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

Ladies and gentlemen, good day, and welcome to the Navin Fluorine International Limited Q1 FY '22 Earnings Conference Call. 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 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, Mr. Welling.

Thank you. Good morning and a very 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 details and investor presentation which have been uploaded on the stock exchange as well as on our company's website. At the outset, I would like to wish and pray that you and your loved ones are safe and well. We continue to follow various protocols at all our manufacturing sites and the corporate office to prioritize and safeguard the health, safety and well-being of all our employees. All our sites are currently still functioning, and we have successfully completed vaccination programs for our site employees. Now let me start with key highlights of the quarter ended June 2021, followed by business segment-wise updates. And then Ketan will take you through financial highlights. For Q1 FY '22, our company has delivered an operating revenue of INR 314 crores, with a growth of 53% on Y-on-Y basis; operating EBITDA of INR 78 crores, which translates to growth of 50% Y-on-Y basis; and operating profit before tax of INR 67 crores, which grew by 59% on a year-on-year basis. All of our business segments showed good growth compared to Q1 of FY '21, although it's on a very lower base which we were -- due to -- primarily due to nationwide lockdown we saw in Q1 FY '21. Work on a new HPP project is going well, and we expect plant commissioning to happen in Q4 FY '22. Work on our multipurpose plant in Dahej is also progressing well. Our high-value businesses achieved good performance growth of 52% to 200 crore for Q1 FY '22 compared to same period last year. It now contributes 64% of the total revenue for the reporting quarter. Our speciality business reported growth of 37% on Y-on-Y basis, which is INR 133 crore for Q1 FY '22 compared to the same period last year. On Q-on-Q basis, it was marginally up by 1%. The business witnessed good growth driven by mix of new products and market share gain, which primarily happened in [ U.S. ] for one of our large products. During this quarter, we continued to strengthen our pipeline of new products; and are seeing strong demand for our capabilities from agrochemicals and other industrial segments. Our CRAMS business has reported revenue growth of 98% to INR 67 crores for Q1 FY '22 compared to same period last year. However, on Q-on-Q basis, it was down 11% primarily due to moving of one order from June to July. We are seeing good traction among our existing customers and good flow of repeat orders. We continue to focus on expanding product -- project pipeline and further diversifying our customer base. In this regard, we have added a few new exciting customers in this quarter. Revenue of our legacy business is ref gas and inorganic, grew by 55% on a Y-on-Y basis to INR 114 crores for Q1 FY '22, as compared to same period last year. And it contributed 36% of the total revenue for the reporting quarter. Our inorganic fluorides business was up 98% on Y-o-Y basis for Q1 FY '22 to INR 56 crores compared to same period last year. And on Q-on-Q basis, it was lower by about 6%. This segment has seen a good demand traction from our existing end user industries of stainless steel and glass. Our efforts of widening our end user segments have been fruitful. And to that extent, export in this business has shown growth driven by addition of new customers, new international customers. Our ref gas business was up 28% in Q1 FY '22 on Y-o-Y basis to INR 59 crore compared to the same period last year. On Q-on-Q basis, it was marginally up by 1%. Improvement in the trade and service sector, despite COVID-related restrictions; and good volume traction from international markets are contributing to the segment growth. However, the prices in international markets were a bit subdued, and this impacted overall margins. Sales into non-emissive applications have been steady this quarter. That is from my side. I'll now hand over to Ketan to give you a brief on the financial performance of the company. Over to you, Ketan.

Thank you, Radhesh. And a very good morning to all the participants. I start off by I hope all of you and your families are in good health. So I'll share the highlights of our performance for the quarter, and following which we'll be happy to respond to your queries. So for Q1 FY '22, the performance on a stand-alone basis. The company has reported a growth of 53% in net revenues from operations of INR 314 crores in Q1 against INR 205 crores in Q1 FY '21. So as mentioned by Radhesh earlier, the strong growth was also a factor of lower performance in quarter 1 FY '21 due to nationwide lockdown restrictions in the base quarter. Operating EBITDA was up by 50% to INR 78 crores for Q1 FY '22, as against INR 52 crores in Q1 FY '21. The operating EBITDA margin stood at 25% during the quarter. Margins were marginally impacted due to rise in raw material costs; some pricing pressures; and also on -- due to the high employee costs during this quarter, as the annual increments and some bonuses were paid out during this quarter; and the addition of new employees during the course of last year. Other income for Q1 FY '22 is INR 7.6 crores. It was INR 35.6 crores in Q1 FY '21. The Q1 FY '21 included INR 26.2 crores of interest income due to income tax refund. So that was the larger item in the last quarter. Operating PBT grew by 59% to INR 67 crores for Q1 FY '22, as against INR 42 crores in Q1 FY '21. The operating PBT margin stood at 21% in Q1 FY '22. Profit after tax stood at INR 56 crores for Q1 FY '22, as against INR 52 crores in Q1 FY '21. The PAT margin was at 18%. Quickly on the unit-wise performance for the quarter. The high-value business grew by 52% and the legacy business grew by 55% during this quarter. Speciality business grew by 37% to INR 133 crores and CRAMS segment grew by 98% to INR 67 crores. The legacy business showed an upward trend with a growth of about 97% to INR 56 crores in inorganic fluorides; and about 28%, that is to INR 59 crores, in the refrigerant gas business Y-o-Y basis. So that's all from my side. I think we can now open the floor for Q&A. Thank you very much.

