Navin Fluorine International Limited (532504) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Navin Fluorine International Limited Q3 and 9M FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Radhesh Welling, Managing Director of Navin Fluorine International Limited. Thank you, and over to you, sir.

Good morning, and a warm welcome to all the participants. I'm joined by our CFO, Mr. Ketan Sablok, and Strategic Growth Advisors, our Investor Relations advisers. I hope everyone got an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as on our company's website. First, I'll brief you on the performance of our various business segments, and then Ketan will take you through the financials. To start with, our high value businesses, which include Speciality and CRAMS segment grew by 18% in Q3 FY '20. The new Speciality business -- our Speciality business continued its growth momentum for yet another quarter. It grew by 33% in Q3 compared to same period last year. The segment saw good volume growth, both domestic as well as export markets. We believe this segment will continue to see good overall growth trajectory, driven by strong product pipeline in both Life science and crop science. During first 9 months of FY '20, this segment reported 19% year-on-year growth. In this period, we were able to expand the product portfolio and significantly strengthen our existing customer penetration. Moving on to CRAMS. During the quarter, cGMP3 has commenced commercial production post successful mechanical completion and plant trials. New projects have been signed up for this plant, and we expect them to start contributing to our revenue in the coming quarters. During this year, we have made good inroads into European market. We have managed to widen our customer reach and further strengthen our existing relationships with the innovative pharma companies in Europe. We also continue to see steady flow of new molecule inquiries from U.S. market. We are undertaking some new initiatives in this business division to achieve next level of growth. Our last CapEx was in this direction. We believe we will reach optimum level of utilization in next 3 years starting from FY '21. Our long-term outlook for this business remains positive. Our legacy businesses, which include Ref. Gas and Inorganic Fluorides registered growth of 4.5% in Q3 on year-on-year basis. In Refrigerant business, this division witnessed an overall increase in profitability on the back of better pricing and lower raw material costs. We are glad to inform you all that the non-emissive sector has also shown significant increase in demand. Moving on to Inorganic Fluorides, we were able to maintain the performance in this division despite softening of demand from end-user industries like stainless steel and glass. Both domestic and export market registered a growth in volume. Right product mix and steady pricing supported margin performance. On operating profit, we have seen performance strengthening for each of our divisions in this quarter. Operating margin -- operating EBITDA for Q3 stood at INR 65 crore with growth of 24% on year-on-year basis. Margin expanded by 270 basis point to 25.9%. Operating PBT improved by 23% to INR 56 crore, with margin expansion of 211 basis point to 22.4%. To summarize, with all the steps taken to increase contribution from high value businesses, we are confident we will continue to see sustainable and profitable growth going forward. We see a number of opportunities, leading to good performance of each of the segments and company as a whole in the coming years. In order to capture these opportunities, the company has planned a new CapEx program at Dahej through a wholly owned subsidiary. The Board of Directors has initially approved capital expenditure of approximately INR 90 crore for site development and related infrastructure on approximately 74 acres of land for greenfield projects at Dahej. The said capital expenditure will be funded by the company out of its internal accruals. That's it from my side. I'll now hand over to Ketan to give you a brief on the financial performance of the company. Thank you.

Thank you, Radhesh, and a very good morning to all the participants. I'll share the highlights of our financial performance, following which, we'll be happy to take Q&A and respond to your queries. I'll start with the Q3 FY '20 standalone performance. The company registered net revenue from operations of INR 252 crores as against INR 226 crores in quarter 3 FY '19, a Y-o-Y growth of 11%. Operating EBITDA grew by 24% to INR 65 crores, with improvement in margins by 270 basis points to 25.9%. Operating PBT grew by 23% to INR 57 crores, with improvement in margin by 211 basis points to 22.4%. And profit after tax stood at INR 45 crores, a growth of 17% with a PAT margin of 18%. Coming to the unit wise performance. The legacy business grew by about 4%, and the high value business grew by 18%. Refrigerants was steady at INR 57 crores and inorganic segment grew by 9% to INR 51 crores. The Speciality segment grew by 33% to INR 97 crores, and in CRAMS, we were able to do well with a revenue of INR 47 crores, which was down by 5%. On 9M FY '20 performance, the company registered net revenue from operations of INR 757 crores as against INR 711 crores in 9 months FY '19, a Y-o-Y growth of 7%. The operating EBITDA grew by 17% to INR 194 crores, with improvement in margins by 222 basis points to 25.6%. Operating PBT grew by 16% to INR 169 crores, with improvement in margins by 174 basis points to 22.3%. And profit after tax stood at INR 131 crores, a growth of 16% with PAT margin of 17.3%. Now coming to the unit wise performance. The legacy business grew by 5% while the high value grew by 8%. In the Refrigerant, we saw a growth of 5% (sic) [4%] to INR 205 crores, and in inorganic segment, we saw a growth of 7%, touching INR 156 crores. The Speciality grew by 19% to INR 277 crores. We saw the CRAMS business recovering and doing well in the last 2 quarters after a weak opening. It is down by 12% to INR 119 crores. However, we see good traction in this business on a long-term basis, and we are very optimistic post our commencement of the cGMP3 plant. I'll just give you a breakup of the domestic and export mix for each of the business segments. The Refrigerant, the domestic stood at 55% while the international business was at 45%. In Inorganic, domestic was at 89%, and the exports were at 11%. The Speciality business, the domestic business stood at 63% versus the international at 37%, and CRAMS, as you guys are aware, it's 100% exports. To sum up, I would also like to update you on the tax rate considered in this quarter. As we had explained in the last quarter's call, we are evaluating whether to move to the concessional rate of tax under Section 115BAA given that we have some tax assessments open for the past year, which may impact our decision in this direction. However, by the year-end, we will be in a better position to take a call on this. So as of now, in this quarter, we have continued to make the tax provision at the old rate. That's all from my side. I'll now open the line for Q&A.

