,406 4,727 5,790 8,660 12,771 17,421 23,027 27,593
Segm ental export revenue contribution (%)
CRAMS 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
HFO
Total export revenue 37% 45% 47% 51% 46% 46% 51% 60% 61% 64% 68% 69%
Segm ent-w ise dom estic revenue (INR m n)
CRAMS - - - - - - - - - - - -
Specialty Chemicals 1,354 1,289 1,299 1,400 1,800 2,210 2,718 3,170 4,012 4,975 5,522 6,903
Inorganic Fluorides 956 837 1,002 1,290 1,782 1,822 1,698
Refrigerant Gases 1,087 1,345 1,446 1,573 1,562 1,462 1,123 2,700 3,987 4,977 5,337 5,697
HFO - - - - - - - - - - - -
Total dom estic revenue 3,398 3,471 3,747 4,262 5,144 5,493 5,540 5,870 7,999 9,952 10,859 12,600
Segm ental dom estic revenue contribution (%)
CRAMS - - - - - - - - - - - -
HFO - - - - - - - - - - - -
Total dom estic revenue 63% 55% 53% 49% 54% 54% 49% 40% 39% 36% 32% 31%
Source: JM Financial, Company, *Note: We have assumed 100% export for new INR 6.0bn contract

Exhibit 38. Sales likely to see 25% CAGR over FY23E-25E Exhibit 39. EBITDA margin likely to continue its upward trajectory…
Exhibit 40. …which, in turn, will improve PAT margin Exhibit 41. RoCE/RoE likely to improve further


Valuation
Exhibit 42. NFIL is currently trading at ~41x 1-year forward consensus P/E multiple
Source: Bloomberg


Net Sales 14,534 20,774 27,373 33,887 40,193 Shareholders’ Fund 18,442 21,850 26,206 31,777 38,915
Sales Growth 23.2% 42.9% 31.8% 23.8% 18.6% Share Capital 99 99 99 99 99
Other Operating Income 0 0 0 0 0 Reserves & Surplus 18,343 21,750 26,107 31,678 38,815
Total Revenue 14,534 20,774 27,373 33,887 40,193 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 6,656 8,960 11,634 14,232 16,600 Minority Interest 0 0 0 0 0
Personnel Cost 1,815 2,494 3,286 4,068 4,826 Total Loans 1,000 7,531 10,531 10,531 10,531
Other Expenses 2,514 3,817 5,029 6,226 7,385 Def. Tax Liab. / Assets (-) 201 348 348 348 167
EBITDA 3,548 5,503 7,424 9,360 11,383 Total - Equity & Liab. 19,644 29,728 37,085 42,656 49,613
EBITDA Margin 24.4% 26.5% 27.1% 27.6% 28.3% Net Fixed Assets 11,577 17,851 22,901 26,228 27,794
EBITDA Growth 14.7% 55.1% 34.9% 26.1% 21.6% Gross Fixed Assets 6,080 17,604 20,390 27,390 32,390
Depn. & Amort. 479 626 950 1,672 873 Intangible Assets 5 16 16 16 7
Other Income 392 357 764 1,456 397 Capital WIP 7,421 2,786 6,000 4,000 365
Finance Cost 19 275 542 632 4 Investments 1,181 438 438 438 3,751
PBT before Excep. & Forex 3,442 4,959 6,696 8,512 10,905 Current Assets 11,097 17,004 19,827 22,784 22,562
Taxes 812 1,207 1,172 1,447 1,854 Cash & Bank Balances 757 145 2,014 2,295 6,111
Extraordinary Inc./Loss(-) 0 0 0 0 0 Loans & Advances 0 0 0 0 48
Net Margin 18.1% 18.1% 20.2% 20.8% 22.5% Provisions & Others 2,490 2,931 2,882 2,882 762
Diluted EPS (INR) 53.1 75.7 111.5 142.6 182.7 Total – Assets 19,644 29,728 37,085 42,656 49,613
Diluted EPS Growth 6.5% 42.6% 47.2% 27.9% 28.1% Source: Company, JM Financial
Total Dividend + Tax 545 793 1,168 1,494 1,914