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

Congrats on good performance on the high performance side. Sir, my question is to understand you had mentioned that in CRAMS you are seeing good inquiries from customers in Europe and U.S. So some color with respect to the nature of these customers. I'm trying to understand whether they are large innovators, smaller biotechs. I mean, what is the kind of projects that we are looking at, whether it is early-case development. I mean some color on this. And was this also some kind of a follow-through from Manchester? Because that is what we have been talking about as well, that -- kind of getting a lot of input from Manchester and migrating those projects to India as well. So some color on these would be helpful, sir.

Sure. So if you look at the overall growth that we are seeing, and I'm talking -- when I talk about growth, I'm basically including the inquiries, et cetera in that -- in CRAMS. There are basically kind of -- there are 3 different kinds of growth: one, the projects which are very nicely scaling up. And we have actually been working very closely with the customers to ensure that we continue to service these businesses as they scale up. So that, we are actually seeing a pretty good traction, because of which, we see -- continue to see pretty good repeat orders. We've actually -- specifically in this quarter, we have actually added some new customers. These are mid-sized biopharma companies primarily from the U.S. Some of these companies, we have been actually looking to target for almost last 2 years, and we finally now managed to crack it in this particular quarter. And that would really help us going forward. These customers are primarily U.S.-based and these are mid-sized biopharma companies. And we believe that, as we grow and as the engagement with these companies grow, the business will be extremely good for kind of a mid-sized company like Navin Fluorine. And the third piece, which is what we are primarily seeing in Europe, we have some long-lasting relationships in Europe with some of the large innovator, so there we have actually seen the good flow of new inquiries coming in from existing customers. So those are 3 different categories of inquiries that we are seeing, which will then translate into the growth of -- in terms of sales for our CRAMS business. I hope that was helpful.

Yes, sir, definitely helpful. Sir, my second question is a little bit more strategic. I mean, today, if you look at it, I think we have done a phenomenal job on the CRAMS side and speciality chemicals. I mean largely the agro and the pharma side across bio and the chemicals as well, but if I look at -- and fluorine as such has got a lot more applications, I mean, in across other chemicals, across automobile, so many other sectors. You have earlier mentioned that we are working on several things on the project level on the R&D side. My question is, today when we are looking at this CapEx that is expected to come, I mean, next year or later this year, I mean that multi-specialty plant, would that accommodate the newer projects or the newer applications that we are talking about? Or this newer application would primarily be for the current set of products that we are developing and we would announce another round of probably CapEx for the newer applications on the [ proving stage ].

Sure. So if you look at the 2 CapExes that we have announced. One is related to HPP, and 1 related to MPP. If you look at the MPP investment, it's primarily related to existing applications, primarily agrochemical and some pharma pieces there. As far as HPP is concerned, it's all new applications. Primarily these are new applications to us, to India, et cetera. So those are focused on new applications, but I think, the applications that you are specifically referring to like EV, et cetera, those are not part of these existing CapExes. Those are the opportunities that we are currently working on at the incubation stage. One of the things that you will see is that there has been a significant increase in the employee costs, as Ketan had mentioned, due to new addition of employees. So we've really strengthened our technology base. We have continuously been doing that. So we've added a lot of people on the technology and design side as well as on the R&D side to develop these opportunities because there it's not only about synthesis. It's not only about developing a new process for an existing product but completely developing a new product; and then once we develop that product, to basically ensure that, that product actually has the right functionality for the end application segment. To a certain extent, this entire piece is kind of new for a company like us, so we are investing a lot of efforts and time on these opportunities. And those will translate into CapEx, we believe, in the next, let's say, maybe 18 months or so, but in the near term, if you were to look at the next 12 months, some of the CapExes which we might announce would still continue to be in the traditional application because those opportunities are slightly farther away to commercialization or at least to conclusion of the business case than some of these other opportunities in newer segments. There we are trying to get better understanding on the functionality, also get a better understanding on the channel to market.

Sure. One final question from my side is, as you mentioned, that about hiring. Can you throw some color with respect to the R&D, I mean, kind of hires that we have done? What is the kind of infrastructure addition that we have done, et cetera?

