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

Ladies and gentlemen, good day, and welcome to the Q2 and H1 FY '21 Earnings Conference Call of Navin Fluorine International Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on 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. The current times are difficult, and I hope you and your loved ones are safe and doing well. Let me start this call with some key updates during the quarter. The Board of Directors yesterday approved the appointment Mr. Ashok Sinha as an additional non-Executive Director. Mr. Sinha has been appointed as an independent Director of the company for a term of 5 years. Mr. Ashok Sinha has B-Tech in Electrical Engineering from IIT Kanpur and Postgraduate Diploma in Management from IIM Bangalore with specialization in finance. Mr. Sinha has wealth of experience gained from his leadership journey as the Chairman and Managing Director of Bharat Petroleum Corporation Limited, BPCL. He spent 33 years in BPCL and served on the Board of BPCL for 15 years. First, as Director of Finance for 10 years from 1996, and then as its Chairman and Managing Director for 5 years from August 2005. He has also been conferred with various awards for distinguished performance over the years. It is an honor for us at Navin Fluorine to have him on the Board to guide us in our growth part. I'm pleased to announce that Board of Directors has declared an interim dividend of INR 0.05 per share of face value INR 2 each, which comes to 250% for the financial year 2021. Before I move onto discuss the business performance of the last quarter with you all, I would also like to update you on another business development. Navin Fluorine and Piramal Pharma mutually agreed on Piramal increasing its stake to 100% in Convergence Chemicals. So Piramal Pharma will acquire Navin Fluorine's 49% stake in Convergence Chemicals at INR 65.1 crore. As part of this deal over and above the above consideration of INR 65 crore, it is also agreed that Navin Fluorine will receive INR 7.9 crore for lease hold rights of the GIDC land earmarked for CCPL. Of the total land of 85 acres, around 11 acres was earmarked for this CCPL expansion. As a part of the deal, Navin Fluorine will transfer the rights of this land to Piramal Pharma and the remaining land will continue to remain with us. And it will be utilized by us for our future growth plans. As part of this arrangement, Navin Fluorine would obtain a perpetual right to use the technology for development and marketing of selected products. Navin Fluorine is a supplier of one of the key raw materials for manufacturing of the starting raw material at CCPL for their anesthetic business of Piramal Pharma and will continue to supply this raw material to CCPL. We believe the deal is a win-win for both the parties. Navin Fluorine will be able to continue to focus on the growth of our core business and our long-term strategy to expand in higher-value businesses and Piramal Pharma can continue to grow its anesthetic business. We, at Navin Fluorine, will continue to have access to the proprietary hexafluoro chemistry platform, which we can leverage to develop and sell new products in the future. Now let us move on to discussing the performance of the company in the last quarter. Key milestones achieved in this last quarter are revenue from our operations return to normal in Q2. We achieved EBITDA margin of 430% in Q2 of this financial year. And CRAMS business reported record performance in the last quarter. Despite the challenging times, the Navin Fluorine team has worked diligently to mitigate most of the potential business risks and help deliver strong performance. We recorded revenue of INR 512 crore operating EBITDA of INR 146 crore with a margin of 28.4% and operating PBT of INR 125 crores with margin of 24.4% in H1 FY '21. As was briefed last quarter, during this period, the company made aggregate contribution of INR 5 crores to PM Care Fund and Chief Minister Relief Fund of Maharashtra, Gujarat and Madhra Pradesh, the impact of the same is visible in the financials of Q1 FY '21 and included under other expenditures. Our continuous efforts towards increasing revenue contribution from high-value businesses, product rationalization and cost management initiatives helped us grow operating EBITDA margin even in these challenging times. Our high-value businesses into Specialty and CRAMS grew by 32% on a year-on-year basis to INR 332 crore for H1 FY '21. It now contributes 65% of the total revenue as on H1 FY '21. Our specialty business reported a growth of 11% on Y-o-Y basis to INR 199 crore for H1 FY '21 compared to last -- same period last year. This business has been performing consistently over the quarters now, and we expect business momentum to continue, especially driven by Life Science and Crop Science segments. We have been optimally utilizing the facility. And as indicated earlier, we are working on expansion plans to attempt another leap in our growth trajectory. Our CRAMS business reported strong quarterly sales with growth of over 100% to INR 99 crore compared to the same period last year. For H1 FY '21, it grew by 84% on a year-on-year basis to INR 133 crore compared to same period last year. During this period, we successfully ramped up capacity utilization rate of our cGMP3 facility. This increase in utilization level was on the back of strong order position from start of the year, that is January 2020. This business continues to perform as per our expectations, and we believe it is well positioned for sustained growth on the back of deeper penetration into existing customers, development of new customers, and superior execution. Our legacy businesses, that is Refrigerant gases and Inorganic Fluorides, performance was impacted due to weak demand from the end user industry. For H1 FY '21 revenue was down by 29% on a year-on-year basis to INR 180 crore compared to the same period last year. For Q2, it was down by 31% on year-on-year basis INR 206 crores compared to the same period last year. Our inorganic business -- our Inorganic Fluorides business was down by 27% on a year-on-year basis for H1 FY '21 to INR 77 crore compared to the same period last year. This was largely because of weak demand from end user industries. We also saw some pricing pressure due to this lower demand. At the same time, we have been successful in developing 2 new significant customers, one in India and another in U.S. during this quarter in this business. Our Refrigerant gas business was down by 30% in H1 FY '21 on a year-on-year basis to INR 103 crores compared to the same period last year. The impact was due to weak demand from the industry, driven partly by the production cut, which took place in January 2020. There was a major dip in trade market, while exports were impacted due to softening of prices. The non-industry applications continue to show growth, and we continue to work on understanding the prospects of the next-generation OpEx capitals for the future growth in this business unit. Now before I hand over to Ketan, who will update you on the financials, let me quickly update you on our new vertical, high performance products, HPP. The project work is progressing well, and we are on schedule for mechanical completion and planned start-up in Q4 FY '22. That's it my side. I will now hand over to Ketan to give you brief on the financial performance of the company. Thank you.