Dupont Analysis
Net Margin 18.1% 18.1% 20.2% 20.8% 22.5%
Depn. & Amort. 871 626 950 1,672 -209
Asset Turnover (x) 0.8 0.8 0.8 0.8 0.9
Net Interest Exp. / Inc. (-) -392 -357 -764 -1,456 -397
Inc (-) / Dec in WCap. -2,104 -5,307 -437 -1,963 1,916
Others -289 541 0 0 0 RoE 15.1% 18.6% 23.0% 24.4% 25.6%
Taxes Paid -781 -1,098 -1,172 -1,447 -1,854

Operating Cash Flow 748 -636 5,273 5,318 10,361 Key Ratios
Capex -5,789 -7,577 -6,000 -5,000 -790 Y/E March FY22A FY23A FY24E FY25E FY26E
Free Cash Flow -5,041 -8,213 -727 318 9,570 BV/Share (INR) 372.2 441.0 528.9 641.3 785.4
Inc (-) / Dec in Investments -610 -12,663 0 0 -3,313 ROIC 14.9% 15.9% 16.9% 17.3% 22.0%
Others 4,675 13,684 0 0 0 ROE 15.1% 18.6% 23.0% 24.4% 25.6%
Investing Cash Flow -1,724 -6,556 -6,000 -5,000 -4,103 Net Debt/Equity (x) 0.0 0.3 0.3 0.2 0.1
Dividend + Tax thereon -542 -543 -404 -38 -1,516 P/B (x) 12.0 10.1 8.4 7.0 5.7
Inc / Dec (-) in Loans 929 7,110 3,000 0 -925 EV/EBITDA (x) 61.4 41.0 30.6 24.2 19.6
Others 27 12 0 0 0 EV/Sales (x) 15.0 10.9 8.3 6.7 5.5
Financing Cash Flow 415 6,579 2,596 -38 -2,441 Debtor days 90 99 90 90 54
Inc / Dec (-) in Cash -561 -613 1,869 281 3,816 Inventory days 65 82 60 60 36
Opening Cash Balance 1,318 757 145 2,014 2,294 Creditor days 49 58 55 55 44
Closing Cash Balance 757 145 2,014 2,294 6,111 Source: Company, JM Financial

Continuation of basic chemicals import substitution

 India still lacks domestic capacity of key bulk chemicals…: India’s speciality chemicals
companies have heavily been dependent on imports, primarily from China, to meet their
basic feedstock and raw material requirements because of domestic unavailability of the
same. (Exhibit 43) This trend, however, should wane, going forward, thanks to growing
demand from end-user segments, providing immense scope for import substitution. To
further increase investments in basic chemicals’ manufacturing, the Indian government
has introduced: 1) PLI (Production Linked Incentive Scheme) to make India a chemical
manufacturing hub, 2) Basic custom duty in polycarbonates (increased from 5% to
7.5%), in Methylene DiPhenyl Diisocyanate (MDI) (increased from 0% to 7.5%).
Exhibit 43. India’s net import of key chemicals and petrochemicals shows a clear downward
trend
KT FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Polyvinyl chloride (PVC) 1207 1291 1498 1696 1840 2035 926 402
Styrene 570 611 717 725 785 811 873 721
Methanol 1229 1592 1668 1625 1774 1976 2273 2211
Acetic Acid 657 706 784 835 872 919 914 894
Vinyl Chloride Monomer (VCM) 303 318 349 344 484 458 511 480
Phenol 212 198 242 278 284 227 122 118
Acetone 116 124 128 133 142 106 61 54
Formaldehyde -6 -7 -8 -8 -11 -12 -14 -15
Mono Ethylene Glycol (MEG) 754 930 1039 1173 929 342 636 296
Ethylene dichloride (EDC) 440 465 584 504 668 562 700 595
Total 5482 6228 7001 7305 7767 7425 7002 5756
Source: Ministry of Chemicals and Petrochemicals, JM Financial
 Several Indian companies have increased capacity of key basic feedstock chemicals:
Deepak Fertilisers too is expected to require roughly 2,200MTPD (metric tonnes per day)
of ammonia by FY25-FY26, up from its current requirement of 1,600MTPD, and its
current ammonia production capacity of just 390MTPD can’t meet its current or future
requirements. In order to stem its dependence on ammonia imports, DFPC is likely to
commission ~510KTPA ammonia brownfield plant in Taloja. This new capacity will not
only help reduce logistics cost for DFPC but also help address local domestic demand for
ammonia. Deepak Fertilisers is also expected to increase its capacity for nitric acid, with its
recently inked long-term contract with Aarti Industries validating the demand for nitric
acid. While CNA (concentrated nitric acid) cannot be imported, WNA (weak nitric acid)
has a huge market in India, and to that effect, GNFC is also looking to tap domestic
demand and drive import substitution by setting up a new 50,000MTPA Nitric Acid plant.
 Deepak Nitrite is likely to substitute imports of bisphenol, cyclohexanone, MIBK, and