Sir, should we begin with the questions?

Yes, please.

[Operator Instructions] The first question is from the line of Rohit Sinha from Emkay Global.

And basically -- congratulations for a good set of numbers, sir. I have a few questions on the cGMP3 plant that has begun -- commissioned in this quarter. So would it be possible to share what kind of revenue -- incremental revenue was there from this plant in this overall CRAMS revenue?

So specifically, in this particular quarter, Q3, the contribution from cGMP3 was not significant, because the plant actually started the commercial production only in the month of December. So there were a few batches that were manufactured post the mechanical completion. So there were basically some trial batches that we took and the sales of those also has been taken in this quarter, but it wasn't of material significance.

Okay. So this -- I mean, with full operation in Q4, at least what kind of incremental revenue we can expect from at least this cGMP3?

So quarter-on-quarter, it's a little difficult to give these kind of numbers. But as we just indicated, the commercial production from cGMP3 has just started towards end of December, which means that the first batch was actually taken in towards end of December. So the first batch will actually start coming out from mid of this particular quarter. So the real impact of the cGMP3, we will actually start -- when I say complete impact, I'm talking about the -- on a quarterly basis impact, we'll actually start seeing it from the Q1 of the next financial year. Some of that we will see in Q4 of this financial year as well.

So -- and in terms of depreciation, since the depreciation has gone up, what additional depreciation was there from this particular plant? And is my -- all the incremental depreciation is for the full quarter? Or how should we be taking this whether we are seeing further increase in depreciation in the next quarter or the year.

Yes, So as Radhesh has indicated, the plant got capitalized towards the end of the quarter, in the last week of around December. So the impact of depreciation for the full quarter will actually come in the next -- in Q4.

Okay, okay. And sir, in R-Gas segment, when you're saying that we have the price benefit and the margin expansion, but still numbers are same in the flat revenue, so that volumes have gone down and prices -- and price hike is there. So it is in domestic market or international market, how do we see that thing?

So in the Refrigerant, as we have indicated, we've -- the top line is kind of flat, given that this quarter generally is not the season for the refrigeration segment. But yes, the overall volume in the refrigeration sector has seen a slight dip in this quarter, but we've been able to maintain that through -- we've seen a good traction in the non-emissive side of the business. And we've seen a slight lowering on the RM cost side, which has helped us to garner better margins in the Ref. Gas segment in this quarter.

Okay. And in the Speciality Chemicals segment, I think the run rate has significantly gone up. And we have expanding geographies and customers. So just to get your sense on how the next -- with this new CapEx coming up, so are we thinking of expanding Speciality Chemical at a significant level? Or do we have enough capability right now to [indiscernible] orders pipeline?

So as we have indicated earlier, we continue to see very strong growth pipeline in Speciality. Some of that is going to be serviced out of our existing facility in Surat, so through some debottlenecking, et cetera, in the coming year. But a lot of these opportunities that we are seeing are finally going to happen in our new setup in Dahej. So that is where the majority of the CapEx will be happening for Speciality business, and that is where we will actually start seeing a relatively non-incremental growth starting on the Speciality side.

[Operator Instructions] The next question is from the line of Naushad Chaudhary from Systematix Shares.

Two, three quick questions I have. First, on the margin side, sir, if I look at the margin, 1 thing is clear, there was a raw material benefit? And if you can quantify how much it was from the raw material benefit? And how much was it from the value addition? And what could be the normalized margin going ahead, sir?

Yes. So in this quarter, if you see in terms of margin expansion, there are specific events that happened in each of the 4 BUs, business units, which actually contributed to this margin expansion. As far as the issue related to cost is concerned, those issues primarily impacted our Ref. Gas and Inorganic segments. And both the segments, we were either able to maintain the price or take the price up, hence, the margin went up. In Speciality, there was some specific events with respect to product mix, which we have talked about on our earlier calls as well. And on the CRAMS side, as the business continues to grow, our ability to absorb the fixed cost goes up, and hence, that margin continues to improve. So specifically, if you see there are kind of different events that have happened in each of the 4 business units, which have contributed to this margin expansion. Overall, we -- as we have indicated earlier, we continue to feel that you should basically look at as in -- the normalized margin for the business should be taken as between 22% to 24%. There will be quarters where we will actually see margin more than 24%. There will be some quarters where there could be specific issues happening by which we will see margins slightly below 22%. But otherwise, as far as the normalized operating margin is concerned, you should assume it to be between 22% to 24%.