Thank you, Radhesh, and very good morning to all the participants. I hope you, your families, and loved ones are all keeping well and healthy. I'll share with you the highlights of our financial performance, following which we'll be happy to respond to your queries. So I'll start off with H1 FY '21 performance. The company reported net revenue from operations of INR 512 crore as against INR 505 crore in H1 of '20. So we saw a marginal growth of about 1%. Operating EBITDA stood at INR 146 crore for H1 FY '21 as against INR 128 crores for H1 FY '20, up by about 13%. The operating EBITDA margin stood at 28.4%, growth of about 300 bps compared to the same period last year. Increased share of high-value business helped us maintain the EBITDA margins in spite of the various business challenges and plant shutdowns in early Q1 FY '21. Operating PBT stood at INR 125 crores for H1 FY '21 as against INR 113 crore for H1 FY '20, up by about 11%. The operating PBT margin stood at 34.4% for H1 FY '21. Profit after tax at INR 119 crores for H1 FY '21 as against INR 86 crore for H1 FY '20, up by about 38%. The PAT margin stood at about 23.2%. Coming to the unit-wise performance for H1 FY '21. On the high-value business, this grew by about 32%, while the legacy business was low by about 29%. Within the high value business, the specialties grew by 11% to INR 199 crore, while CRAMS grew by 84% to INR 133 crore. The legacy business showed a downtrend due to fall of about 27% to INR 77 crores in Inorganic Fluorides and about 30%, INR 203 crore in the ref gas business Y-o-Y basis. For the quarter 2 FY '21, the performance on a stand-alone basis was the company's net revenue from operations at INR 308 crore at against INR 264 crore for Q2 FY '20, showing a growth of 17% on a Y-o-Y basis. The operating EBITDA stood at INR 93 crores for Q2 FY '21 as against INR 68 crores for Q2 FY '20, up by about 38%. This quarter, the company reported a high operating EBITDA margin of 30.4%, a growth of 476 bps compared to the same period last year. Increased share of the high-value business helped maintain the EBITDA margin. The operating PBT stood at INR 83 crores for Q2 FY '21 as against INR 60 crores in Q2 FY '20, up by about 40%. The margin -- operating PBT margin stood at 27%. Profit after tax stood at INR 67 crores for Q2 FY '21 as against INR 46 crores for Q2 FY '20, up by 45%. PAT margin stood at 21.9%. Coming to the Q2 business-wise performance. Again, our higher value business grew by 42% while the legacy was lower by about 13%. Specialty segment grew by 9% to INR 102 crore INR, while CRAMS segment reported a strong sales this quarter. It grew by 110% to INR 99 crore. The legacy business showed a downtrend due to fall of -- in the inorganic segment by about 6% to INR 49 crore. And in ref gas 18% to INR 58 crores on a Y-o-Y basis. Our balance sheet remains strong. The net cash position as of September is about a little over INR 450 crore. Our prudent use of capital and maintain our capital employed -- the return on capital employed around a little over 30%. The net cash flow from operating activities stood at INR 98 crore compared to INR 40 crores last year, showcasing our operating efficiency. I think that's all from my side and we'll be okay to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from Sundaram Mutual Fund.

My question is on the CRAMS part of the business, which reported a very strong growth for this quarter. Can you give us some more clarity with respect to the utilization on the cGMP3 plant and specifically from your own expectations? I mean we normally have internal expectations with respect to the utilization for the first year, second year and third year. So are we running significantly higher than what we had envisaged in terms of utilization for the cGMP3 plant?

Yes. So in Q1 as well as Q2, for cGMP3, we saw capacity utilization of over 80%. Typically, as we have been saying that for any multipurpose kind of a facility, any capacity utilization over 70% is actually considered to be optimum. The reason why we had really high utilization in Q1 and Q2, as you are well aware, this is a business where our typical production cycle tends to be a little longer than our other businesses. And we had lot of orders that had actually got bunched up, which we had announced in the commentary that we made in Q4 as well. So we have a lot of orders, which basically led to this strong utilization in Q1, Q2. And also, our team has actually done excellent job of execution wherein we didn't face as many problems in ramping up the production to cGMP-3 level as was earlier expected. So we -- lot of the orders we actually got first -- right first time, which also helped us deliver most of the orders on time in this period. So to answer your question, our utilization was above 80%. It was slightly higher than what we had anticipated in the first year of operation.

Yes. And with respect to this bunching of orders, and you also made a commentary that we are seeing very strong inquiries. I mean while I don't want to discuss quarter-on-quarter, which might not necessarily be right. But from a business trajectory point of view, I mean, if I look at the last few quarters where the lows has been at around INR 25, INR 30 crores, and we have been running around near between INR 50 crore or INR 45 crore to INR 55 crore. I mean do you think that this run rate should substantially be higher given the visibility of the business and also the new capacity coming in? So here, what I'm trying to understand is whether -- are we looking at, at least utilizing it over what we had talked about and probably looking at announcing another CapEx, given that we are running.