MIBC: Deepak Nitrite, for instance, doubled its IPA capacity to 60,000MT in FY21 to cater
to a growing domestic market. The company is also looking to replicate this in phenol,
where it has a base capacity of 200,000MT and is looking to increase capacity by another
50% in MIBK and MIBC. These are downstream derivatives of acetone and are currently
being imported to fulfil domestic demand. Deepak Nitrite aims to capture the entire
domestic market by setting up a 40KT MIBK unit and an 8KT MIBC plant. Besides this, it
has already announced bisphenol-A import substitution plans. It could also look to make
cyclohexanone, and probably forward integrate to manufacture several downstream
products, in our view.

11 July 2023 India | Chemicals | Company Update
Deepak Nitrite | BUY

Play on phenol spread recovery and launch of downstream products
Due to the weak demand environment, phenol and acetone prices have corrected ~14-15% Krishan Parwani
krishan.parwani@jmfl.com | Tel: (91 96) 62095500
over the last 3 months. As a result, phenol-acetone spreads have corrected around ~15-16%
during the same period and are now close to historical lows. We believe spreads could start
We acknowledge the support of Prashanth Kamath in
moving up after 2-3 months as demand recovers. This along with i) INR 20bn incremental the preparation of this report
import substitution opportunity from bisphenol-A (BPA) and cyclohexanone, ii) possibility of
forward integrating to products such as isophorone (from acetone) and 2-phenyl phenol
(from cyclohexanone), and iii) tapping export opportunities by manufacturing several
fluorinated derivatives (constrained to BTF-based ones, for the time being) augurs well for Recommendation and Price Target
Deepak Nitrite. Since we believe the earnings downgrade cycle for the phenolics division is Current Reco. BUY
nearing the end, any significant correction in the stock is a buying opportunity. We maintain Previous Reco. BUY
Current Price Target (12M) 2,660
BUY with a Jun’24 TP of INR 2,660/share.
Upside/(Downside) 33.9%
 Correction in phenol and acetone prices: Benchmark phenol prices have corrected by Previous Price Target 2,660
Change NA
~15-16% over the last 3 months on account of ample supply and slow demand recovery,
as per various industry reports. Globally, ~40-45% of phenol is used to make BPA. Hence,
Key Data – DN IN
it can be said that the recovery in phenol demand has a linkage to the strengthening of Current Market Price INR1,933
BPA demand. As highlighted by several industry reports, BPA demand in Asia is expected Market cap (bn) INR271.0/US$3.3
to remain soft over the next 2-3 months. But it could recover post that, resulting in Free Float 45%
firming up of phenol demand and, in turn, prices. Benchmark acetone prices have also Shares in issue (mn) 136.4
seen a similar ~14-15% correction over the last 3 months owing to weak downstream 3-mon avg daily val (mn) INR1,027.7/US$12.4
demand. 52-week range 2,357/1,730
Sensex/Nifty 65,344/19,356
 Phenol spreads close to lifetime low; should start moving up in next 2-3 months: Owing INR/US$ 82.6
to phenol and acetone price corrections, phenol-acetone spreads over benzene-propylene
have corrected ~15-16% and are now close to historical lows. In our view, with sluggish Price Performance
phenol demand over the next 2-3 months, spreads might not move up materially in the % 1M 6M 12M
near term. However, we believe that, with demand recovery, spreads should start moving Absolute -1.6 3.0 12.1
Relative* -5.7 -5.3 -6.7
up. This bodes well for Deepak’s phenolics division. * To the BSE Sensex
 Launch of new products with a potentially large market on the anvil: Deepak Nitrite’s
wholly owned subsidiary, Deepak Chem Tech, recently signed an MoU with the Gujarat
government to invest INR 50bn over the next 4 years (click here). The company had
indicated that it will manufacture bisphenol (likely bisphenol-A, bisphenol-S) along with
several specialty chemicals catering to agro and pharma. In our view, it could also look to
manufacture cyclohexanone, which, when forward integrated, produces 2-phenyl phenol
(used in anti-bacterial formulations such as Lysol), phenolic resins, etc. With the expansion
of phenol capacity (for bisphenol), in order to cater to excess acetone, the company could
look to manufacture isophorone (forward integration of acetone using aldol
condensation). These products will be import substitutes. Besides this, given it will be
backward integrated to manufacture in-house BTF, it will also look to manufacture several
BTF-based fluorinated compounds using DCNBTF, DCBTF. These new launches will cater
to export opportunities.