Okay. Second one on our Piramal JV, sir, if I look at the profit sharing numbers, it is continuously going down. We had an average of around INR 2 crore, INR 3 crore, and it has come down to only INR 30 lakhs. Last quarter, we shared because of some of the reason that was down, and it was expected to come to be better from the previous quarter. But we have not seen much improvement. Sir, if you can highlight this part also?

Yes. So on the Piramal CCPL front, as we had already indicated in our last few calls that the way this plant works is that it needs to take regular shutdowns almost every 2.5 to 3 months for change of catalysts, et cetera. We had seen this plant taking a longer production cycle in the first quarter, and the shutdown was kind of postponed because the catalyst was running well. And we've had the first quarter at a good run rate, the second quarter also was pretty much good, given that we could manufacture and sell in the quarter 2 and then that's the quarter when we had this shutdown and the shutdown was partly in Q2 and then also in the first month of quarter 3. So that's why the impact of the catalyst change and the shutdown has actually come in this quarter. And we had already indicated that it will not be good to look at the numbers of CCPL on a quarter 1 or a quarter 2 basis because overall, for the full year, the impact of these shutdowns will be visible in the later half of the year. So that's what we have been seeing now and the shutdown has now been done, and the plant is back into operation. So we should be seeing a better quarter in the fourth quarter.

So on an annual basis, what should be the run rate we should consider from this JV?

I think the 9 months, you can just take it to a 12-month average...

Extrapolate.

Extrapolate and I think that should, what the run rate should be.

The next question is from the line of Jasdeep Walia from Infina Finance.

Sir, in the CRAMS business, you had faced problem with 2 customers. So you said 1 customer came back and gave you a commercial order and in the last call, you had said that second customer was supposed to come back in November with regard to how the progression in that product is going to be. So what's the status on that front, sir?

Yes. So as far as the first customer is concerned, as you rightly said, has not only come back, but that has also got converted into a multi-year supply agreement, which we announced a little earlier. As far as the second 1 is concerned, they basically have gone back to the drawing board. They're basically relooking at that entire route. They were supposed to come back to us before the holidays, and they have indicated to us that they have not finalized the route yet. And as soon as they are able to do that, they should come back to us.

Got it, sir. And sir, any incremental commercial opportunities you've got in the CRAMS business in the last quarter?

Yes. So if you look at traditionally, this business has been skewed towards U.S. If you look at the initial period of this business, we got pretty good customer flow and project flow from U.S., and that continues on a steady basis. What has happened in this particular year, and specifically, this particular quarter, is that we have actually started getting good inroads in Europe as well. So we've actually started seeing good project flow from European customers and there are some of those relationships where we have really been able to strengthen the overall relationship by which we're actually getting repeated project flows. So currently, if you look at our order pipeline, it's pretty evenly balanced between U.S. and Europe.

Got it, sir. And then, with regard to your CapEx at Dahej, you've announced a CapEx of around INR 450 crores. Is that -- is it -- would it be just this INR 450 crores or you're planning to announce incremental CapEx also at Dahej?

So as far as Dahej is concerned, let me just take a step back and just explain because this is the first time we are actually discussing about this particular CapEx, so I think it's good to give the context to this entire Dahej CapEx issue. We have -- as we have indicated, we have CRAMS facility in Dewas, and Dewas facility will continue to be focused only on our CRAMS business. As far as our plant in Surat is concerned, Surat basically serves the other 3 business units. And there are very limited opportunities now available going forward to increase capacities in Surat. And hence what we have now embarked upon is a relatively large CapEx plan for Dahej. Currently, we have taken approval from the Board of INR 90 crore, which will basically be spent on site development and setting up infrastructure, including effluent treatment facilities, et cetera. And we've indicated that, that will be supported by overall CapEx in excess of INR 450 crore, which will be spent in the next 2 to 3 years, for projects related to other 3 business units, and we are also seeing some opportunities beyond those 3 business units. So the CapEx is going to be in excess of INR 450 crores. So it's going to be INR 450 crore plus, to be spent over the next 2 to 3 years. And what we will be doing is, as we keep getting approvals from the Board for specific projects, we will keep coming to you making -- with those specific announcements.

The next question is from the line of Chetan Thacker from ASK Investment Managers.

Sir, just a question on the CRAMS business. I wanted to understand, will the Q4 run rate see a step-up from Q3?

So in terms of Q4, we feel that it will probably be similar to what we have seen in Q3 or slightly uptick from Q3 because the major contribution from cGMP3, we will actually start seeing from Q1 onwards.

And the current facilities which is there at Dewas, in terms of reactor time, was operating optimally throughout the quarter or wasn't that the case?

It was functioning at optimum capacity.

So any increment will now be from the cGMP3 over and above this base revenue that we'll see for this year?

