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

Ladies and gentlemen, good day, and welcome to Navin Fluorine International Limited Q2 and H1 FY '21 Earnings Conference Call. [Operator Instructions] 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 risk 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 results and investor presentation, which has been uploaded on the stock exchange as well as on our company's website. Before I start with my comments on the business performance, I would like to brief you on a few developments at Navin Fluorine. Start with, I'm pleased to inform you the Board of Directors have declared an interim meeting for FY '22 of INR 5 equity share of face value 2 -- INR 2, which is about 250% of the face value. We are pleased to inform you all that based on the recommendations of Nominations and Remunerations Committee. The Board of Directors has appointed Ms. Apurva Purohit as an additional director and nonexecutive and independent capacity on the Board of the company effective yesterday, i.e., 19th October 2021. Our first term of appointment as an independent Director shall be for a period of 5 consecutive years. We are very happy to have this Apurva Purohit on the Board. The Board of Directors of Navin Fluorine now comprised of 9 independent directors, 2 executive directors and 1 nonindependent directors. The Board will now have 2 women independent Directors. Her appointment will further strengthen the Board and is important for promoting diversity of thought and experienced essential in view of the expansion and growth that Navin Fluorine has chartered for the coming years. Ms. Purohit as a prominent Indian business leader with over 30 years of experience in the media and entertainment industry. She has been named as one of the most powerful women in business by India Today Group and Fortune India over several years. She also serves on the Board of Mindtree Limited, L&T Technology Services Ltd. and Manipal Health Enterprises Pvt Ltd. We also wish to inform that based on the recommendations of Nominations and Remunerations Committee and consideration of Board of Directors of the company, Mr. B.K. Bansal has been appointed as Chief Financial Officer of the company with effect from November 1, 2021. Mr. Ketan Sablok, our current CFO, is leaving the company to pursue other opportunities. To enable orderly transition, Mr. Ketan Sablok, has agreed to continue to be part of Navin Fluorine until October 31, 2021. Mr. BK Bansal will be joining Navin Fluorine as CFO with effect on 1st November 2021. He is a Charter Accountant and has over 30 years of experience in finance, accounts, IT and strategy. He's a recipient of various prestigious awards like Most Influential CFO of India and CFO Leadership Award. His last employment was as a CFO and Director of Finance at Balkrishna Industries Limited, where he worked for around 15 years and where under his leadership, the company's market capitalization grew from around INR 200 crores to more than INR 25,000 crores. I would also like last on record my sincere appreciation for the excellent work done by Ketan during his association with the company. Ketan has been a strong pillar and has played an important role in taking Navin to where it has reached today. I would take this opportunity to thank Ketan on behalf of everyone including the Board of Directors, for his dedication towards Navin. He will be missed. I wish him all the success in his future endeavors. We welcome 2 very high-caliber members to the Navin Fluorine family. The company will immensely benefit from the significant business acumen, extensive experience and successful track record of Ms. Apurva Purohit and Mr. B.K. Bansal. The appointments come at a pivotal time as we prepare for our next stage of growth and complements team's expertise as we advance our focus on high-value businesses with a strong pipeline of new opportunities. Let me now start with key highlights for the quarter and for financial year ended September 2021, followed by business segment-wise update and then Ketan will take you through financial highlights for the period. For H1 FY '22, the company has delivered operating revenue of INR 638 crores with a growth of 25% on a Y-o-Y basis, operating EBITDA of INR 162 crores with a growth of 11% on Y-o-Y basis and operating profit before tax of INR 139 crores with a growth of 11% on a year-on-year basis. We witnessed continued growth momentum across businesses with possible exception of Refrigerant Gas business. The legacy business uptick was driven by improved demand scenario for our inorganic chloride business, where our specialty business led the growth for high-value business. On operating margin front, we saw higher employee costs and some of our input costs impacted the performance. Given the high growth journey we have embarked upon, we will continue to invest in and grow some of our critical functions like technology, research and development, business development, et cetera, and this will continue to reflect in higher employee costs. We believe this investment will help us set a very strong foundation for future growth. Our new projects, we expect our HPP plant to start from end of Q4 F '22 beginning Q1 FY '23 as mentioned earlier, and our MPP plant will come on stream during H1 FY '23 as per schedule. We continue to identify, evaluate and develop new opportunities, some of which are now in advanced stage of planning. Our high-value businesses have seen good growth of 21% to INR 403 crore for H1 FY '22 compared to same period last year. It now contributes 63% of the total revenue in H1 FY '22. Our specialty business reported a growth of 28% Y-o-Y basis to INR 254 crores for H1 FY '22 compared to the same period last year. Growth here is primarily driven by international sales. During the quarter, we have also initiated sites to offset higher input costs. We've launched 2 new products, one in agro and other in Specialty Materials segment during the quarter and continue to focus on introducing new products by leveraging our R&D capabilities and deep fluorination expertise. Our CRAMS business has reported a growth of 12% to INR 149 crores for H1 FY '22 compared to same period last year. Just to add some color and context to this performance, last year, in 2020, our plants closed in March and April for 3 weeks due to COVID. CRAMS is typically a long order-to-delivery cycle business, and this saw a lot of sales getting bunched up and pushed from Q1 to Q2. Due to this, we saw very low sales in Q1 and proportionately higher sales in Q2 of last year. As against that, we had very even sales this year between Q1 and Q2. In other words, if you leave aside very high sales number in Q2 last year due to this phenomena, the sales we have achieved in Q2 this year is the highest we have ever done in any quarter-to-date in for CRAMS business. This performance was driven by repeat business from existing customers, which is a testimony to our growing customer relationships and strong execution capabilities. We continue to work on development of new relationships across U.S. and Europe, which will lead to expansion of project pipeline and diversify our customer base further. Legacy business, primarily in organic chloride business has shown positive momentum backed by improved demand. For H1 FY '22, revenue has grown by 30% on a Y-o-Y basis to INR 235 crores compared to the same period last year. Our inorganic fluoride business grew by 56% on a Y-on-Y basis for H1 FY '22 to INR 120 crores compared to the same period last year. And for Q2 FY '22, it recorded a good growth of 33% to INR 65 crores compared to the same period last -- same quarter last year. This segment performance improved due to improved demand in domestic market and good traction seen from the end user industry. This BU witnessed better profitability on back of optimized sales mix between domestic and international market. Our aim is to continue to widen the end-user segments along with new customer addition to enable faster to enable faster future growth. Our Ref. Gas business grew by 11% in H1 FY '22 on Y-o-Y basis to INR 114 crores compared to same period last year. And for Q2 FY '22, it showed de-growth of 4% to INR 55 crores. We witnessed a strong volume growth from the domestic market, whereas export sales were impacted due to higher logistics cost. So that's it from my side. I'll now hand over to Ketan to give you brief on the financial performance of the company. Thank you.