Yes. So there are 2 or 3 questions that you asked, so let me take those separately. So if you look at the trajectory going forward, we are actually, again, seeing extremely strong tailwinds in this particular business, both from our existing customers as well as from some of the newer customers that we have been developing, both in Europe as well as the U.S. From a run rate perspective, we had earlier mentioned that our focus was to get to run rate of INR 50 crore every quarter. From now on, our focus would be to at least get to the run rate of what we have done in H1. So that is what actually we look to do in 2 quarters, every 2 quarters. So we actually delivered about INR 133 crore of revenue in the first 2 quarters, which is H1, and that is what we will look to do going forward. There could be some quarters, which will be slightly lower, some quarters which are slightly higher. But at least on a half yearly basis, this is what we should be able to continue to do. While we are doing this, there are 2 things that we are really focused on at this point in time. One, process optimization, by which we are looking to improve the norms, improve the yields and also significantly reduce the back cycle time, by which we will be able to free up the capacity available. Also, we have identified a few areas for debottlenecking, which will require some minor CapEx. By doing that, in the second half of this year, we will actually be able to bring in additional capacity just through these small debottlenecking projects. Once we complete that towards the end of this financial year, that is FY '21 is when we will be in a better position to understand what the order book looks like for FY '22 and FY '23 and take a call on next the capital investment in this particular business. So that is when I think we should be able to make a better commentary on cGMP-4. Does that answer your question?

Yes, sir. That was pretty clear. One final question from my side, if I may. On the Specialty Chemicals, here, again, this business, we are seeing good inquiries, growth happening both on agrochemicals and pharmaceuticals side. And we have, over the last 2 to 3 quarters, consistently been saying that capacities are running fairly high. So here, what is the strategy? I mean when are we looking to expand capacity? And I mean, are we looking to -- I mean, I would assume that a lot of products would have also moved from the high volume, low profit margin through anyway, highly profitable and low-volume kind of products, which is reflected in the margin. So from here, where do we go as far as the Specialty Chemicals is concerned?

Yes. So let me give you first of all, some brief background on short term, and then I'll give you on mid- to long term. On short term, which is specifically related to Q2 and Q3, basically through end of the year. We continue to see pretty good momentum in our Life Science and Crop Science business. However, industrial business is a little softer as we get to the end of this year. We believe that, again, from starting off the next calendar year because there, the contracts actually run for calendar years, we should again start seeing a good momentum on the industrial side. And as you know, our business is divided 40:40:20 between pharma, agro and industrial. So that's on the short term. Also on the short to midterm, we've actually done some smaller debottlenecking CapExes in our existing sites. A lot of those have got commissioned in Q2, some of them are getting commissioned in Q3, but those are relatively smaller CapExes just to get incremental capacity, or bring incremental capacity into our business. We are currently working on a number of projects, number of new projects. These are both ones that will require a stand-alone facility, and there are those that will require setting up of multi purpose plants. Lot of these projects are already completed the R&D hurdle, some of them have already completed the piloting hurdles. Some of them are currently in piloting. And some of them are actually in the engineering. What that means is that in this year, in this financial year, we are expected -- we are expecting to at least have a few of these get converted into specific business plan, which will be presented to the Board and then we'll enter our actual investment in that range. So we expect at least a few projects to be announced in this year, which will then give us a capacity -- significantly higher capacity from calendar year 2022 onwards.

Sure, sir. And sir, final remarks on the Piramal deal. I mean any reasons why we have decided to part ways and any kind of business that we might lose because of this potentially?

Yes. So will we lose any business, the answer is no. What was the logic here? I mean as you all know, what did this JV entail? This was basically manufacturing of one product for one customer, which is basically Piramal, which was going into the anesthetic market. The focus of Piramal was basically to grow the anaesthetics market, for which they will need our product at a particular price. Whereas for us, the focus was to use this platform to do a lot of other things that we want to do in our Specialty Chemicals and HPP segment. So we felt that it's in best interest of convergence as well as best interest of Navin Fluorine as well as Piramal that we actually have a clear focus in what they wanted to do and what we wanted to do and have 100% control over our own destiny. So they will continue to do -- drive the anesthetics business that they want the way they wanted to do with 100% control. And we will drive the the growth of this platform into newer segments, other segments, which are primarily in HPP and Specialty Chemical, which is not a focus area for Piramal. The way we want to do and have 100% control over that. So the logic basically said that it is in best interest of all the 3 parties that we separate and chart our own growth trajectory. So having agreed on the logic, then we came to the table and said, who should basically acquire this particular asset, who should be running it, et cetera. And we felt that Piramal was probably the best owner. They already had 51% in this particular business. And they were the best owner of that given the fact that this product was only going to Piramal. This deal gives us perpetual license to the technology platforms, which means that we will be able to use these platforms to develop and sell a lot of new products, which will be get developed in the next few years for completely newer applications. So that is something which was of our invest, and we will continue to do that and have 100% control over it. So that was, in short, the logic behind this particular separation and we will continue to drive our own growth trajectory with 100% control.

[Operator Instructions] The next question is from the line of Sanjesh Jain from ICICI Securities.