Yes. But I think the way you will have to think about it is slightly different because this business operates slightly differently than the speciality fluorochemicals business. As you see, as the molecules mature and they start going into Phase 3, Phase 4, and also start getting commercialized, and as the order quantity starts increasing, they cannot be done out of cGMP2, they just are not optimum to be done out of cGMP2, and cGMP3 is primarily focused on those molecules. Whereas the new project flow that we are seeing will be continued to be served out of cGMP2.

So if I just look at both these facilities together, so we've put in around INR 190-odd crore in both of them put together, and that will be optimally utilized based on the projects which are smaller in size will go to the first facility and the ones which are larger in quantity moving to cGMP3 based on whichever reactor is optimum for that product?

That's the design basis. That's correct.

We'll move on to the next question that is from the line of Sudarshan Padmanabhan from Sundaram Asset Management Company Limited.

Sir, my question is on the CRAMS segment. If I recall correctly, you had mentioned that there might be some kind of order shift that can happen in -- from the Q3 to Q4. Has there been any order shift that has happened from Q3 to Q4 because of probably the revamping of the facility or an upgradation of the facility, et cetera? And if that is so, how much is the quantum of that?

Yes. So it will be difficult to give the exact quantum, but what we had indicated earlier is that if you actually see the commissioning of cGMP3 got slightly delayed, and there were orders which we were supposed to take into cGMP3 a month or 2 earlier which got slightly shifted because of which we said that the overall order cycle or the cycle -- manufacturing cycle will shift by a month or 2. So the cGMP3 which was actually supposed to start the commercial production in the month of October has actually started only in the month of December. So whatever shift that we spoke about is primarily because of that reason.

Okay. So which means that you're -- whatever that the deferment that you were expected to kind of catch-up in the fourth quarter, could now be shifted to the first quarter. Is that a right assumption?

Yes. So for manufacturing, it will be Q4, and it will basically start reflecting in the actual sales from Q1 onwards. Some of it will happen in Q4, but majority of that we'll start seeing in Q1 onwards.

Sure, sir. And sir, with respect to the Speciality Chemicals segment, I think we have seen a fair amount of growth over there. If you can give some more color with respect to, one, we have broadly said that both the pharma side and the spec chem -- the agro is doing well. I mean, if you can give a bit more color on what are the drivers for this? I mean, on the agri side, do we see -- historically, we have seen some kind of slowdown there. Whether that issue is completely getting resolved with better demand picking up globally? And even on the pharma side, are we seeing addition of newer molecules, which is coming on the Speciality Chemicals side?

So if you look at our speciality fluorochemicals, you know that our business is divided into 3 segments. So it's almost 40-40-20 between pharma, agro and industrial. And what we are seeing is growth in each of the 3 segments. So let me take the simplest 1 first, which is the industrial. We've actually seen a pretty robust growth in industrial as well. So while the pharma and agro sector grow for their specific reasons, and I'll come to those little later, we also continue to see growth in the industrial. So we were actually expecting pretty robust growth in the industrial sector, next year. And also, it's important to keep in mind that the industrial sector is a place where we have capacity headroom available in Surat, which we intend to leverage and serve that growth. Then on pharma, it's primarily driven from the growth that we are seeing of new generic molecules that are getting launched within the fluoro space and also expansion of some of the molecules that we had launched a few years back. So that's primarily because -- so that's primarily driven by volume expansion and new products. And on agro side, the growth that we are seeing, primarily coming from new molecules. And these are molecules which are either just been launched or products which are going to get launched next year or the year later, et cetera. So a lot of what you'll -- what you see this year and what you will also see next year, is -- lot of that is actually market seeding. And the full impact of that, you will actually see as Dahej starts the operation the following year. So lot of it is actually for new molecules in agrochemicals. It's not the existing molecules.

And sir, for this indicated CapEx that you talked about, excess of INR 450 crores in 2 to 3 years. One is, I think this INR 80 crores, INR 90 crores going towards the Dahej land, so I mean, additionally, we'll be left with INR 350-odd crores. So if you can give some idea on internally with respect to your capital commitment in terms of priority? Now that a bit of -- a fair amount of CRAMS has come through in terms of CapEx, and that gives you visibility for 3 years, then would it be a right assumption that the majority of the incremental CapEx would largely go towards Speciality Chemicals?

Yes. So we -- as we have indicated, we are actually seeing opportunities beyond these standard 4 BUs as well. So the opportunities that we are seeing outside of those 4 BUs will also get significant part of this CapEx, after which, you'll see CapEx happening in Speciality. After that, will be Refrigerant Gases and probably lowest on that pecking order would be Inorganic.

And sir, if one is looking at...

Sorry to interrupt, sir.

Yes, yes, sure, sir. I'll jump back to the queue.

[Operator Instructions] The next question is from the line of Pritesh Chheda from Lucky Investment.

Just a couple of clarifications. So 1 on the spec chem side, till the time the Dahej facility comes through, what kind of peak revenue is possible based on the current facility or some minor additions to the current facility? So whatever INR 97 crore quarterly revenue run rate that we see, what is the upside scope possible there?