Thank you, Radhesh, and a very good morning to all the participants. I wish all of you are in good health. So before I talk about the financial performance, just would like to say a few words. As Radhesh has just spoken, I decided to move on from Navin after a very long inning. Thank you, Radhesh, for your kind words. I would like to thank the management and the Board of Directors for the opportunity provided to me during my association now of more than 24 years with Navin. I've seen Navin grow from a 2-business company years back to becoming one of the largest integrated specialty flurochemicals company in India. Over the years, working at Navin has provided me an opportunity to grow immensely. The journey has been very enriching. It's been done learning experience for me, and I only remember the time spent at Navin. I would like to wish everyone at Navin, the best of luck and continued success in the years to come and see Navin scale new heights of success. Now I'd like to share the highlights of our financial performance. Following which, we would be happy to respond to your queries. For H1 FY '22 on a stand-alone basis, the company has reported a net revenue from operations of INR 638 crores as against INR 512 crores in H1 FY '21 with a growth of 25%. Operating EBITDA stood at INR 162 crores as against INR 146 crores in H1 FY '21, up by 11%. The operating EBITDA margin stood at 25% as against 28% same period last year. The impact on the operating EBITDA margin was due to higher employee costs and some of our input costs becoming higher during this quarter. The operating PBT was up 11%, stood at INR 139 crores for H1 FY '22 as against INR 125 crores last year. The operating PBT margin was at 22% in H1 FY '22. The profit after tax stood at INR 119 crores for H1 FY '22 and the PAT margin was at about 19%. Now coming to the BUs performance for H1. Our high value business registered a growth of 21% and the legacy business showed a growth of 30%. So across the business segments, we've shown good growth during this first half. In the legacy business, the performance of inorganic fluoride improved substantially, as the business registered a revenue growth of 56% to INR 120 crores. The ref business also showed a decent growth of about 11% to INR 114 crores. Specialty segments grew by 28% to INR 250 crores -- INR 254 crores while CRAMS segment grew by 12% to INR 149 crores. Overall, we have a very strong balance sheet with net cash position of more than INR 450 crores on a consolidated basis. And the prudent use of capital has come to improve the overall capital employed further 22%. Coming to the quarterly performance. For Q2, the company reported a growth of 5% in net revenue from operations to INR 324 crores against INR 308 crores Q2 FY '21. The operating EBITDA degrew by about 11% to INR 84 crores as against INR 94 crores Q2 FY '21. The margins stood at 26% for the quarter FY '22. The operating peak PBT was lower by 13% to INR 72 crores as against INR 83 crores in Q2 FY '21. The PBT margin stood at 22% for the quarter. PAT at INR 62 crores for Q2 FY '22 as against INR 67 crores in Q2 FY '21. The margin stood -- PAT margin was at about 19%. Coming to the business lines performance for the quarter, the high value business grew by 1%, while legacy business grew by 13%. The Specialty segment grew by 19% to INR 122 crores while the CRAMS business was lower by 17% at INR 82 crores. In the legacy business, inorganic chloride showed an upward trend growth of about 33% to INR 65 crores whereas the Ref. Gas still registered a degrowth of about 4% to INR 56 crores on a Y-o-Y basis. I think that's pretty much from my side. We'll now open the floor for questions and answers. Thank you.