Net Sales 67,651 79,721 87,216 1,03,743 1,13,352
EBITDA Margin (%) 23.6 16.2 20.5 19.6 20.0
Diluted EPS Growth (%) 37.5 -20.1 39.6 13.9 14.1
ROE (%) 37.5 22.9 25.4 22.8 20.9
P/E (x) 25.4 31.8 22.8 20.0 17.5
Dividend Yield (%) 0.3 0.3 0.3 0.3 0.3

Deepak Nitrite 11 July 2023
Exhibit 45. Acetone (USD/MT) too has corrected roughly 16% in the
Exhibit 44. Phenol (USD/MT) pricing has corrected ~15-16% over the
last 3 months
last 3 months
Exhibit 46. Phenol-Acetone spreads over Benzene Propylene close to lifetime lows
Source: Bloomberg

Exhibit 47. At a long term average price of USD 1.2/1.4Kg, Bisphenol- Exhibit 48. At a long term average of USD 1.3-1.5/Kg,
A import substitution opportunity could be around ~INR 9-10bn Cyclohexanone import substitution opportunity could be around
~INR 8-9bn
Source: JM Financial, Industry Source: JM Financial, Industry

Exhibit 49. Deepak’s EBITDA likely to post ~21% CAGR over FY23- Exhibit 50. Deepak likely to post 22% PAT CAGR over FY23-26E
26E
Exhibit 51. RoE to remain north of ~20% over FY23-FY26E Exhibit 52. RoCE (pre-tax) to remain at ~28-29% in FY25E/FY26E

Valuation
Exhibit 53. Deepak is currently trading at ~23x 1-year forward consensus P/E multiple
Source: Bloomberg
Exhibit 54. Chemical companies peer valuation