Yes. So we will see incremental growth happening next year, which will be coming primarily from Surat. We expect that growth probably would be similar to the kind of growth that we saw this year, probably plus/minus. And then the following year is when we will actually see a significant growth, primarily coming from Dahej.

Okay. So this year, so we saw about 18% to 20% spec chem growth. So that growth you're referring to?

That's correct.

Okay. And when will the commercial production in Dahej start? And is it a modular way of setting up the facility, if you could give some idea there?

Yes. So it will basically start from calendar year '21. So FY '22. And yes, it will be modular.

Okay. And lastly, on the CRAMS side...

Sorry to interrupt, Mr. -- hello, Mr. Chheda?

Yes, no problem.

The next question is from the line of Abhijit Akella from IIFL.

Just to clarify, this INR 90 crore CapEx is over and above the INR 450 crores that we have talked about? That was one. And what is the expected asset turn and the margin profile, and the ROCE or IRR that we're working with for this CapEx?

Yes. So as far as the INR 90 crore is concerned, INR 90 crore is a subset of that INR 450 crore. And again, as we've indicated, is going to be in excess of INR 450 crore, but that INR 90 crore is a subset of that. Now as far as the asset turn, margin profile, return profile is concerned, what we would like to do is start with individual announcements. We will talk about the asset turns and the margin profile at -- while making those specific announcements because, as I indicated earlier, the projects that will be coming up in Dahej will be spanning multiple businesses and each business would have slightly different return and margin profile. So when we make those specific announcements, we would be happy to make -- give you more color on those specific projects. But overall, if you look at the overall company performance, our intent will always remain to deliver the margin and the return profile, which is similar to what we currently have, at a company level.

And my second and last question is, if you could just give us an update on the Honeywell 1234yf business? Whether there's any sign of progress or any further negotiations with the customer on that?

So as we have indicated, the primary reason that we went into that project was to see if we could really scale that technology for manufacturing that particular product to a larger scale. Now that option is clearly out so -- because they have decided that this is not the technology that they would like to go for a commercial scale plant. So what we have decided to do is that we will basically discontinue that particular technology. We are currently in discussion with Honeywell. We have identified 3 new opportunities with them. And these are the products which will be manufactured in the same assets, again, at a relatively smaller scale because it's kind of a larger pilot facility that we have currently for yf, and with a hope that 1 of those will then scale up into a larger scale manufacturing facility.

The next question is from the line of Vihang from Samsung Asset Management.

Sir, in CRAMS, I believe you have previously guided for around INR 200 crores to INR 225 crores of full year revenues for FY '20. And I believe you just mentioned to 1 of the previous participants that in Q4 as well, CRAMS is going to be in similar lines as Q3. So just wanted your sense on like with cGMP3 as well commercializing, do you see yourself meeting this guidance of INR 225 crores for FY '20? And just in addition to that question would be, what would be the revenue potential you are seeing from the new molecule for FY '21 on a full-year basis?

So I'm not sure when we gave this guidance of INR 225 crores in FY '20. But coming to your question on the cGMP3, yes, we've given a guidance over there that on a 3-year basis, we will optimize the cGMP3, and we will be giving an asset turn of 2.25 and around that number, and we are still sticking to that guidance. Given the kind of order flow and the traction we are seeing in this business, we are quite confident that we will be able to reach those numbers in a 3-year horizon.

Okay, okay. Sir, and in refrigerants, I believe you had mentioned earlier that you would be -- you're doing some work internally and some -- you're planning to probably announce some CapEx going down the line. So would that be a part of this INR 450 crore CapEx plan that you have conveyed to the market or that would be something incremental then?

So this -- as Radhesh has already indicated that INR 450 crores is just an indicative number which we've given. So whatever the new CapEx is, that will be coming up -- will definitely come up in Dahej. The numbers could be more than INR 450 crores. But in -- as of now, the intent is to start setting up CapExes to start within the Speciality and the new line of business that we are looking at and then probably get into the Ref. Gas part. So as and when these CapExes actually meet the Board approval, we will be coming and announcing them. So yes, whatever the CapEx comes up in Ref. Gas will happen at the Dahej facility.

The next question is from the line of Ranjit Cirumalla from B&K Securities.

First of all, 1 clarification. The ramp-up which we have said of -- starting from FY '21, 3 years, was this for Dewas cGMP3 or the Dahej plant?

Dewas.

So you're talking about the cGMP3 one, or because we talked about both the -- so there was a separate question on Speciality where we talked about Dahej.

Yes, in the opening remarks, you have said that starting FY '21, it could take 3 years to reach the optimum level of...

That was for CRAMS which is for Dewas.

The Dewas 3 plant, okay.

Yes.

And sir, kindly -- is it possible to elaborate which is the fourth subsegment, which you're looking to, like out of this 4 different segments, you have said that there would be a fifth different vertical, which could be potential you'll be creating?

