NAVINFLUORNSEAugust 04, 2023

Navin Fluorine International Limited

9,448words
91turns
14analyst exchanges
3executives
Management on call
Radhesh Welling
MANAGING DIRECTOR – NAVIN FLUORINE INTERNATIONAL LIMITED
Anish Ganatra
CHIEF FINANCIAL OFFICER – NAVIN FLUORINE INTERNATIONAL LIMITED
Bhavya Shah
ORIENT CAPITAL
Key numbers — 40 extracted
INR491 crore
financial highlights for the period under review. I'm pleased to report our quarterly revenue of INR491 crores, marking a growth of 24% on year- on-year basis. All our businesses continue to perform well. Des
24%
d under review. I'm pleased to report our quarterly revenue of INR491 crores, marking a growth of 24% on year- on-year basis. All our businesses continue to perform well. Despite some product-specific
15%
rant gas sales in domestic as well as export markets. Our operating EBITDA registered growth of 15% Y-o-Y at INR114 crores. EBITDA margin stood at 23.3%. We are optimistic about higher capacity uti
INR114 crore
les in domestic as well as export markets. Our operating EBITDA registered growth of 15% Y-o-Y at INR114 crores. EBITDA margin stood at 23.3%. We are optimistic about higher capacity utilization in the coming
23.3%
ets. Our operating EBITDA registered growth of 15% Y-o-Y at INR114 crores. EBITDA margin stood at 23.3%. We are optimistic about higher capacity utilization in the coming quarters, and this will positi
rs,
DA margin stood at 23.3%. We are optimistic about higher capacity utilization in the coming quarters, and this will positively impact our operating margins. Higher depreciation and interest expenses w
INR30 crore
eased to inform you all that the Board of Directors held at a meeting yesterday approved capex of INR30 crores towards development of a completely new capability in Surat. We are happy to inform you all sign
31%
orm extremely well. In Q1 FY '24, we reported highest- ever quarterly sales with revenue growth of 31% on a year-on-year basis, amounting to INR230 crores. Strong order flow continues to strengthen lo
INR230 crore
ted highest- ever quarterly sales with revenue growth of 31% on a year-on-year basis, amounting to INR230 crores. Strong order flow continues to strengthen long-term growth visibility in this division. Our HPP
INR169 crore
in this division. Our HPP business demonstrated steady growth in Q1 FY '24 with revenue reaching INR169 crores, representing an 11% increase compared to the corresponding period last year. This growth was pr
11%
ness demonstrated steady growth in Q1 FY '24 with revenue reaching INR169 crores, representing an 11% increase compared to the corresponding period last year. This growth was primarily driven by expa
INR93 crore
s. Our CDMO business reported strong year-over-year revenue growth in Q1 FY '24 with a revenue of INR93 crores reflecting Y-o-Y growth of 33% as compared to the same period last year. Also, we are pleased
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Guidance — 20 items
Radhesh Welling
opening
“These being one-off events, we expect business to run on normalized basis from Q2 onwards.”
Radhesh Welling
opening
“Our AHF project for adding 40,000 metric tons of hydrofluoric acid capacity at Dahej is progressing as per schedule.”
Radhesh Welling
opening
“Detailed engineering work for cGMP4 is progressing well and will be taken to the Board for approval in the coming quarters.”
Radhesh Welling
qa
“The actual volume requests that we have received from Honeywell has changed a few times, but whatever volume we have missed out in Q1, we expect that in Q2 and Q3, we should be able to make up that volume.”
Radhesh Welling
qa
“Just to give you some idea, the plant has now started and we'll be running to optimal capacity and we expect that the plant will do so for the following months in this quarter and whatever we produce in the month of whatever was produced in the month of July and whatever will be produced in the month of August, all of that we will be required to supply immediately, just to take care of that backlog that we saw in Q1.”
Radhesh Welling
qa
“There is a volume forecast, which they typically sent to us for the following six months and we have actually constantly seen that change.”