A couple of questions from my side. First, on the gross margin side. I just wanted to get your qualitative view on interplay of product mix and gross margin. There's no visible trend there in terms of how the gross margin moves and how the product contribution are changing. So last quarter, Specialty Chemical had a higher contribution than we did a much higher gross margin. And this quarter, CRAMS had a phenomenal shop, bounce back and the gross margin actuated. We understood that CRAMS was more of a milligram to tonne kind of a supply and it was more of a research support we provide. Thus the understanding was that it had a higher gross margin, but again, it would have compensated by higher investment into R&D and talent. Can you just give some qualitative understanding over there?

Yes. Ketan, do you want to take that?

Yes. So while on the numbers, I just give you about the gross margins. And if you see our business segment-wise gross margin, I think on a quarter -- this quarter and the last quarter, the high value businesses of Specialty and CRAMS, I think we've been able to maintain the gross margin levels that as Radhesh spoke earlier in his speech, I think our Legacy businesses have kind of pulled down our gross margin, especially more so in quarter 2 because of the pricing pressures that we face, both on the ref gas business as well as the inorganic business. The ref gas, specifically on the export front, where we have seen the prices softening up. Again, not to do with the lack of demand also and partly due to the timing impact on the approval of our prices. And also in the domestic market, the planned price which we were expecting to firm up during Q2 have actually not really happened, and we had slight pricing pressure also on the domestic front. Similarly, on the inorganic business, we'll be adding industry not really opening up the way we had planned and the domestic demand is being under pressure. And the prices were also quite subdued. Same on the export side. I think the legacy business have played a key role in the second quarter and where PBT gross margins slightly dip over the Q1 margin. I think there is a difference of about little over 3% between [indiscernible] I think the change in pricing structure has played an impact on the overall percentage.

Got it. No, no, I was just not looking for this quarter, per se. But in general, how should we see -- how should -- and the CRAMS contribution increases because I think that's where we have a maximum capacity. Now that we are talking of a much higher run rate. Once this pricing pressure on the legacy business becomes more normalized, the margin should inch up, right? How should we look at it, correct?

That's the exact way of looking at it.

Got it. One question to Radhesh. On the bank route that we spoke about debottlenecking increasing the yield for the CRAMS and process improvement, are we relooking at our guidance of 2.25x to 2.5x of a asset turn in the CRAMS?

Yes. I think it's a little too early to say that. But I think because it's not only a question or a function of these initiatives, but also a function of the kind of products that you do, kind of chemistries that you do, et cetera. So it's a little early to comment on that. But our focus has been and always continues to be to see how do we actually extract maximum sales from these assets. So our focus would obviously be to exchange that from 2 to 2.5 to over 2.5. But what would that exactly be? It is a little too early to give a guidance on.

Got it. Just one last bookkeeping question. What was our investment in the CCPL?

CCPL, our initial investment was about INR 34.3 crore.

The next question is from the line of Anand Bhavnani from Blend AIS (sic) [ Unifi Capital ]

Congratulations on a strong set of numbers. Sir, on CCPL, I just wanted to double check, we will get INR 7 crores lease fee. So this would be for a certain number of years or for a single year. If you can elaborate?

No, no, no. This -- the land that we have in Dahej, it is on a 99-year lease. That is how the lands are actually given to various companies by GIDC. When we did the CCPL deal, we had about 85-acre land. So when we did the deal, 11 acres were actually transferred or earmarked for the CCPL business. And now what we have done is we have just transferred that lease to the name of CCPL, which means now they will continue to have the lease for the remaining of 99 years.

Okay. So it's a onetime consideration of INR 7 crore.

That's correct, yes. INR 7.9 crore.

Yes. Sir, you also mentioned about the hexafluro platform that you have access to post the CCPL divestment. Can you give us a sense of the opportunities on this particular platform over next, let's say, couple of years? How do you see any products coming in? And would you be required to do CapEx in view of the fact that now the CCPL facility is no longer accessible to you? Would you need additional CapEx, if yes, how much?

Yes. So it is a little early to talk about specific CapEx numbers, et cetera, because that will depend on the specific volume and the specific products. So here there are multiple hexafluoro products and then further derivatives of those. There are 2 kinds of applications that we have already identified, one is in pharma. Another one is basically in electric vehicles. So we are trying to understand how big these opportunities can really be. We are discussing with the customers on the specific products, which are derivatives of some of these products through hexafluoro platform. And I think it will take us probably about 6 to 9 months to make that market assessment. And once we do that, we would have finalized the specific products, and we will get into either customer-specific agreement or we will get into doing those afterwards. But we are probably a year away from giving out those specific details.

Sure. Lastly, would there be a need for a joint venture in this chemistry or at this point in time you have reasonable confidence of being able to do with hexafluoro on your own?

So we have extremely strong confidence now to be able to handle the chemistry to scale up the chemistry and also to operate the plant at a commercial level. So we don't see for the technology piece or need to do any joint venture.

[Operator Instructions] The next question is from the line of [ Hasmukh Ranauv ] from [indiscernible] Advisors.

Congratulations on very, very good set of number. This is on the Legacy business, do you have any plans in any moelcules that will be in demand for the next 2 years?

Yes. So as I had indicated earlier as well, we are currently seeing a lot of new opportunities in a number of our segments. So as far as our priority is concerned, we will focus on the Specialty, CRAMS and HPP first. So that is where we have clear visibility in terms of what those opportunities will look like. We clearly see our runway for those opportunities for many, many years to come. There is absolutely no regulatory headwind, et cetera. So we have a clear runway there. So those would be our priorities. On Refrigerant gas, we've actually seen opportunities. There are a lot of regulatory issues there. So we are trying to understand what could the best case be and what could -- the worst case could be. So once we have more clarity, then we will actually take a call there. And on the inorganic, we've really not put any efforts or any management bandwidth to even understand what the opportunity landscape really looks like, beyond just a superficial understanding of that landscape. So as I mentioned, the priority would be the Speciality, CRAMS and HPP, and then Refrigerant gases. And inorganic, there's not much work that has happened.