Yes. So at the right time, when we have more information to share, we would be happy to. I think right now, it's a little too early. For obvious reasons, we wouldn't want to provide more color on that right now. The only reason we mentioned that is so that you are aware that we are actually seeing opportunities beyond these 4 BUs and the CapEx which will be coming up in Dahej, a significant part of that will be also going for opportunities beyond these 4 BUs. But the specific opportunity, the CapEx, returns, et cetera, we will be happy to provide you more information on when we -- post getting the Board approval, when we are ready to make the announcement.

And 1 last thing. The Honeywell pilot plant, is it at Dewas or at Surat?

In Surat.

In Surat, okay, sir.

The next question is from the line of Manish Poddar from Nippon India AMC.

This is Manish here from Nippon India AIF. So I just had a couple of questions. So first was, on the Refrigerant segment, had we taken any pricing increase in January of this year?

Price increases, are you talking about price increase?

Right.

Yes, we have taken a price increase and across the sector, we are actually seeing a slight upward movement on the pricing.

And would you be able to quantify how much have you taken in pricing?

That will be difficult because it's across the segments, and within the segment also, it's different for different customers.

Okay. And would you be able to give an outlook on the raw materials ledger for CY '20?

So the main raw material that we have is basically the fluorspar. And we had, few quarters back, had indicated that as far as the increase that we were seeing in the fluorspar price in H2 of the last calendar year, which is 2019, it will basically plateau and then start moving down and it exactly happened as per our anticipation. In H2 of last year, we actually saw the prices plateau, and then they started actually moving down. And hence, which is actually -- we will actually see the impact of that in the next -- sorry, in the current calendar year 2020, the fluorspar prices overall will be slightly lower than what we saw in the last year. So that's the -- 1 of the main raw materials that we have, and that is the 1 where it's relatively easy to give kind of a yearly outlook because we also typically enter into yearly contracts. But otherwise, there are a number of other smaller raw materials, and they basically are all over the place. One of the critical raw materials for the Ref. Gas has actually moved down significantly, which is -- has actually translated into margin improvement in that specific BU, and that will continue in the next -- as we move into next FY.

Would it be fair then to assume that...

Sorry to interrupt, Mr. Poddar.

Just 1 clarity on the same question actually. Can I?

Sir, please proceed.

Yes. So would it be fair then, let's say, your margins, which you've clocked, let's say, in the 9 months. Next year, margins would increase on a Y-o-Y basis on a full year front primarily because raw material is benign relative to Y-o-Y, you'll have a facility expansion at the -- for the CRAMS, and both your high margin businesses are growing. Then why are you giving the lower margin guidance? That's -- I'm just not able to get the dichotomy in the commentary?

No. So there are typically events that happen in a specific year or there are events that happen in specific quarter, because of which the margin profile, so the margin of that particular business or overall margin of the company can move up or down in that particular year or that particular quarter. So that's the difference. But when we actually give a margin guidance, that guidance is given on the basis of the overall profile of the businesses and overall profile of the company. So that's more of a -- more because of the strategic shift that happens in any of the businesses. So if we look at that, we still feel very comfortable in giving guidance of 22% to 24%. However, there are always tactical things that keep happening in each of the businesses and the tactical moves that we keep making in an effort to move the margins up. But that is typically not used by the company as a basis for giving the overall guidance.

So this guidance is a long-term guidance? That is how one should....

It's a directional guidance. Currently, we still feel very comfortable in giving that overall directional guidance, which is that of 22% to 24%. If there is a complete strategic shift in any of the BUs or overall at a company level, we would be happy to come back to you and say, okay, because of X, Y, Z reasons, we are now moving that range from A to B.

The next question is from the line of Karthi Keyan from Suyash Advisors.

Can you elaborate just a bit on the progress you are making on the non-emissive side in Refrigerant Gas?

So we've seen in -- we are seeing good traction, actually, in the non-emissive side of the Ref. Gas business. We've seen good demand flowing in, in the last 2 quarters, and specifically, in quarter 3. And we are quite hopeful that this demand uptick from the non-emissive will flow into the next year, and help us maintain the volume drops that we are seeing in the emissive side because of the quota cut coming in.

Correct. Correct. Correct. Can you give a couple of examples of where these are?

So these are into various agro and pharma, they go in as feedstock into the agro and the pharma sector.

The next question is from the line of Jignesh Kamani from GMO.

If you think about the China because of the spreading of Wuhan virus, many part of the China has been on extended holiday. Some plants are closed until [indiscernible]. So are you seeing any disruption in the fluorspar or any other raw material we are sourcing from China? And will there be any impact on the -- our, you can say, manufacturing procurement cycle?

Yes, we are actually keeping a continuous tab on this particular situation. As per our current assessment, we don't see any disruption because of the current situation. But we are keeping a very close tab on that. If at all, the impact is definitely not going to be on fluorspar because as we have indicated earlier, our supply chain for fluorspar is pretty divorced from China. If at all, it could happen for some of the other raw materials in some of the other businesses. But as per our current assessment, we don't see any major impact.

And generally, some of the raw material which we are buying from China, what kind of inventory we'll be carrying? So if it essentially is for more than 1 month, it will impact? Or as of now, it doesn't look like?