Radhesh Welling
qa
“We expect some of that loss in volume to actually come back from end of Q3 onwards.”
Radhesh Welling
qa
“But we don't see that gap being bridged in the Q2 quarter but we expect that towards end of Q3, we will actually see demand uptick and the overall volume that we will sell in Q3 and Q4, we expect it to be higher than what we sold last year in the same quarters.”
Abhijit Akella
qa
“On the CDMO business, if you could please offer us an outlook for this year and next year, I believe the Fermion contract kicks in only from CY '25.”
Abhijit Akella
qa
“So should we expect that to start meaningful contributions only from '26?”
Risks & concerns — 14 flagged
These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict.
— Bhavya Shah
Weak summer impacted refrigerant gas sales in domestic as well as export markets.
— Radhesh Welling
So, it's a little difficult for us to comment on that because as you know, R22, the business tends to be a little seasonal.
— Radhesh Welling
Q4 and Q1, that is typically February, March, April, May tend to be the high seasons because of summer, etc Now if you actually miss out on that summer season, it's a little difficult to make up that quantum in the month of Q2 or Q3.
— Radhesh Welling
That is what we were seeing significant headwind because we actually supplied almost zero volume in Q1 and Q2 of calendar year '23, which is why actually, when you look at the standalone Navin Fluorine numbers, you see a gap because that molecule didn't supply from Surat.
— Radhesh Welling
And a related question on depreciation, what is the impact of changes that we did last year on this quarter, can you quantify that number?
— Sanjesh Jain
Second is in terms of margin, I think it will be difficult for me to comment because there is a lot of confidentiality, this one, attached to it.
— Radhesh Welling
It will be difficult for me to comment on how that margin piece works as far as the Honeywell contract is concerned.
— Radhesh Welling
Just one thing on the depreciation, what is the impact of the change of the life on this INR22 crores?
— Sanjesh Jain
It's a little difficult for me to give you this one for Q3 and Q4.
— Radhesh Welling
On the second point, it will be difficult for me to give you an outlook for this particular year for the HFO, but overall, your understanding is absolutely right.
— Radhesh Welling
That is where we are actually seeing some pressure, but that as a percentage of our total portfolio, that's a very small percentage.
— Radhesh Welling
That will be very difficult for us to do.
— Radhesh Welling
So from a FY '24 perspective, will CDMO be like possibly a decline year versus last year?
— Nitin Agarwal
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Q&A — 14 exchanges
Q
Yes. So what I would like to understand is on the plant shutdown that we had taken because this is relatively a new plant. So, I mean what has basically triggered the shutdown operationally? And second is with respect to the volumes that we are supposed to supply to Honeywell, is the volumes for the full year on track, I mean, whether we can basically capitalize on higher volumes in the second, third and fourth quarter to make up for the first quarter?
Radhesh Welling
So as we had mentioned before, in this particular quarter, we had planned a plant shutdown for our HFO plant, which was basically in the month of April and hence, we also had planned a plant shutdown for our AHF plant in Surat so that it coincides with the HFO plant shutdown. Accordingly, the plant basically started by end of April beginning of May. And we were ramping up capacity, but we had some issues in the plant in June. As we have mentioned before, there are two sets of manufacturing plants there, and there are obviously a lot of ancillary plants. So in one of the plants, we had some iss
Q
On the CDMO business, if you could please offer us an outlook for this year and next year, I believe the Fermion contract kicks in only from CY '25. So should we expect that to start meaningful contributions only from '26? And if so, how significant could it be potentially? But in the meantime, for '24 and '25, do we believe we are well placed for say 20% plus growth for the CDMO business in the meantime?