So when you look at the technology piece. Our first priority was to add more people on the technology transfer side, on the design side and the engineering side, which is we -- over the last 1 year, if you see, we have added -- I mean we have actually almost created a new function from ground up. We today have about 80 people in that function which actually didn't even exist. And there we have actually got a lot of investment that we have done in our pilot facility. A lot of process investment has gone into setting up a [ process FT lab ], et cetera, et cetera. Then the next -- and the reason why we did that is because our R&D capability was relatively strong even before. So we said that let's get this technology piece done very well because, for some of the projects that we are discussing, basic technology has been developed by some of our international partners. And our responsibility will be to ensure a proper, successful absorption and scale-up, so for that, we needed a strong technology and design team. Now having done that, now we have started hiring for R&D. And we are actually looking at some opportunities for setting up a completely different application development lab there. So we are currently in the process of evaluating the location for that, whether it should be in Bombay, in Surat or in Dahej. So that's going to be more on the application side.

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

First, just a question on the margins mainly. So last quarter, fourth quarter, we had learned that a couple of high-margin shipments had been deferred by about 1 quarter. And that's why the margins had been a little bit subdued last quarter. So just wanted to check: Number one, have those been delivered this quarter? And number two, if so, what's the reason for some further pressure seemingly on the EBITDA margin front? Yes. And the increase in employee costs also, is this a sustainable number that we should expect going forward into the year?

Yes. So I will answer 3 questions that you have basically asked. One is specifically with respect to some of these orders in Q4. The second question was related to overall gross margin for this quarter. And third was the EBITDA margin. So I'll give you the response; and then Ketan can add, subtract to that. So the business that we have talked about was primarily in speciality. So there were 2 orders. So both those orders actually got delivered in this particular quarter. In this specific quarter, the margins, especially if you look at the contribution margin for the same period last year, were down slightly primarily for 3 reasons. One, in ref gas, our sales as a percentage of total sales in the domestic market went down further. And as you know, this is significantly higher-margin business. At the same time, our sales into the international market actually went up, which is a significantly lower-contribution-margin business. So that -- there the shift in the customer base impacted our margin in ref gas. In speciality, there were 2 reasons why the margins got slightly impacted. One, it's basically because of one critical RM for one of our main products saw a significant price escalation in this quarter, and we believe that this will continue at least for another quarter or so. So there, for the end product that we manufacture using this particular raw material primarily goes into U.S. customers. There are 2 large U.S. customers that we have. And both these are actually locked into multiyear agreement, multiyear price agreements, so that we have actually gone back to both the customers and asked for price revisions to absorb this increase in the costs. Both the customers in principle have agreed for that. One of them, we should be able to implement in Q2 -- by end of Q2, beginning of Q3 itself. Another customer, though they have agreed to that in principle, they have requested us to implement this from beginning of the next calendar year. That is from January 2022, which means for as far as when we look at our shipment, it will be Q3 shipment onwards because they have -- on the basis of our agreements, have back-to-back contracts with their customers, so which they will not be able to change at this point in time. So they have requested if we could actually continue. So that dialogue is currently going on. And the second, there is one important product that we were actually supplying into pharma applications, where we've actually seen a significant reduction in the demand primarily driven by inventory buildup in the end market. So this is a product which was actually going to multiple customers within the Indian market who were then converting into the final product and supplying it globally. And there we have actually seen a sudden decrease which even our customers were not anticipating, and this is primarily because of the inventory buildup. Again here we believe that overall the demand remains quite robust for these [ end ] molecules. And we should again start seeing demand come back for us from Q3 of this financial year because, again, there the contracts are primarily made for [ calendar year. ] So those were primarily the 3 reasons why we saw the gross margin getting impacted. On the EBITDA piece, which is primarily related to fixed costs or employee costs, there were 3 reasons. One is the new employee addition, primarily on the technical side. The second one was the retention bonuses that we gave to some of our critical people given our growth plan. It was very important for us to ensure that, certain set of people, we continue to keep with us, so there were certain retention bonuses, onetime retention bonuses, which were paid out in this particular quarter. Also, in recognition of the efforts made by our team in the last year, especially given the COVID-related challenges, et cetera, we've actually given our generous variable payout. So that also got reflected in this particular quarter. And the fourth piece, which actually came in for a large section of our employees, there is a kind of a double increment which happened in this particular quarter because, last year, we had actually deferred the increment. We did not take the increment from Q1 onwards. So there was an increment for FY '21 and then the increment that just happened for FY '22, so there were kind of a double increment that happened in this particular quarter. So point number two, three and four are onetime occurrences, but the point number one, which is new employee addition, which is something that we will continue to see for the rest of the year -- but the other 3 are onetime occurrences.

Got it. That's really helpful. Just one quick thing on that was, if it's possible to quantify the onetime portion, that will be really helpful. So if [ Ketan gives, it's ] possible to help on that. And the second thing, last question from my end before I sign off is with regard to the new CapEx or new project announcement plans which we were kind of considering last quarter as well but which were deferred due to COVID. So any further progress on that and when we could expect some announcements?

Yes. So to the first point, related to the employee costs, if you look at the employee costs. Employee and benefits -- and employee benefit expenses have gone up by about 9 crore. And about 1/3 of that is basically because of the new employee addition, which will continue. And approximately about 2/3, I will say, 40%, 60%. 40% is because of new employee addition. 60% is onetime which will actually not happen going forward. And I'm sorry I was not able to hear your second question properly. What, which projects were you mentioning?