No. So as far as the inventory is concerned, they are different for different businesses and different products. So for example, there is a campaign, a new campaign that we are starting in the month of April, for which the raw material was very critical. So we actually got the raw material already procured and in-house. So depending on the criticality of the product, criticality of that campaign or business, the inventory norms could be different.

Sure. And on the business side, are you seeing some of the client who were supposed to buy from China are increasing or are coming to us and topping up our volume requirement or providing a new business?

Yes. So there are some inquiries that keep coming to us because of the China, the issues that are happening in China. But typically, the inquiries that we go after are those where it's possible for us to have a sustainable competitive edge, not just because of some short-term issue in China.

The next question is from the line of Devang Patel from Crest Wealth.

Sir, for the traditional businesses, you mentioned raw material prices are down, yet you've been able to hold prices or increase prices in Ref. Gas, for example. So are you seeing better pricing power now? What is driving it? And how sustainable is it?

Yes. So...

Yes. So as far as Ref. Gas is concerned, we will have to, again, divide that into 3 parts. One is the domestic emissive, international emissive and domestic non-emissive. So as far as the international emissive is concerned, we are really not seeing any increase in the prices. If at all, there seem to be some pressures coming from China. But there, we are not seeing any significant change in the pricing. In the domestic, because of the supply issue, because there was a cut coming in terms of the production cap from 1st of Jan, because the supply has actually gone down, the -- we have seen upswing in the pricing across the sector within the emissive, that is starting from OEM to trade, et cetera. And on the non-emissive front is concerned, we are seeing very slight increase in the overall pricing.

Right, sir. And the Dahej CapEx, you mentioned it will be through a wholly owned subsidiary. So is this to take advantage of lower taxes? Or are there some JVs or technical tie-ups later in the new business you're in.

Yes. So there are some strategic moves that we intend to make and those are the moves which are driving this decision of -- for going for wholly owned subsidiary.

The next question is from the line of Anand Bhavnani from Unifi Capital.

Congratulations for the wonderful numbers. In the opening commentary, you elaborated that we have seen increasingly higher number of inquiries for spec chem businesses, and maybe to some extent, if I got it, what you call CRAMS segment, if you can just give us the thought process of some customers, and that is driving this and if you can quantify a bit in terms of inquiry, like are they higher by certain number like we had x inquiries, now they're x plus 5, just give us some, if possible, just some color on the inquiries that you spoke about.

Yes. So a lot of times, when we talk about inquiry flow, a lot of times, it actually sounds very reactive. So in case, in our particular case, what is happening is, let's say, in specialities -- on the Speciality side, again, let us look at these 3 divisions: pharma, agro and industrial. As I mentioned earlier, on industrial side, because that was 1 opportunity where we had capacity headroom, and hence, we have actually aggressively gone and identified new opportunities and converted those new opportunities. On the agro side, we identified a few customer partners, and we have significantly strengthened the relationship there, which is then getting converted into the order flow. And on the pharma, it's basically just driven by some of the new molecules of fluoro molecules, which are getting off patent. And hence, the new DMFs which are getting filed by the Indian generic pharma companies. So there are 3 completely different reasons for the 3 segments within the speciality sector. On the CRAMS, U.S. continues to provide steady flow of new inquiries or new orders, which are coming in. In terms of Europe, what has happened is, we have actually aggressively gone and opened up new doors with a number of new innovative companies, innovative pharma companies from Europe, which has then led to some of these new opportunities. It will be difficult to quantify the exact percentage of numbers but that's basically the overall color to what we -- to the overall commentary that we gave earlier.

The next question is from the line of Dhaval Shah from Girik Capital.

Hello?

Yes. Please go ahead.

Yes, a couple of questions. First is, sir, whatever incremental investment plan you consider organic?

So as we indicated earlier, there are 2 kinds of investments that will be going into Speciality. One, there will be incremental investment that will be going in Surat for some of the debottlenecking projects. And then there will be a larger CapEx that will be happening in Dahej in Speciality. So as we are in the process of finalizing the business plan for this Dahej CapEx program, and as we are ready, and we present it to the Board and get approval from the Board, we would be happy to provide more information on that.

So the Manchester facility will -- will it have any like volume-based manufacturing? Or it will be more of a research lab kind of setup?

Yes. If you look at Manchester, that's basically a research lab setup. We also have a slightly larger facility, which basically is called Kilo Lab, but we have ability to only supply at a gram to kg level from our facility in Manchester.

In the future also, is this going to be the same plan -- or we might do some volume-based manufacturing also there?

Yes. So we are actually relooking at that entire MOL piece, Manchester Organics piece, and there will be some decisions that will be taken in this coming financial year with respect to that.

Okay. And sir, any color you can share on the end drug market size under CRAMS which is going commercial?

I think the CRAMS business that we have, unlike some of the other businesses, is heavily protected by the confidentiality agreements that we have with the specific customers. So it becomes a little difficult to give specific names. But overall, I think it's -- we -- given the project flow that we are seeing, both from U.S. as well as from Europe and also the repeat business that we are seeing from some of our existing customers, we continue to remain very optimistic about this particular business.