Radhesh Welling
Yes. So the agreement that we have signed with Fermion are for multiple late-stage molecules. One of them is already commercial. And the first commercial supply and when I talk about commercial supply, I mean major quantity will be supplied from beginning of calendar year '25, but the supply has already started. So we have already supplied qualification batches for the first molecule, the product has been approved, and now they have actually placed order for slightly larger quantity, which we are required to supply by end of Q3. And also, now we've actually received request from them to forwar
Q
Sir, first question was on the Specialty Chemicals side. Just for this quarter, would it be possible to give some color, whether it was more of a volume story or did you also see some margin expansion? And just for going forward for FY '24. Do you still think it's going to be more of a volume story, given that some of your capacities are ramping up or do you also expect to see some of the margin tailwinds to start coming through from next couple of quarters? That was the first question.
Radhesh Welling
You are going to ask second question or do you want me to answer the first question before you go to the second? Ok. I'll just ask the second question itself. Sir, you've given a lot of detail in terms of the outlook that you've mentioned. Obviously, it's very dynamic. Just wanted to get your thoughts. We've obviously been hearing that we've seen some corrections in the raw material prices, and there's, obviously, some risks that other players have been flagging that margins could compress as some of these prices come down. Obviously, you don't give a lot of sense on the demand side. If you co
Q
I got two questions. First on the Honeywell contract, last year, we got a 15% to 20% price hike because of significant inflation in the raw material. This year, we are probably in the exactly opposite side of it, where the prices have fallen very sharply. When is this reset of prices going to happen? That's number one. And number two, an attached question to that, is that a right understanding we had earlier that our margins in Honeywell contract is the percentage of revenue? That's the first question. Second question is for Anish. On the operating cost, this quarter, the other expenses have d
Radhesh Welling
Yes. So on the Honeywell contract, we have a true-up mechanism and as per the earlier agreement, we were required to do that true-up or true-down once a year. But given the volatility in the market right now, what we are trying to do is that we try to do a true-up or a true-down on a quarterly basis. So end of quarter, we actually estimate what the cost is likely to be for the following quarter, we accordingly change the pricing, and then whatever has actually happened, whatever that delta is which typically is not significant, we adjust in the following quarter's pricing. So whatever you are
Q
So the first question on the CDMO side. The Fermion contract, is this the same that we had discussed upon earlier, the $16 million opportunity or is it an incremental to that?
Radhesh Welling
No, this is a new one. That was with a different customer. Sure. So if I got it right, so this Fermion contract is incremental, which will drive growth for us. The $16 million is one which has already come into the numbers or it is another opportunity that will come in this calendar year? No. So $16 million was not an agreement. It was the PO that we had actually received, that has been supplied in the last financial year but that molecule is actually doing extremely well, that is with another large biopharma company. And as I had indicated before, we are actually expecting a further scale-up
Q
Sir, I have a few. The first one, you did mention about some sort of demand volatility that you're experiencing in some of the businesses. And now that we are hearing a lot of talk on inventory destocking, especially on the agri side and the fact that two of our plants in Dahej are dedicated towards the agrochemical sector, are you seeing some sort of weakness there? And number two. Sir, in the HFO plant, I think we had signed a contract for seven years and the INR400 crores annual number that one would have anticipated earlier, there were some cost escalations and the revenue number seem to b
Radhesh Welling
Sorry, what was the number you talked about for the second question? I wasn't able to get part of your question. Yes. So sir, it was a INR2,800 crores contract for seven years. So approximately, INR400 crores figure, that's how I calculated. But I think during the plant visit, you mentioned that because of some adjacent forays and some costs going up a little upwards of INR400 crores. What would be the outlook for this year to that account? Yes. So, I think to your first question, I think I have already mentioned that we have two plants. There is a dedicated agro plant in Dahej, which is runni
Q
Yes, a couple of questions. One is regarding the supply agreement with Fermion. So if I got it right, we would be supplying molecules for three products. Two late-stage and one which is already commercial. If you could talk about any indication on the size of the contract or if there is any exclusivity in the contract? And are we here dealing with the non-fluorination chemistry as far as this contract is concerned?