So second question. As far as CRAMS are concerned. [indiscernible] the type of projects that we are doing, so roughly the INR 130 crore in revenue how much is coming from pharma, how much is coming from crop protection, et cetera? On how projets are we working at over time, if you can do some [indiscernible], et cetera?

Yes. So this business, CRAMS business is 100% pharma. We only deal with American and European pharma companies to supply molecules into the related markets, and these are innovative drugs that is there are apparently under patent. And these are molecules or these are drugs which are at the very early stage of their development. So we typically start from the clinical stage, Phase I stage, through Phase III and then commercialization, et cetera. So these are typically molecules, which are very early stage of their life cycle. And 100% pharma. We don't have any -- there will be small agro piece as part of the CRO part, but that is -- there's no material impact on the numbers coming from the agro. Most of it is coming from pharma. Now if you look at the projects. Projects, it's slightly different from the sales, because projects is what R&D and the technology team works on. So there, at any point in time, we have about 20 to 25 projects that we work on. This could be either from -- because some of these projects are from single customers. So the customer can vary anywhere from, let's say, 10 to 15 customers. And specifically, if you look at the sales, we have always seen irrespective of the number that we do in any quarter, typically, about 65% to 70% of our sales is driven by the top 3 molecules that we do in that particular quarter, which is the same for H1 this year, as well.

Okay. And sir, the last question is, under HPP project [indiscernible], but as you go ahead and implement that project, by products or things like that you will be able and do you see on for that or idea on your own, you will be able to manufacture and market, et cetera? Start from [indiscernible] those derivatives and can go ahead with given that particular contact which you have entered into?

Yes. So currently, that is not a focus. Because the investment that will be required for that has already been made. So that has already been approved and the investment is currently going on. So currently, our focus is on projects which require immediate investment, i.e. the specialty investment required in Dahej, et cetera. So that is our focus right now and going to be focused at least for the next 6 months. Post that, we will probably start to look at some of those molecules, et cetera. We have already identified some of those molecules. We have actually done some piloting in 2 of those molecules and supplied to some of our customers for qualification. So that is parallelly going on, but is there a concentrated activity going on in that particular area? The answer is no.

I would request Mr. [indiscernible] to rejoin the queue. The next question is from the line of Karthi Keyan from Suyash Advisors.

Wonderful performance. A couple of things. One is, can you talk about the contribution of Japanese customers to your specialty business?

The question that you're asking more contribution of Japanese customers, right?

Correct.

So if you look at our existing specialty business, the contribution of Japanese customers is relatively small. But if we look at some of the projects that we working on, especially for multipurpose clients. There, we have projects going on with Japanese customers. So we actually did some projects. We have been doing some projects for the last 3 to 4 years with some Japanese customers, but those were at a relatively smaller scale. But those relationships have now reached a stage where now they are looking for larger molecules or higher volumes of the same molecules from us. And hence, they have been -- they will be part of this NPP investment that we will be making.

Wonderful. Yes. The second is a broader question in terms of automation of your facilities. At the existing ones in CRAMS, Specialty as well as the HPP. A, can you take us through the automation levels at this point in time, the scope for further automation? And your broader thoughts on automation in general?

Yes. So we are actually incorporating industry 4.0 design factors in the engineering for our Dahej plant. So if you look at the project that we are currently going on, which especially related to HPP. That's a continuous plan. So relatively, it's easy to incorporate the industry 4.0 standards into the design aspect. And we are doing that. We have a separate company working with us only on the digitization and automation piece on that. Now we have started working with them for our cGMP3 as well, to basically automate a lot of operations, which is basically, I mentioned earlier, with respect to process optimization. This is one element there. So some of the manual operations, we are actually looking to convert to automated operations. That will not only help our back cycle time, but significantly improve overall, the control and the safety level. That would be the priority #2. And then priority number 3 would be our existing facility in Surat, because as you know Surat is a very old facility. So incorporating the digitization or the automation aspect into the Surat facility or not will entail significant investment. So what we have done there is the NPP that we have in Surat is what we have identified to incorporate some of these elements. So that's going to be our priority number 3. So we are working on each of those 3. And then we are also working -- more from a digitization point of view, we are also working on other aspects from the material packing, data security, data integrity, et cetera, which will not only impact our CRAMS business, but also the HPP business.

I would request Mr. Karthi Keyan to rejoin the queue. The next question is from the line of Rohit Nagraj from Sunidhi Securities.

Congrats on a good set of numbers. So the first question is on the revenue generation from CCPL. So what kind of revenue you are generating from there and was it accounted in the Speciality services or now it will come separately?

For the CCPL since it wasn't easy, it was just in the consolidation, the profit was getting added, it was not -- the revenue, et cetera, were not part of our accounts.

So incrementally, that particular revenue will come as a part of our Specialty Chemical segment. Is that right?

What I'm saying is in the consolidated accounts, the numbers of CCPL were not added on a line-to-line basis, only the profit percentage of -- 49% of the profit was added to another share of profit from the joint venture. So the revenue in our accounts did not include the JV revenue numbers.