P/E (x) P/B (x) EV/EBITDA (x) ROE (%)
Com pany Rating CMP (INR) TP (INR)
FY23 FY24E FY25E FY26E FY23 FY24E FY25E FY26E FY23 FY24E FY25E FY26E FY23 FY24E FY25E FY26E
SRF BUY 2,175 3,380 29.8 26.6 23.2 19.2 6.2 5.2 4.3 3.6 19.2 15.9 13.6 11.3 22.9 21.3 20.3 20.4
UPL BUY 644 965 13.8 11.1 9.6 8.3 1.7 1.5 1.4 1.2 7.1 6.4 5.7 5.3 13.6 14.6 15.0 15.4
PI Industries BUY 3,657 3,865 47.9 40.8 34.0 28.4 8.1 6.8 5.7 4.7 35.9 27.7 22.6 18.6 18.4 18.2 18.2 18.1
Deepak Nitrite BUY 1,933 2,660 30.9 22.2 19.4 17.1 6.4 5.0 4.0 3.2 20.2 14.2 12.3 10.7 22.9 25.4 22.8 20.9
Clean Science BUY 1,324 2,325 49.6 40.1 31.2 25.0 14.5 10.7 8.0 6.1 35.6 27.8 21.3 17.4 33.2 30.8 29.5 27.8
Navin Fluorine BUY 4,269 5,495 56.4 38.3 29.9 23.4 9.7 8.1 6.7 5.4 39.6 29.5 23.4 18.9 18.6 23.0 24.4 25.6
Fine Organics SELL 4,710 3,250 23.2 37.8 44.0 42.0 9.0 7.6 6.7 5.9 16.9 24.6 27.5 25.6 47.6 21.8 16.1 14.9
Galaxy Surfactants HOLD 2,598 2,650 23.4 25.5 24.9 23.8 4.7 4.0 3.4 3.0 15.7 16.3 15.3 14.1 22.0 17.0 14.8 13.5
Aether Industries BUY 1,046 1,080 86.6 63.5 45.8 34.0 9.1 5.5 4.9 4.3 60.1 40.6 29.5 22.3 16.0 11.1 11.4 13.5
Anupam Rasayan HOLD 986 1,080 64.4 44.3 32.8 25.2 4.9 4.4 3.8 3.3 26.0 21.3 16.9 13.4 8.8 10.4 12.5 14.1
Archean Chemicals BUY 546 810 17.3 11.4 9.2 7.7 4.6 3.5 2.6 1.9 11.2 7.1 5.2 3.8 45.2 36.9 32.3 28.4
Tatva Chintan Pharma Chem HOLD 1,780 1,635 77.7 48.7 33.9 27.7 7.4 6.5 5.6 4.7 65.0 33.6 23.3 19.1 9.9 14.2 17.7 18.4
India Pesticides HOLD 222 235 17.5 15.7 14.0 12.1 3.2 2.7 2.3 1.9 12.4 11.2 9.7 8.2 20.3 18.8 17.7 17.4
Source: Bloomberg, JM Financial


Net Sales 67,651 79,721 87,216 1,03,743 1,13,352 Shareholders’ Fund 33,384 40,900 52,744 66,265 81,710
Sales Growth 56.1% 17.8% 9.4% 18.9% 9.3% Share Capital 273 273 273 273 273
Other Operating Income 371 0 150 200 200 Reserves & Surplus 33,112 40,627 52,471 65,992 81,437
Total Revenue 68,022 79,721 87,366 1,03,943 1,13,552 Preference Share Capital 0 0 0 0 0
Cost of Goods Sold/Op. Exp 41,144 53,475 54,363 66,159 71,284 Minority Interest 0 0 0 0 0
Personnel Cost 2,741 3,183 3,407 3,650 3,914 Total Loans 2,004 584 234 -116 -466
Other Expenses 8,102 10,169 11,667 13,751 15,593 Def. Tax Liab. / Assets (-) 1,229 1,566 1,566 1,566 1,566
EBITDA 16,036 12,894 17,929 20,383 22,761 Total - Equity & Liab. 36,617 43,050 54,545 67,715 82,810
EBITDA Margin 23.6% 16.2% 20.5% 19.6% 20.0% Net Fixed Assets 21,427 23,865 30,974 37,893 43,609
EBITDA Growth 28.6% -19.6% 39.1% 13.7% 11.7% Gross Fixed Assets 29,132 30,577 40,577 50,577 58,577
Depn. & Amort. 1,777 1,663 1,891 2,081 2,283 Intangible Assets 0 0 0 0 0
Other Income 426 476 401 696 1,108 Capital WIP 1,793 4,449 3,449 2,449 2,449
Finance Cost 340 248 23 -2 -26 Investments 4,390 3,794 3,794 3,794 3,794
PBT before Excep. & Forex 14,345 11,459 16,416 19,000 21,613 Current Assets 18,487 23,629 29,803 37,751 48,265
Taxes 3,678 2,939 4,518 5,444 6,150 Cash & Bank Balances 229 376 5,242 8,954 16,772
Extraordinary Inc./Loss(-) 0 0 0 0 0 Loans & Advances 8 7 19 21 23
Net Margin 15.7% 10.7% 13.6% 13.0% 13.6% Provisions & Others 296 443 443 443 443
Diluted EPS (INR) 78.2 62.4 87.2 99.4 113.3 Total – Assets 36,617 43,050 54,545 67,715 82,811
Diluted EPS Growth 37.5% -20.1% 39.6% 13.9% 14.1% Source: Company, JM Financial
Total Dividend + Tax 682 819 819 819 819