Got it. And sir, in the agro chem...

Sorry to interrupt. Excuse me, Mr. Shah.

Okay. I'll join the queue.

The next question is from the line of Sanjesh Jain from ICICI Securities.

One question on follow-up on the Dahej facility. Where are we in terms of approval cycle? And can you help us with the timeframe we are looking? You said that we have got approval for the land development and DTP and have we received the environmental clearance? And if yes, when we are starting the construction work? And you said commercial production will start from FY '22. So can you just help us with the time frame?

Yes. So we already have received environmental clearance. So most of the clearances that are required to start the work we already have. The actual work on the land will start from next month onwards. That is basically related to construction of the facilities, et cetera, that is talking about boundary wall, the road, et cetera. Now as far as contribution of the products that we will be manufacturing in Dahej towards the P&L of the company, that will start happening from FY '22 onwards.

So you said construction or commercial launch in terms of splitting.

The commercial -- the construction will start from next month onward. So various activities will start from next month onward. And the actual contribution, which means the plant will be ready, the product will actually start coming out and the qualification process will be over and the actual sales of the product from Dahej will begin from FY '22 onwards, which is calendar year '21 onwards.

Okay, that's very clear. Second is, what was the contribution of non-emissive sales for Ref. Gas in this quarter?

It was about 14% to 15% in this quarter.

Okay. So we are close to reaching the 25%, which will free up because of the quota thing, which just got cut from 1st of January, right?

No, I cannot give you an indication on that front. But this quarter, we were at about 14% to 15%.

14% to 15%.

Yes.

The next question is from the line of Amar Mourya from ALFAccurate.

Hello?

Yes.

Can you hear me?

Yes, please.

Radhesh, congratulations for a good set of numbers. So first thing, if you can help us, like, what would be the mix of pharma, agro and industrial in overall Speciality Chemical now?

Yes, we're actually tracking what we have indicated earlier, which is 40-40-20, 20% coming from industrial. And going forward, we -- at least in the near future, we will continue to see similar split.

So basically, 40-40 from the pharma and agro, and 20% from the industrials?

That's correct, that's correct.

But as you say that now you have a capacity -- more capacity level with the industrials, so still you believe that the ratio will remain same?

Yes, because we -- in terms of pharma and agro, we continue to do the debottlenecking projects that I talked about earlier.

Surat?

That's correct. So as far as the next financial year is concerned, the split will continue to remain the same till Dahej comes -- till Dahej starts.

Okay. And sir, 1 more, if I can. Secondly, this 1234yf which is getting discontinued, I believe it was consolidated into CRAMS. So what are the kind of revenue loss we will see in the next year then?

So I do not think those numbers are very significant. So I don't think we need to get into specific numbers, but any which way the numbers are wired and are equal for that facility. So any which way, the numbers are not quite significant.

So you don't think so, it is very material number?

No, no.

And also, I think on this particular subject, if you look at it on a long-term basis, we believe that this is actually going to be incrementally beneficial for the company because it will get replaced by some other opportunities where there is a potential for a commercial -- scale up to the commercial level.

Okay. And sir, by when these new opportunities will start, if I can?

Yes. So as and when we are able to -- so the initial phase would be to actually do the piloting, et cetera. So it will be at a smaller scale. And once we are ready to actually scale that up, we'll be happy to come back and make that announcement.

Ladies and gentlemen, due to time constraint, we'll be taking our last question, that is from the line of Nav Bhardwaj from Anand Rathi.

Making it quick, could you kind of quantify the debottlenecking that we'll be taking forward in Surat?

No, I think that -- these are projects that we continue to keep doing in Surat. Almost every quarter, we actually keep taking up these projects. So wherever we actually see kind of an incremental opportunity in specific products, we just invest in those opportunities. And these are very quick turnaround opportunities. So this is not a significant investment. So it is a little difficult to quantify. We have not quantified this in the past as well. These are relatively smaller opportunities, however, giving significant impact.

Okay. And my last question being on the previous call, you had guided for a heavy quarter for CRAMS in Q4. Will you maintain the same guidance as it stands right now?

We've guided what, sorry?

A heavy quarter in Q4 for CRAMS, you stated that Q3 would be a little softer and Q4 will be a little ramped up.

So I think what we had indicated was in context of cGMP3 plant starting up. The plant was expected to start up in the month of October that has got postponed by about 2 months. The plant has just now started in the month of December. So the overall, if you see the level of activity and the overall -- the level of manufacturing, et cetera, in Q4 will be much higher than what we have seen earlier. However, in terms of sales, we'll actually start seeing the impact from Q1 onwards.

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

Thank you, everyone. I would like to thank everyone for joining on the call. I hope we have been able to respond to your queries adequately. For any further information, request you to get in touch with SGA, our Investor Relations adviser. Thank you very much, and have a good day. Bye-bye.

Thank you. Ladies and gentlemen, on behalf of Navin Fluorine International, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.