I was just saying in terms of the new CapEx or new project announcement plans which we had, as you know, in speciality chemicals or refrigerants or any other areas for FY '22. So any further progress along that? And when could we expect some announcements on that front?

Yes. So as we have maintained, we're actually working on some really good, exciting opportunities, but it will be very difficult for us to give a time line because, once the operating team is confident about the business case, then that is where we go to the Board. And post approval from the Board is when we will be able to make the announcements. Our efforts are currently underway to make these happen within this financial year. So for both refrigerant gas as well as speciality, but it's very, very difficult for me to give you the time line because it's -- first of all, it's subject to the operating team being satisfied with the strength of the business case and then the Board actually approving these CapExes, but at least from our side the efforts will be to do this within this financial year.

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

Sir, first question, on the Manchester side. You had earlier highlighted the synergies and the benefits that we could see, especially on the spec chem side. So if you can please share your thoughts there.

So currently if you look at MOL. MOL really does not play much role on the spec chem side. It primarily plays a role on the CRAMS side. However, we are actually trying to understand if we could really develop kind of an integrated business model where we plan across these 2 businesses. So we're actually working currently with a large global consulting firm to relook at our CRAMS plus speciality pharma strategy; and as a subset of that, trying to understand how could MOL help us drive the growth in this particular piece. And that work is currently going on, so -- but currently, if you look at it, MOL is actually playing pretty insignificant role, as far as the growth in speciality business is concerned. It's primarily focused on CRAMS side. Even there what we used to see earlier is that the opportunities that we develop in MOL used to get scaled up very nicely in India. So that process has a little bit slowed down primarily also because the overall inquiry flow into MOL have slowed down over the next 12 -- last -- over the last 12 months primarily because of COVID-related restrictions in U.K., [ which ] it has been -- unfortunately not been operating the way our facilities in India have been operating. So we are just relooking at that entire business model to understand what do we really need to do to kick-start that MOL piece and how we can really develop that integrated business model which spans the pharma piece within CRAMS as well as the pharmacies that we have within the speciality.

Sure, sir. That's helpful. Sir, secondly, in your commentary as well as in the PPT, you did mention a pretty healthy outlook there for both speciality chemical and CRAMS, as in addition of new products, new clients, but just wondering. From a capacity creation perspective, are we there in time? Or will we need to ramp up new capacity addition to address the rising opportunity? Where I'm coming from is that, while the opportunities are there -- and probably we have the capabilities there as well, but is there a possibility of a mismatch there in terms of timing, our capacity as well as the opportunity? Or you believe there is a sufficient gap and a sufficient buffer there.

Yes. So I would answer this question in 3 -- I mean I will have 3 responses to this question. So one, what we are trying to do, as this -- the incubation of some of these opportunities, we continue to make it happen in Surat. So for example, in this quarter, there were new -- 2 new molecules that we actually manufactured and supplied out of Surat. Of course, this is at an initial stage of the opportunity. The second piece is, if you look at the MPP that we have invested in, there is a room for us to add -- as I've mentioned when we did the CapEx, to add another line fairly quickly. So -- and also, the products that we had initially planned for MPP, those are expected to scale up; and hopefully, in let's say, 2- to 3-year time post commissioning of MPP, will actually go into their own dedicated plants. So as that happens, we are readying up new set of opportunities which we can then put into those MPPs. And the third piece is that, see, when you set up a new plant, typically it takes anywhere between 18 to 24 months, but if you look at these 18 to 24 months, primarily the time is required for OSBL, which is basically the infrastructure that you'll set up, the road, the ETP, et cetera, et cetera. But now we've actually already investing in that in Dahej. And we've actually investing more than what we had earlier anticipated in OSBL in Dahej in anticipation of some of these newer opportunities coming in. So when we actually have to set up specific dedicated plants for some of these other opportunities, specifically in speciality chemicals, we could bring those plants up fairly quickly, so if -- we won't necessarily take the period of 18 to 20 months to bring those new plants up.

Sure, sir. That's helpful. And just one comment on the CRAMS side as well because, being the cGMP-led operations there. How much time does it take there? And any plans of expansion?

Yes. So currently we are working on debottlenecking of our cGMP3 facilities because of some of these opportunities which are scaling up. Or where we have visibility from the customer in terms of what these opportunities could scale to in the next, let's say, 2 to 3 years, our immediate priority is to do the debottlenecking in our cGMP3 plants. And that's something that we intend to take to the Board in the next quarter or so and that would be an investment that would be made first. Post that, we would actually start looking at possibility of doing the cGMP4 given the pipeline, et cetera, but that work will happen post our design and the business case is ready for this debottlenecking and it's approved by the Board. So that's our phase 1 priority. The debottlenecking should happen within less than 6 months. And the [ cGMP4 ], we believe, will probably take about 12 to 15 months as and when that CapEx is ready. And post the CapEx approval, it will take us about 12 to 15 months.

[Operator Instructions] The next question is from the line of Vihang from Oxbow Capital.