That's what I'm saying. So the raw material that we are supplying, so now incrementally once now the JV is off will form part of our revenues.

The raw materials, which we were supplying to the CCPL were already part of our revenue. It was coming under our Inorganic Fluorides business. Going forward, it will continue to come under our Inorganic Fluorides business.

And the second thing, on the balance sheet, so we have a higher inventories as well as the receivables are higher. So what is the reason for this?

So for inventory, if you see, we are at about, I think, on the 58 and 60 days, which we think are quite reasonable. And on the receivable side, the high CRAMS sale that we had, most of it getting fixed out in the later half of the quarter and a large chunk of it going out in September, I think has impacted the receivable numbers as on September end. But I do not think we have any issues on that front.

Thank you. I request Mr. Nagraj to rejoin the queue. The next question is from the line of Bharat Shah from ASK Investment Managers.

Radhesh....

We can't hear you. Can you please speak up, please?

Rajesh. Can you hear me now? Hello?

Sorry.

I request you to increase the volume on your phone maybe?

Yes. Is it better or?

All right. I could hear you.

Radhesh, can you hear me now?

Very, very faintly, but please go ahead.

Okay. Not really specific to this quarter. But basically, the reason that we have started out to become a more technologically being sophisticated firm grow and evolve to Specialty and CRAMS and HPP. Not focused on our traditional businesses, but let them go as they happen. And in the process, we not only [indiscernible] the chemistry strength, technological capability to work those chemistries with a better advantage gets bigger than superior projects and [indiscernible] customers. So in this quarter, kind of a nice affirmation of that long-term and the picture continues. That is the basic question I had.

No, I think that's a very good summary. And directionally, you will actually see us continue to emphasize these various elements that you talked about. In the high value-added businesses, like you talked about, which is Specialty, CRAMS and HPP, we have relatively good visibility in terms of what we want to do, both from the product perspective, chemistry perspective and technology perspective, which will then obviously get translated into investments and the sales. As far as the inorganic business is concerned, there is not much work going on in a very concentrated manner there. And in Refrigerant gases, we do have a very strong point of view as of today, but we see a lot of regulatory hurdles going forward. So we still -- those points of view -- the point of view has not got translated into specific business plan, which we take to the Board. But directionally, you're absolutely right. That's the direction that we will continue to take.

And which I should that at the key focus areas are the 1 trade ship in CRAMS. As far as the other 2 are concerned, they are existential kind of businesses. And our deliver, we really are not really doing anything much on what to do on that. And in the [indiscernible], now over a period of time, our margins and -- can you see any sophistication or will reflect that.

That's correct. Yes.

The next question is from the line of Ankur Periwal from Axis Capital.

I have one question and one clarification.

Can you please speak up? I think there is some problem from my side. There is a problem in my line. If you could please speak up, it'll be good.

Sure. Am I audible now?

Yes, yes, very much.

Okay. So sir, I had one question and one clarification. Taking the question first. Now in this -- in the first half, we have seen probably more than 350 basis point expansion in gross margin, which was driven by specialty in the first quarter and CRAMS now. And going ahead, given our focus on CRAMS, Specialty as well as the HPP business and reducing contribution from the legacy ones, do you believe that these margins will sustain going ahead as well, even if, let's say, the legacy business will bounce back in FY '22? This margin expansion could sustain.

You're talking about EBITDA margin, not gross margin, right?

On the EBITDA and gross margin, both, whichever way you look at it.

Yes. On the EBITDA margin, if you actually look at -- so rather than looking at Q2, separately, if you look at H1 together, as we have indicated earlier as well, as we continue to scale Specialty and CRAMS and obviously, HPP comes in from FY '22 onwards, that will clearly have a better impact on the margin. The margins will start moving up. The legacy businesses, on the EBITDA margin side, clearly have -- they have dragged our EBITDA margin -- operating margins down. This particular period, which is H1, if you see our legacy business were significantly down. So what really helped our margin was not only the fact that our CRAMS businesses, like CRAMS and Specialty were up, but also the lower operating margin businesses like Refrigerant gas and inorganic businesses were down. Now clearly, we did not reduce the sales of those -- in those businesses to increase the margin, but that is just the way it happened. We expect going forward that our inorganic fluorochemical business and to a certain extent, Ref gas business will actually move up. And hence, the margins might slightly go back to about 25%, 26% level. But as we move ahead, as was mentioned by the earlier questionnaire -- as was mentioned in the earlier question. As we continue to scale our CRAMS and Specialty business and as HPP kicks in, you will start seeing quarter-on-quarter and period after period, EBITDA margin of what we have delivered in H1 or even better.

Sure, sir. That helps. And one clarification on the Specialty Chemical side. If I got you right in your earlier comments, you did mention some of the debottlenecking exercise, which will add to the overall capacity and hence, overall growth. Would it be fair to say that we -- this debottlenecking exercise will be able to help us post a double-digit growth this year, and then the incremental CapEx will come in to drive the growth FY '21 onwards? The reason I'm asking this is, even if you put in new CapEx, there will be some time lag as well, right, by when this capacity will come in. Which is very slightly curious in terms of the timeline for the CapEx and in fact incremental impact on our revenues accordingly.

Yes. So we believe that if you look at the specialty business this year, this will grow by and large, to a similar extent as what we did last year. But next year could probably be slightly muted because the capacity debottlenecking that I talked about were relatively smaller debottlenecking exercises. They were relatively very small CapExes, because our Surat facility, we are not allowed to construct any new plant or anything. So whatever changes we have to make, we have to make in an existing plant. But from year 2022, you will actually see a significant increase in our business turnover, et cetera, which is when the new CapExes that we are talking about now will actually start reflecting in the numbers.

