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Monday, July 6, 2009

Navin Fluorine International Ltd:-Is it a buy/sell/hold?

Scripscan:Navin Fluorine International Ltd

Story:Navin Fluorine International was born out of a restructuring exercise of its parent, Mafatlal Industries. It has been operating the largest integrated fluorochemical plant in India since 1967. There are three segments to its business – speciality fluorochemicals, bulk fluoride and refrigerants. The speciality fluorochemicals are used in making agrochemicals, antibiotics for the pharmaceutical industry, pigment for the petrochemical industry and toothpaste for the personal-care industry. Bulk fluoride is used by aluminium companies. Two more products derived from fluorine, CFC and HCFC 22, are used in refrigeration. CFCs (chlorofluorocarbons) are used primarily as refrigerant gases, the production of which is being phased out under the Montreal Protocol. CFC is being replaced by HCFC (hydrochlorofluorocarbon) for air-conditioning and as refrigerant gases. HCFC-based gases will be phased out by 2040. HFC 134a is the next generation gas after CFC and HCFC. Currently, Navin Fluorine imports HFC 134a and sells it in the domestic market.The company has been stagnant for the past several years. The core business of fluorine is slow. Offtake depends on sales growth of air-conditioners, aluminium products and the pharma sector. The demand for refrigerators is expected to be driven by the replacement market and higher demand from rural India, where the primary concern is availability of power rather than affordability. Refrigerant gases are also needed for car air-conditioners. The size of the Indian pharmaceutical industry is poised to treble by 2015. This means more use of fluorine. However, Navin Fluorine has another source of cash.It will continue to get large carbon credits for phasing out CFC. HFC 23 is a designated greenhouse gas under the Kyoto Protocol which leads to the depletion of the ozone layer. Once released, it stays in the environment for 260 years, the longest staying time among all HFC-based gases. Emission of this gas is to be reduced under the Kyoto Protocol for which the company is implementing a clean development mechanism project. The project will install a system to capture, store and destroy HFC 23 by thermal oxidation. This is expected to generate 2.8 million CERs (certified emission reductions) or carbon credits annually for 10 years. For every metric tonne of carbon dioxide (CO2) cut, the project is awarded one CER.This assures a certain amount of cash flow for the next 10 years. Given that, the stock is cheap.A great buy at sub 120 levels.

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