Just wanted to know. I think one of your competitors domestically announced some expansions in fluorochemicals which are -- which have like EV applications, PVDF and LiPF6, so just wanted your thoughts on if you would at any point in the future consider getting into these. And if not, then why? Yes, that's it from my side.

Yes. So we are looking at these products and some other products beyond these, but I think -- we at least believe that it's very, very important because here it is not about -- as I mentioned earlier, about -- see, typically if you look at most of the fine chemical companies in India -- most of the speciality chemical companies in India typically are in the fine chemical space. And there the business model always has been to first focus on the synthesis, then you focus on the scale-up. Then you focus on the design and then the engineering of the plant. In a lot of these molecules, the focus has to be on, a, the functionality in order to ensure that the product has the right functionality for the right applications. And the second piece is the channel to market because, if you don't do that, you will continue to operate at the commodity end of that value chain. So we want to ensure that we answer all these questions before we decide which of these molecules we should go into and how should that play really look like. So to your question, are these opportunities we are looking at, the answer is yes, but we are approaching it slightly differently. And we believe that, once we have the right business model for these opportunities, we will then translate those into the CapEx plan and the business case because we believe that it's very critical that here we not only answer what in terms of what products, et cetera but how in terms of how that play really should be so that we can focus on operating at the top end of the value chain and don't get relegated to the bottom end of the value chain. If you look at, a lot of the Chinese players in this particular space are at the bottom end, the commodity end, of the value chain, which is not something that we would like to play in. So that is something that we are currently in the process of evaluating.

The next question is from the line of Rohit Nagraj from Emkay Global.

Sir, the first question is on CRAMS segment. So you have given a positive outlook, plus 2 inquiries from the U.S. as well as the European customers. In terms of the U.S. customers, how much is the gestation period from the start discussions and then commercialization of the product? And typically what is the threshold revenue potential from a molecule or from a project that we look at?

I don't think there is a standard response to that because it completely depends on the specific opportunity. It depends on what that molecule is, at what stage the molecule is in. In some cases, we have seen that the phase 2 revenue actually can be bigger than phase 3 revenue for some of the molecules. So I don't think there is a standard response that we can give to this question. I mean it completely depends. It -- customers to customer, it varies. Molecule to molecule, it varies. Therapeutic area to therapeutic area, it varies.

Right, fair enough. Sir, the second question is in terms of the exports market. So given that -- the logistics issue that are currently going on in the international market, are we also facing any kind of challenges because of the same, both of our exports as well as imports of raw material? And how are we trying to mitigate those challenges?

Yes. So past at least 6 months, if not more than a year, since the COVID started, we've had several challenges on both inbound as well as outbound logistics. And the challenges are -- primarily been on front of, a, the uncertainties because a lot of vessels getting delayed or bypassing India or unavailability of the containers, et cetera, et cetera...

We seem to have lost the line for Mr. Welling. Participants, please stay connected while we reconnect the line for Mr. Welling. [Technical Difficulty] We have the line for Mr. Welling reconnected. Over to you, sir.

My apologies. I got disconnected. I'm not sure exactly at what point it got disconnected.

Sir, you were answering about the logistic challenges from past 6 months.

Yes. So as I said, we've actually faced challenges both on the inbound side as well as outbound side. And the challenges have been with respect to uncertainty because vessels actually bypassing India or unavailability of the containers, et cetera; as well as on the cost escalation. Also, in some of the cases for some of our raw materials, we have also seen some challenges because of these issues on the -- because 2 of our critical raw materials are mined raw materials. So we've actually seen challenges on the mining side as well. And in fact, for one of the raw materials where I mentioned that there has been a significant price escalation, there one of the large mines in the world actually closed down because of some labor issues. And we believe that, later in the year, the operations will restart and smoothen. Specifically on the logistics side, in terms of inbound, we continue to work with our suppliers. We also ensure that for some of these critical raw materials we relooked at the inventory level, et cetera so that there is more stock out. And we've been managing that piece extremely well. On the outbound piece, we've actually -- because of that, we've actually seen some delays in the shipments. The shipments have actually kind of moved from, let's say, a particular month to another month, et cetera, but we have, by and large, been managing that quite well. And focus has primarily been on good coordination and execution. On the pricing front, unfortunately, for a lot of our large businesses where we have multiyear agreements, these are all FOB contracts where there is a cost pass-through for the freight. So we are not really directly impacted. Or the impact will basically get negated [ maybe ] to a certain lag. Having said that, there are some orders where the logistics cost or the freight has actually impacted, where we are actually engaging with the customer because they are actually not only facing the issues with us. They are also facing the challenges from some of their other suppliers. And wherever possible, we are trying to -- trying our best to increase the prices accordingly. When I say wherever possible: The customers have -- in principle in most of the cases have completely agreed. It is based on their capability to increase their prices, [ basis ] their contracts, but generally we have seen our customers, in the true spirit of partnerships, have been extremely helpful in terms of accommodating our requests.