[Operator Instructions] The next question is from the line of Niket Shah from Motilal Oswal AMC.

Congratulations on a good set of numbers. I just wanted to know what is your cash on balance sheet. And just a similar question to that was, will eventually we open [indiscernible] on balance sheet, given the significant tailwind that the country has seen from China as some strategy and obviously [indiscernible], beneficially. Will we take an aggressive stand better balance? Are you open to that idea or you would like to have balance sheet? So that's the first question.

Currently, if you see the balance sheet in September, we have cash and bank balance of about INR 350 crore and we adding these kind investment in that and the overall balance is around INR 450 crores on the balance sheet. In regard to your second point, I think we have clarified earlier also that it's not that we have a not taking any debt on the balance sheet. We are open to that idea. And I think that's of all we take as and when the CapExes and firstly, investment in the current state of the balance sheet and when we would like to get it done through our current business, current that we have. But overall, we are open to this. And I think probably towards the end of this year and early next year, when we had the entire project expansion plan on the table for Specialty, et cetera, the coming up in. But I think that the time you take call on taking on debt on the balance sheet.

Sorry, I didn't quite...

The INR 65 crores, which we have got from the JV, that will add up to the [indiscernible] going forward.

Right. That's it. And the second question was...

I'm sorry to interrupt you, but I request you to rejoin the queue. The next question is from the line of Amar Mourya from Alpha Accurate Advisors.

My question is, from the project identification strategy perspective any changes we'll be looking to do in every into shares in terms of looking at new opportunities in the budget?

Mr. Mourya, I'm sorry, but your voice is not clear. We did not hear your question very well.

Is is clear now?

This is better. Can you please repeat your question?

I am saying from the project identification perspective, any changes we'll be looking to do [indiscernible] event.

Ladies and gentlemen, we lost the line of the management, request you to please wait... Mr. Welling, can you please confirm?

Yes, I'm here. Are you able to hear me?

Okay, great. We can hear you now, sir.

Yes. Can I go ahead and answer the question?

Yes, sir, please go ahead.

Yes. So as far as the project selection criteria are concerned, there is absolutely no change in terms of those criteria. The criteria continues to remain the same. First of all, there has to be a clear strategic fit in terms of what we are doing. These opportunities that we look at, they need to be clearly profitable, sustainable. The profitability of those -- attached to those projects need to be clearly sustainable profitability. And then it has to meet our criteria in terms of the financial ratios, et cetera. So there has been no change post any of the events.

The next question is from the line of Kashyap Jhaveri from Emkay Investment Manager.

Yes, am I audible?

Yes.

Yes. Congratulations for a great set of numbers. All my questions have been answered. Just wanted to comment on one thing, the Slide 1 of your presentation probably now reflects our strategy very crystal clear, which is to value from [indiscernible]. Just one question related to that. What are the risks that you see associated with this strategy concentration, client concentration be a risk over here? We have seen in one of the other Specialty Chemical company, a cancellation of an order and consequent reflection on the numbers. So what are the risks that you see associated with the strategy?

So for us, the selection of what we call partners is extremely critical. And when we use terms like partnerships, et cetera, we actually tend to use these terms very seriously. We don't tend to use these words very casually. So these relationships that we have, commercial relationships that we have, have to cross a certain threshold to be called as partnerships. And those could be with customers, those could be with suppliers, could be with peers, et cetera. And the way we have planned our overall business framework, which is around 3 Ps, which is product, platforms and partnerships, we are ensuring that none one of these 3, there is over concentration on a few products or a few platforms or a few partnerships. So we have the right level of risk mitigation playing out there.

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

Sir, one question. Any new development in the fluorine chemistry space in terms of application, new products, deeper application of the existing category, which you would like to highlight.

Yes. So it will be difficult for us to highlight those, because a lot of that information is extremely confidential. Some of those we are independently developing in India or in U.K. and some of those we are developing along with the customers, and hence, those are covered by the confidentiality agreement that we have signed with those specific customers. But I can say one thing. If you look at any of the new application area. So just to give you some examples, you talk about 3D printing or you look at electric vehicles or you look at the battery chemicals. You look at any of the newer 5G, any of these applications fluorine plays a big and important role in each of those. And we are exploring opportunities in each of those sectors. Will those get converted into sales next year, the chances are lower. But what we are looking to understand is in which of these opportunities could there be an opportunity for us. So those 1 or 2 or 3 opportunities which we could significantly scale up the way we have done in case of the HPP project, which has already been announced. But there are a number of those. We are currently evaluating those. Some of those we are discussing with the customers, et cetera. But a lot of those are a little confidential to actually mention on a call like this.

And this is first time you are -- it's because it's a new technology. So no one in the world has made already. It's a first time you are working, right, on it.

So this is the first time we are working on it. And in our understanding, there is nobody from the Eastern Hemisphere, who has worked on it. But there are a few companies in the U.S., who have also worked on these or not worked on it but are working on this.

It's a new application altogether, 5G or 3G or battery.

Yes.

The next question is from the line of Vinay Jaising from Enam Asset Management.