Dupont Analysis
Net Margin 15.7% 10.7% 13.6% 13.0% 13.6%
Depn. & Amort. 1,777 1,663 1,891 2,081 2,283
Asset Turnover (x) 2.0 2.0 1.8 1.7 1.5
Net Interest Exp. / Inc. (-) 362 277 23 -2 -26
Inc (-) / Dec in WCap. -5,150 -3,946 480 -2,540 -1,560
Others 439 -353 0 0 0 RoE 37.5% 22.9% 25.4% 22.8% 20.9%
Taxes Paid -3,535 -2,600 -4,518 -5,444 -6,150

Operating Cash Flow 8,238 6,499 15,196 14,018 17,099 Key Ratios
Capex -1,865 -3,581 -9,000 -9,000 -8,000 Y/E March FY22A FY23A FY24E FY25E FY26E
Free Cash Flow 6,373 2,918 6,196 5,018 9,099 BV/Share (INR) 244.7 299.8 386.6 485.7 598.9
Inc (-) / Dec in Investments -2,401 822 0 0 0 ROIC 36.9% 24.5% 28.6% 26.8% 25.7%
Others 26 -1 0 0 0 ROE 37.5% 22.9% 25.4% 22.8% 20.9%
Investing Cash Flow -4,241 -2,761 -9,000 -9,000 -8,000 Net Debt/Equity (x) -0.1 -0.1 -0.2 -0.2 -0.3
Dividend + Tax thereon -750 -955 -958 -958 -958 P/B (x) 8.1 6.6 5.1 4.1 3.3
Inc / Dec (-) in Loans -2,846 -2,576 -350 -350 -350 EV/EBITDA (x) 16.7 20.7 14.6 12.6 10.9
Others -320 -233 -23 2 26 EV/Sales (x) 3.9 3.3 3.0 2.5 2.2
Financing Cash Flow -3,858 -3,591 -1,330 -1,306 -1,281 Debtor days 61 60 61 60 60
Inc / Dec (-) in Cash 140 148 4,866 3,712 7,818 Inventory days 31 41 37 37 37
Opening Cash Balance 89 229 376 5,242 8,954 Creditor days 52 43 50 49 50
Closing Cash Balance 229 376 5,242 8,954 16,772 Source: Company, JM Financial

APPENDIX I
JM Financial Inst itut ional Secur ities Lim ited

Corporate Identity Number: U67100MH2017PLC296081
Member of BSE Ltd. and National Stock Exchange of India Ltd.
SEBI Registration Nos.: Stock Broker - INZ000163434, Research Analyst - INH000000610
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Compliance Officer: Mr. Sahil Salastekar | Tel: +91 22 6224 1073 | Email: sahil.salastekar@jmfl.com
Grievance officer: Mr. Sahil Salastekar | Tel: +91 22 6224 1073 | Email: instcompliance@jmfl.com
Investment in securities market are subject to market risks. Read all the related documents carefully before investing.
Definition of ratings
Rating Meaning
Buy Total expected returns of more than 10% stocks with market capitalisation in excess of INR 200 billion and REITs* and more than 15%
for all other stocks, over the next twelve months. Total expected return includes dividend yields.
Hold Price expected to move in the range of 10% downside to 10% upside from the current market price for stocks with market
capitalisation in excess of INR 200 billion and REITs* and in the range of 10% downside to 15% upside from the current market price
for all other stocks, over the next twelve months.
Sell Price expected to move downwards by more than 10% from the current market price over the next twelve months.
* REIT refers to Real Estate Investment Trusts.
Research Analyst(s) Certification
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Chemicals Deep Dive 11 07 2023