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

First question, on the order book for the CRAMS. In our annual report we have said that, in FY '21, we entered with a very strong order book for the CRAMS, which has helped us to scale that revenue. How does it stand for FY '22? How does the -- FY '22 looks like for the CRAMS? And a related question: We said that one of the projects got delayed to the second quarter. How large was that project? Can you quantify this too? Yes. And I got one bookkeeping question, just one bookkeeping question, on the other expenses which have increased sharply on a Y-o-Y basis, though quarter-on-quarter basis it has been quite stable. Is there any one-off in that particular line item? Because we generally see that, from Q4 to Q1, that cost generally ticks down. Is there any reason for it being steady quarter-on-quarter this year? Yes, these are my 2 questions.

Sure. So as far as open order book position, we actually went into FY '21 with very strong open order book position versus the previous year, which then translated into extremely strong growth in FY '21 over the previous year. And as I mentioned in my earlier commentaries, for FY '22, the most important priority for us in this particular year was to ensure that we hit a certain run rate every quarter. Because earlier, if you remember, in CRAMS what we have seen is that sales tend to be extremely lumpy. And of course, it's understood that quarter-to-quarter there will be sudden up and down, but there used to be a significant variation year-on-year in terms of our sales. So this year, our primary focus was to ensure that we take care of that lumpiness to the extent possible so that we don't see a significant degrowth after a year of a significant growth. So yes, we entered this year also with a pretty strong order book. And more than order book with the [ inquiries flown ] for us, order -- when we talk about order book, it means POs in hand. So these are orders where we actually have the purchase orders, but this particular year, not only our order book was strong, but also we had a lot of inquiries which were there in the pipeline; as I mentioned, a lot of new relationships that we have developed, et cetera, which we believe over the next few quarters would actually get translated into the order book. But if you look at the delta between the order book that we saw FY '21, getting into FY '21, versus the previous year -- because the delta was big because of the -- in terms of percentage. This is a similar percentage increase in -- as we went into FY '22, but on an absolute basis, it still remains strong. Your second question was related to that one particular order which moved from Q1 to Q2. That primarily moved because there was a slight delay in the execution of the order. And that -- this one was to the tune of about INR 5-point-something crore. The third question that you asked was related to other expenses. So there is one particular item which is the standout item. And I'll let Ketan explain the other items, which are basically related to the maintenance costs. Last quarter -- or sorry. First quarter last year, we had ensured that we keep a very close tab on maintenance costs; and wherever possible, to actually delay it from Q1 to Q2 or Q3 because, if you remember, last year, Q1 was really -- the numbers were really depressed. As well as we actually didn't have almost 3 weeks of operation, 1 week in March and then 2 weeks in April. So given that scenario, we had ensured that our maintenance cost in Q1 of FY '21 was on a lower side. So one of the items where we see increase in Q1 this year versus Q1 last year is the maintenance expense. Ketan, over to you.

Yes. Thanks, Radhesh. So on your other point, between the expenses for Q4 and the current quarter, whether there is a one-off. So as Radhesh earlier talked about, so we've been working with one of these large global consultancy company for developing CRAMS' strategy. So that expense -- part of that expense has come in this quarter. So that's the only one-off that we can say is the added expense for this quarter. Otherwise, the expenses are in line with the quarter 4 of last year.

Got it, sir. And Ketan, I -- just one follow-up question on the CRAMS revenue recognition. Have we made any change in that?

No, no, Sanjesh. We -- our revenue recognition for all businesses, including CRAMS, has been consistent.

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

Just wanted clarity on, last quarter, we had mentioned that we had initiated some cost improvement initiatives and especially in our CRAMS division for the new projects. So I just wanted to understand the magnitude of this. And when can we see the benefit of this? Yes, I'll limit myself to one question, yes.

No. So as far as this cost improvement initiative, this is not something which is a onetime exercise. This is an ongoing exercise that we continue to do in all the businesses. This specific comment was in response to a question where the question that was asked -- the question was asked wherein -- what if we see a decrease in the price as the opportunities scale up? So there I had actually mentioned that, yes, we expect that, as the opportunities scale up, the price that we have to offer to the customer will have to go down, but our continued focus is to ensure that, as the opportunities scale up for all the repeat orders, we'll continue to look, identify and deliver the cost improvement opportunities so that our margins remain intact. So that is an ongoing exercise. It's not a onetime exercise. And that is not limited to CRAMS, but it's also limited to other businesses because, as you can imagine, as the molecules scale up even in the speciality, we then start getting competition in. And it starts impacting the price, but while doing -- while the prices go down, our focus has always been to ensure that the margins continue to remain the same. And that's primarily happened because of this cost improvement initiative.

The next question is from the line of Nitin Agarwal from DAM Capital.

Sir, on the CRAMS business, when you look at your pipeline, I mean, how do you sort of characterize it? In a sense, do you -- is there a way to characterize in terms of number of molecules where you are in commercial-scale manufacturing, number of products which are there in late phase 3 or in early phase 3? I mean, is there a way you can help us dimension the pipeline size?