Again, a big congrats for the results and even a bigger congrats to get a show to your team. I've worked with them historically, wonderful thought person. So big congrats on that. My question, sir, is, I think, what everyone has been asking you on the CapEx front. We have a huge net cash position, INR 4.1 billion, going to INR 4.7 billion with the cash inflow from the Piramal growth. Our EBITDA is growing this year, but our utilization rate in some parts are 80%. It takes 1 to 1.5 years for CapEx to come up and then the growth to come. So growth is visible in F '23. But I'm just using your words that F'22 could be slightly muted on the growth side. What do we do so that we build capacity now that we know our products are right, our direction is right, as you put it, your partnerships are getting in place, but you're going slow, so you are getting a partner because you want to be there for the longer term. What is the one thing you guys would to do increase your CapEx on the ground, just so that your utilization rate remains at 50-65 or whatever, so that a, you can have a huge growth, a multi-year huge growth story, not a few months or pick up and then again, the growth coming back?

Yes, sure. I think it's a good question. I think the way we look at it is that ultimately, we have limited bandwidth. I'm talking about senior leadership bandwidth. Whatever we do has to be done very well. So if you look at the project that we earlier announced, so that initially took a lot of our bandwidth to ensure that the project actually came on track. In an ideal world, we probably should have announced some of the expansion plans already this year. But because of COVID, lot of our mine space got shifted from growth to maintenance. So we have to make sure that we, again, bring our attention back to the execution of the existing business to ensure that we deliver relatively good H1 and which is what has happened. Now that, that has happened. And parallelly, we have been working on a lot of these projects through R&D, through piloting, et cetera. And you mentioned about Mr. Ashok Sinha. Similarly, if you see a lot of our other Board members, et cetera, they expect a certain level of rigor to be applied to any project that is taken to the Board. So that the sustainability, the profitability of those projects, et cetera, are assured. So we want to make sure that before we take anything, we have the right level of assurance. Of course, there could be a year in between where the growth could be muted. But just to make sure or just to speed up the process, we will not present any plan, which is shoddy or which is not very well thought out. Because we clearly understand that we are not in this business to manage this business for a year or two, but we are here for the next 10 years, 20 years, to make sure that we put this company on the right growth path and we will continue to do that. And you will see that reflected in the decisions that we make in terms of capital investments.

Ladies and gentlemen, due to time constraints, we'll take one last question, which is from the line of Ranjit Cirumalla from B&K Securities.

Congratulations on a great sort of number. Actually, I had a couple of questions first one the hexaflouro product chemistry, which you have talked about. I was in the belief that the Piramal had approached us for, since we've had the specialization in Fluorine chemistry and would have helped them to build the capacity. So I just wanted to get some clarity that in the last couple of years, what was that particular technology that we had a value addition to ourself. The gross purchase that we would be providing some value addition to Piramal? That would be the first question. The second question, quarter-by-quarter, we see your commentary getting a bit aggressive on the CapEx front. So in the way I understand, right now, till last quarter, we were only expecting the CapEx on the spectrum side. Now with Piramal JV, we are again indicating a 20% CapEx from the Specialty Chemicals. So clarification, whether these 2 things are different or these 2 things were the same one.

Yes. So on the second part, as I mentioned earlier, we have a clear growth plan and that growth plan or trajectory or the pace is not going to change because of the Piramal transaction that we just did. It is just further reinforce, and we will be able to do that in a much better way because we have freed up some management bandwidth from the activities, which could have otherwise contributed only incrementally to Navin Fluorine performance. So that's on the CapEx side. So that we will continue our business as usual. On the first part, on the hexafluoro, you are absolutely right. Piramal approached us because our -- because of our expertise in fluorination. And that technology from a chemistry point of view was the earlier version of that chemistry was actually developed by us. Then that chemistry was then further worked upon or perfected by both of us working together. And then CCPL worked on it to make sure that the scale up happened successfully. And as you know, in a lot of our business it's not about the process development, because we are not really necessarily doing any fundamental R&D. A lot of these process development information is available in the public domain. Is the question of how well we repeat those in our labs, how well we optimize those chemistries? In critical cases, how well we scale it up and we stabilize the particular technology, which is what the initial part was done by Navin Fluorine, then the middle part was done together by Piramal and Navin Fluorine and the latter part was actually done by the CCPL team. And by getting these perpetual license, we will get access to all the three. We will actually have equal rights to getting access to all the three.

Yes. Just one clarification on the end CapEx front, the CapEx, which you have talked about from the CCPL, if you in addition to the CapEx, which you are guiding for the spectrum side?

No, we have not guided any CapEx on the CCPL side.

Yes. So this is a commentary on one of the questions you indicated that hexafluoro for chemistry would be evaluating opportunities and there will be more clarity by the end of this year?

That's correct. So, I mentioned that it will take us a year to really gain more clarity around what does that platform mean for us. What are the products that it will get translated into and what kind of volume those products will have potential for? Which means that any discussion on CapEx -- meaningful discussion on CapEx, we will be able to have only after a year. That's what I meant. So at least for next year, in terms of specific CapEx plans, our focus is very clear. It's primarily going to be led by Speciality, then there could be certain events in CRAMS, et cetera, which could actually bring some other opportunities to the table.

Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. Radhesh Welling for closing comments.

Thank you. So we believe our company will benefit from the strong tailwinds in the coming years. We are very confident to navigate through these tough times and a much, much stronger and leaner. Over the years, we have successfully transformed our business from volume-driven to margin-focused. We will continue to grow by leveraging our product basket and expanding our global network further, and we aim to scale up the business from the current level. 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 advisers. Please take care, stay safe and enjoy the festival in the coming months. Thank you very much.

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