Radhesh Welling
Yes. So they have actually talked about supply of intermediates for multiple molecules. And as you rightly said, one of them is a commercial molecule and some others are late-stage molecules, and there are multiple molecules that had been identified in the agreement. The commercial molecule that we have already started supplying qualification batches for, etc, is a non- fluorinated molecule. So that has actually got nothing to do with fluorination. Out of the other two, one of them will be fluorination, other one will not be a fluorination molecule again. And there is no exclusivity there. The
Q
First question is again on Honeywell. We had indicated last year that during 2023, we will be again putting up discussions with them for a new HFO facility. So any further work on this? And apart from this, whether there are any other opportunities on which we are currently discussing with Honeywell?
Radhesh Welling
Yes. So what I had mentioned was the first step would be -- there would be a kind of a debottlenecking capex, which will increase the current capacity by about 25%. So that is in advanced stage of discussion and closure. We expect that within this calendar year, we would close that. And once that happens, it will entail a small capex, which it will take us about a year to do that. So we expect that capex to get done by end of calendar year '24, which means that we will have that additional 25% capacity available to us from beginning of calendar year '26. And then post that, we will look at pos
Q
To the extent you can share, what new capability built up you're doing within the firm? You mentioned INR30 crores in Surat. And apart from that, any other capability build-up that you're doing in the organization?
Radhesh Welling
Yes. So, there are a number of new capabilities that we continue to work on. We actually do the piloting in those and then scale up these capabilities. This is one very important technology platform that we have been working on and that is where we are actually investing to set up this particular platform now. It will be ready by -- it will take us approximately about 15 months to 18 months to have this plant ready. It will be ready by end of next year, calendar year '24 and this is a very unique capability. It basically strengthens and expands our existing value proposition. This specific cap
Q
I just got a question with regard to the interest cost in our balance sheet, I just wanted to know that what is the average cost of the debt we are paying right now? And is there any provision to prepay our debt or is it primarily going to be used to fund further capex? And just one more point that, there has been a significant increase in depreciation. Is there any particular reason or is it just because of our new facilities, which we have brought in this quarter?
Anish Ganatra
Let me take those questions. So your question on depreciation is exactly right. It's all related to new capacities coming on stream and those are also reflected in the standalone numbers and the consol numbers. So the difference you can see relates largely to Dahej assets, yes. On the interest costs, see, our sort of philosophy on funding these assets, and of course, all of the interest costs relates to the new assets that have been commissioned in Dahej and the philosophy around funding these. We ensure that they are taken on a term loan with sufficient space to allow for the assets to fund f
Q
Sir, I had a limited question as per se, we're seeing a lot of weakness in the global agrochemical chain and what we've come to understand is that there is a lot of dumping from China as well, where they're driving down prices of intermediates, a category where we compete as well, probably not in the same value chain, but we do compete in there. And so basically intermediates prices are getting driven down as well as finished goods. So I understand we have contracted volumes and our margin would be stable probably since we have contracted volumes. But I just wanted to understand from you, is t
Radhesh Welling
So, if you actually read my commentary over the last, let's say, two years, one of the things that I have constantly been saying whenever there was a question related to China plus one, I have always mentioned that China will be back, and China will be back with vengeance, hence it is extremely important to select the value chains that you want to play in very, very carefully because there are certain value chains where the SOEs are extremely strong, and those are the value chains, which are going to get impacted severely. Some of that we have already started seeing this particular year. We ha
Q
My question relates to the Honeywell contract. That $410 million contract initially we talked about, of that, what portion we have already supplied and what remains now?