Yes. So for us, we actually divide this into almost like a 3 to 3, 3 by 3. And again this is kind of an evolving metrics. I mean there's not a lot of sophistication that has been applied at this point in time. So one is on the basis of region. Second is on the basis of the qualification of the customers. So there are certain set of customers that we call -- internally we call key accounts. So how much of the business is coming from key accounts versus other set of customers? And again that categorization also keeps evolving as we move along. And the third piece is repeat orders versus first-time orders. So these are the 3 metrics that we qualify our pipeline most.

Okay. And sir, you don't analyze it more particularly around number of products which can probably get into commercial scale. Because typical experience has been that when molecules go into commercial scale is when the volumes really take off. Are there products like these -- how many such projects would we have like these which can probably get into commercialization over the next couple of years?

So see, we try to use the criteria that we believe we have influence over. If there is a criteria that we have very limited influence over, it's very difficult for us to -- it is -- to a certain extent, it is meaningless. It's what we believe. So let's assume that we have a repeat order. So our focus is to ensure that we really focus on this cost optimization piece that we discussed earlier, on the quality of the execution and the quality of the engagement with the customer so that, as the molecules scale up, we continue to be the main supplier for the molecules. Now would that molecule commercialize or not is not something which is in our hands. Despite the customer giving us all the indications, it's quite possible that it might eventually not get commercialized for something related -- in some cases, things are not even in our customers' hands. So that is the reason. So we have some indication on how many of these molecules that we currently qualify as repeat orders would eventually get commercialized and by when, et cetera. And on the basis of that, we make some of these plans that I spoke about earlier in terms of cGMP3 debottlenecking or the designing of cGMP4, et cetera, but we don't look at that as a critical criteria primarily because it's not necessarily in our influence.

The next question is from the line of Rohan Gupta from Edelweiss.

So just a clarification of what you have just mentioned [ on earlier participant question ] that some of your products where the price increase has been taken with the customers which will be effective from Q2 and Q3 of this year -- while the raw material cost has already gone up. Sir, I just wanted to understand. This pressure on margins, on -- especially on these contracts, may continue. Or you also have backup raw material prices on the old prices so there will not be any impact on the margin side. Can -- just some clarification on that.

Yes. So this effect, we are actually seeing for some of the products in speciality. So this is not something which is across the board. So that is something which needs to be remembered. The second point is we believe that, at least for the rest of this year -- and when I talk about year, I'm primarily talking about calendar year because for a lot of these large RMs our contracts actually or our discussions with our supplier actually run on calendar year basis. We believe that we will continue to see the pressure for the remaining of the calendar year. Now as far as our discussions with our customers are concerned related to increase in the product price, we believe that the customers will start -- will be in a position to start absorbing those increases from beginning of the next calendar year, which is January onwards, which means product that we manufacture and supply from Q3 onwards. So we believe that the pressure will continue in Q2. From Q3 onwards, the pressure will start moderating. Beyond that, if we start seeing some moderation in the RM prices, then the same process will actually reverse. We will not immediately pass-on benefit to the customer, but with a lag, we will also start delivering that benefit. So I think the same process that we are seeing here where there's a lag of about 2 to 3 quarters. The same one will happen in a reverse way as the prices then start moderating.

So in what kind of [ current ] portfolio of your speciality chemicals [ will prices uptick ] on annual basis? And how is the -- and what portion is on a monthly or a quarterly context, sir?

So as we have indicated, I mean, if you look at, approximate split that we have in the business in speciality is about 40-40-20, 40 in agro -- 40% agro, 40% pharma, 20% industrial. 20% industrial is mostly multiyear contracts. 40% pharma is mostly spot. Most of it is like spot or maximum for a quarter. And in agrochemicals, that 40% which is in agro, about half of that is multiyear contract. And half of it is either on a spot basis or, let's say, quarter, 2-quarter or for annual contract, but half of that agro is multiyear contract and the entire industrial piece is on a multiyear contracts.

So it was 20% industrial and almost half of your agro which is getting impacted right now.

Which is approximately 40% of our total speciality which is getting impacted [ here ].

Got it.

And just to clarify on that particular point. That 20% agro -- half of that agro that I mentioned where there is a multiyear contract, not all of it is getting impacted by RM. The RM piece is primarily impacting the 20% industrial.

The next question is from the line of Amar Maurya from AlfAccurate.

Sir, my first question is only few projects which we indicated kind of a little smaller than HPP but we were pursuing and got delayed from the COVID. So any light on that? And secondly, one Korean contract which we had won. So have we started supplying some things, some products to that?

So to your first point. I don't think there is any project which has -- you are talking about new projects. Or you are talking about project execution which has got delayed because of COVID.

So new projects, basically new orders, I mean, where we were pitching to a few clients. And we indicated that a few of those got delayed because we were not able to meet them personally. And these were pretty sizable orders.