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11 July 2023 India | Chemicals| Sector Update

JM Financial Institutional Securities Limited

Acceleration of Europe+1 for fluorination players

Exhibit 1. Two of Nissan Chemicals’ upcoming products are fluorine-based agrochemicals

Source: Nissan Chemicals

Exhibit 2. Three new products (Inpyrfluxam, Oxazosulfyl and Pyridaclomethyl ) in Sumitomo’s

Source: Sumitomo Chemicals, JM Financial

JM Financial Institutional Securities Limited Page 2

 Fluorine-based agrochemicals’ (generics or on the verge of becoming generics)

JM Financial Institutional Securities Limited Page 3

Exhibit 5. Fluorine-based pesticides contribute to roughly 52% of total pesticides whose

 Relatively lower launches of fluorine-based molecules in the past: 1960-1980s marked

JM Financial Institutional Securities Limited Page 4

Indian fluoro-specialty players in a sweet spot

 Aromatic fluorinated intermediates one of the most imported fluorinated intermediates:

 India’s fluorospecialty chemicals’ production ~35% of China: As per various industry

Exhibit 8. Use of aliphatic & heterocyclic fluorinated intermediates

JM Financial Institutional Securities Limited Page 5

Source: CAC presentation, JM Financial

Exhibit 11. CAC group’s capacity of fluorination products

Source: CAC presentation, JM Financial

JM Financial Institutional Securities Limited Page 6

JM Financial Institutional Securities Limited Page 7

HF: The key to all fluorinated products

Source: Company Source: Company

 Aggressive capacity expansion in India: Navin Fluorine is expanding its HF capacity to

Exhibit 15. Indian players to aggressively expand HF capacity

JM Financial Institutional Securities Limited Page 8

Exhibit 16. Global HF demand stood around 1.1-1.3MT in CY19

Source: Industry, JM Financial

Exhibit 17. Global hydrofluoric acid usage break-up

JM Financial Institutional Securities Limited Page 9

 HF capacity is concentrated in regions across the world: Due to the requirement of

Exhibit 18. HF capacity is concentrated in regions across the world

JM Financial Institutional Securities Limited Page 10

Exhibit 19. KSA’s proposal for setting up a 40-45 KTPA HF plant

Source: Industry, JM Financial

Exhibit 20. Arkema announced 40,000MTPA HF capacity at a capex of USD 150mn

Source: Industry, JM Financial

JM Financial Institutional Securities Limited Page 11

Limited threat from domestic new entrants

JM Financial Institutional Securities Limited Page 12

Several Fluorinated APIs have an opportunity size > USD 25bn

JM Financial Institutional Securities Limited Page 13

JM Financial Institutional Securities Limited

Pantoprazole manufacturing involves key intermediates such as 5-(difluoromethoxy)-2-

Exhibit 25. 0.556kg of below intermediate is required to make 1kg of Sitagliptin

Source: Industry, JM Financial

JM Financial Institutional Securities Limited Page 15

Source: Industry, JM Financial

Source: Industry, JM Financial

JM Financial Institutional Securities Limited Page 16

Assumptions and Estimates

JM Financial Institutional Securities Limited Page 17

Source: Company, JM Financial Source: Company, JM Financial

Source: Company, JM Financial Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 18

Source: Company, JM Financial

JM Financial Institutional Securities Limited Page 19

Financial Tables (Consolidated)

Cash Flow Statement (INR mn)

Taxes Paid -4,016 -5,077 -8,088 -9,271 -11,167

JM Financial Institutional Securities Limited Page 20