Radhesh Welling
No, I think as I had indicated, it's a seven-year contract. So we've actually just in the first year of supply of that particular contract. So we've just started. We're really at the starting point right now at that contract. So some portion was captured in FY '23 and in Q1 FY '24, right? That's correct. Okay. And so this may not be evenly spread across the year. So if you could just indicate that whether this is concentrated towards initial years, or the larger part will come in later years of this contract? No. So once the plant ramp-up happens, it was supposed to be almost even across the y
Q
So, I think there'll be four or five drivers. One, there are plants in Surat right now, which are not running to full capacity as I had indicated earlier. So Surat will actually ramp up almost to full capacity. So that's point number one. Point number two, the MPP that we have invested in Dahej, that we will actually ramp up the capacity utilization in that. Number three, the dedicated agro project that we have invested in, where the plant is supposed to be commissioned by end of this year. So that will add a significant number to our revenue, this one. And fourth, there are other projects tha
Nitin Agarwal
And just on the four points that you mentioned, is it fair to assume that the new multi-year contract scale-up probably would be the largest contributor of these four in terms of significance? Yes. I would imagine so. And secondly, on the CDMO business, you mentioned that the $16 million contract been pretty much serviced out last year and this year and this fresh sort of supplies come in next fresh PO comes in only in FY '25. So from a FY '24 perspective, will CDMO be like possibly a decline year versus last year? No, we hope it will not be a declining year. We are still trying to track the s
Q
Thank you. So I'd like to thank everyone for taking time out and joining on the call today. I hope we have been able to respond to your queries adequately. If you have any further queries, you may reach out to our Investor Relation partner, Orient Capital. Thank you very much and have a good day.
Management
Speaking time
Radhesh Welling
35
Moderator
16
Anish Ganatra
5
Ranvir Singh
5
Nitin Agarwal
4
Sudarshan P.
3
Ankur Periwal
3
Archit Joshi
3
Rohit Nagraj
3
Abhijit Akella
2
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Opening remarks
Bhavya Shah
Thank you and welcome to the Q1 FY '24 Earnings Conference Call. Today, on this call, we have Mr. Radhesh Welling, Managing Director; and Mr. Anish Ganatra, Chief Financial Officer of Navin Fluorine International Limited. This conference call may contain forward-looking statements about the Company, which are based on beliefs, opinions, and expectation as of today. Actual results may differ materially. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. Our detailed Safe Harbor statement is given on page number two of Investor Presentation of Company, which has been uploaded on the stock exchange and Company's website as well. With this, now, I hand over the call to Mr. Radhesh Welling for his opening remarks. Over to you, sir.
Radhesh Welling
Thank you. Good morning and a warm welcome to all the participants. On this call today, I'm joined by Mr. Anish Ganatra, our Chief Financial Officer, and our Investor Relations partner, Orient Capital. I hope all of you got an opportunity to go through our financial results and investor presentation, which have been uploaded on the stock exchange, as well as on the Company's website. Let me now start with key highlights for the first quarter of FY '24 followed by business segment- wise updates, and then we'll take you through financial highlights for the period under review. I'm pleased to report our quarterly revenue of INR491 crores, marking a growth of 24% on year- on-year basis. All our businesses continue to perform well. Despite some product-specific demand headwinds, overall, our resilient business model performed well in this quarter, but more importantly, is positioned well for future profitable growth. We saw strong Y-o-Y revenue growth in specialty and CDMO business units, w
Anish Ganatra
Thank you, Radhesh. Good morning to all the participants. I will share the highlights of our performance for quarter one FY '24, post which we'll be happy to take questions from all of you. The Company reported growth of 24% in net revenue from operations to INR491 crores against INR398 crores in Q1 FY '23. Operating EBITDA grew by about 15% year-on-year to INR114 crores as against INR99 crores in Q1 FY '23. EBITDA margin stood at 23.3% for Q1 FY '24. Operating PBT stood at INR73 crores and PAT stood at INR62 crores, lower by 15% and 17% year-on-year, respectively, primarily due to depreciation for Dahej assets and interest charge associated with the financing thereof. So that's all from my side. We will now open the floor for Q&A. Thank you very much.
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