No. So we don't believe that any of those -- I mean a discussion actually tends to be a little slower, but I don't think the projects as such have got delayed significantly because of COVID because we have been managing it pretty effectively on the phone, et cetera. Of course, what could possibly would have happened in one meeting takes a number of phone calls. And typically something which would happen in 1 week typically gets dragged into 3 weeks or 4 weeks. That's just the nature of the beast right now, but it's not like there are projects which have got delayed by 1 year or 2 quarters or et cetera because of COVID-related travel restrictions. So that's one. So the point that I had earlier mentioned is that there could be some delay in our HPP plant commissioning. So there also we had earlier -- when we went into March, April; and when we started seeing a lot of these issues with respect to manpower availability, oxygen availability, et cetera, we thought that there could be delay of at least a quarter in the plant commissioning, but we've actually been able to actually bring that up further. And more or less, that plant commissioning should probably not get delayed by more than a month or so. And what is the second question? Sorry, Amar.

Secondly, the new customer which we had won in Korea, and we were expecting it can be a big customer over a period of time. So wondering there. 2 new molecules which we supplied in speciality, is that related to the Korean customer?

No. So those are not related to Korean customer. There are -- as a matter of fact, there are 2 customers that we have in Korea. One is for that industrial segment in speciality. So there it's [indiscernible] -- again as you know, customers in Korea, Japan, et cetera take a little longer to start the business. And the second we had actually indicated was in the inorganic fluorides business, where it was primarily supply of DHF to this customer in Korea. So that business is actually going on. So they are still in the process of -- so initially we had actually supplied material for qualification. That has gone out successfully and they've actually started ordering some material from us, but it is not really happening at a material level yet. It will probably take -- it is typical of the customers in this particular region, where they typically tend to be slow growing the relationship, but once it's grown, it typically remains very, very sticky.

Okay. Sir, one last, if I can add, sir, last question, on the CRAMS side. The production process improvement which we did in the CRAMS largely from the batch reduction and all. So have those benefits started coming to the P&L? Or [ where are you placed on ] that?

I think I already responded to that question.

Okay. So I think you said that those are the [ periodic pay ], but wanted to understand like that was a pretty significant improvement in the overall batch process and improvement. So those benefits started coming to the P&L, or not.

So as I mentioned to you -- I mean, as I mentioned in -- there was an earlier question also asked on this is a regular occurrence. So if you look at these repeat orders that we are getting, if we had not done this, the margins would have got depressed significantly because, as the molecule scales up from gram level to kg level to ton level, there is a significant decrease in the price that happens. And as that happens, if you are not able to improve your costs through some of the initiatives that you've talked about and there are a number of other initiatives as well, your margins will get significantly depressed. So this is an ongoing exercise. And a lot of that exercise gets translated into the costs, which is -- which then gets translated into the contribution margin on the P&L.

Next question is from the line of Kaushal Shah from Dhanki Securities.

Sir, you mentioned about the debottlenecking in CRAMS. And we are already doing a debottlenecking on the spec chem side, so just wanted to get a little sense as to what could be the increase in our quarterly run rate post this debottlenecking.

No. So as far as the speciality is concerned, if you look at the commentary that we had made earlier about, let's say, 2 years back -- or we had very clearly indicated that, on the capacity on the speciality chemical side, we are pretty much tapped out. And a lot of now new businesses which will be coming in that especially, we will be able to execute on the basis of relatively smaller debottlenecking projects that we will be doing. And similarly, we have been doing these smaller debottlenecking projects in Surat and which is then getting translated into the increase in the sales that you have actually seen over the last 2 years in speciality. If we had not done those debottlenecking exercise, we would have had to wait for this new entity investment to come up in Dahej to start showing growth. So that's on the speciality chemical side. On the...

CRAMS.

On the CRAMS side. We -- in this particular quarter, as I mentioned to you, we should be finalizing the plant, but the idea is that at least on a volumetric basis we should be able to -- so there are 2 things in this debottlenecking, right? One is to get additional capacity on a volumetric basis. So we believe that we should be able to get approximately about 15% to 20% additional capacity through this debottlenecking, at least. [ In terms of ] exact number, we will know once the entire work is completed. The second one is right sizing. Because we have slightly better visibility on these products now, then we had -- when we have designed the cGMP3, we know exactly which are the processes or which are the blocks which will need to be further scaled up. So one is getting additional volumetric capacity. Second is ensuring that we have the right sizing of the equipment; and the blocks, the production blocks, that we have in the existing plant. So both those efforts are currently underway. I believe that -- not -- I mean, in the next quarter or so, we should be able to give you a slightly better response on both on the investment side in terms of how much the investments will entail and what will that translate into in terms of both volumetric and value.

Thank you very much. Due to time constraints, we'll have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.

Yes. Thank you very much. These are challenging times and some uncertainties continue due to pandemic, but we continue to see very good-quality opportunities that will help us grow our business profitably and sustainably over the next few years. We have built a very strong business foundation, including a strong team of capable and experienced people. And this, I believe, will continue to differentiate us. 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, I request you to get in touch with SGA, our investor relations advisers. Please take care. Stay safe. And enjoy the festivals in the coming months. Thank you very much.

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