[Operator Instructions] The first question is from the line of Abhijit Akella from IIFL Securities.

Just two of them. I'll just start with the first one. On the CRAMS business, we've been maintaining this quarterly run rate of about $10 million a quarter revenues. Your scope for a further step-up in this trajectory in the second half, particularly since you were working on debottlenecking the business and that sort of thing. And second, also, just on the refrigerant business, given the news reports about rising prices in China of various refrigerants, is it possible that this business could benefit in the short term from rising realizations?

Yes. Thank you very much. So as I've mentioned before, if you look at in our CRAMS business, we saw a significant jump last year in FY '21. And this year, our primary focus was to ensure that we deliver a steady-state $10 million every quarter because in the past, if you see what has happened is that the business has been extremely lumpy. So if we have 1 spectacular year, it typically follows with 1 down year. So our focus this year was to ensure that we continue both from the demand generation point of view as well as demand fulfillment point of view, especially on the demand fulfillment point of view, a rate of $10 million. We believe that in the second half of the year, we might see a small improvement, but not a significant uptick. That is something that we expect to see from the following year onwards. The second question was on the refrigerant gas side. Your observation is absolutely right. We are -- we have now gone, started going out in the market and implemented price increases. And we expect, in the short term, to see some uptick because of the increase in the prices.

Got it. And the second thing I had was just on the CapEx execution. So if I'm not mistaken, we need to execute somewhere around the INR 650 crores, INR 700 crores for these 2 projects that we are implementing. The 1H CapEx so far, as far as I can see from the cash flows is about INR 170 crores. So should we expect a big step-up in CapEx in the second half and first half of next year? If you could just help us understand the timing of that CapEx implementation.

Abhijit, if you see our consolidated balance sheet, so we already have more than INR 300 crores in CWIP. So that, those are the CapExes which are getting implemented. So primarily, the project [indiscernible], which is the primary project that's getting implemented and MPP is coming along with it. So currently, we, as Radhesh has already mentioned in his commentary, the projects are on track. And you'll see these projects getting capitalized as indicated by Radhesh probably in the Q4 or the H1 of next year.

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

Quickly on the employee cost side, we did mention that we are up on technology, R&D and innovation. Can you give some color what is the bench strength we have today in R&D? And what is the bench that we are looking at? And in that part, where are we in the journey, and how much more the cost inflation we can see in the employee cost? The other one is considering that there has been a phenomenal demand uptake for the chemicals. Is this also a result of growing churn and the increases which we are supposed to roll out to the employees? So can you just give us a complete picture on the employee cost from the churn side, from the annual hike increment and on the R&D bench trend and where are we in the journey? That's my first question.

Yes. So I think if you look at it from the employee cost, there that I mentioned or 3 categories that I talked about or 3 functions that I talked about. First one was technology, which is technology and design, T&D function as we call it internally. Second was R&D and third is business development. If you look at T&D, that function actually did not exist in our company, and we've actually pretty much built that from ground up. And today, we have close to about 50 people working in that particular function. And that's absolutely critical function because that is a function which is responsible to take a product from the lab to the plant including designing and engineering of a new plant. So that is where we have actually invested significantly in bringing in a lot of people, and that is an area that we will continue to grow as we look to identify and grow more opportunities. In R&D, we've currently have 3 R&D centers one in Surat, one in Dewas and one in Manchester. We've actually seen increase in the number, both in Dewas as well as in Surat, and we are currently also evaluating an option of setting up another R&D facility probably in Mumbai, in just outskirts of Mumbai. So there, again, we've actually -- the costs have gone up relatively lesser than in T&D. But going forward, that is an area where it will go up. As far as the business development, again, there are some costs which have gone up in India, but we actually continue to look at opportunities to add strengthened BD team outside of India, especially in U.S. And we will be in the second half of the year, recruiting at least 2 new BD people in U.S. specifically for CRAMS as we get ready for the next set of growth for this business. Our aim is that we continue to be very prudent in how we actually handle this while investing in the growth. From next year onwards as we start seeing the uptick in the revenue, we are expecting that on a run rate basis, though from a quarter-to-quarter, it could be different, but on a run rate basis, we intend to keep our overall employee cost at about 11% to 12% of the total sales. So that's the overall plan. And what was your second question, sorry?

No, I was just checking on the churn side, have you seen any material increase in the churn given that there is a huge demand for chemical products, and there is an expansion among all the companies across the segment. Are we seeing increased churn in the employee in our organization?

Yes. So I think if you look at overall attrition rate at a company level, we are not, we have not seen a significant uptick. But yes, what is important for us is to ensure not to look at an average number but to look at business critical roles and especially high potential people. So there, we have actually brought in some retention fees, et cetera. We've implemented that in the first half. And some of the high employee cost that you see is also because of this retention component which was paid out. The next will be paid out in later the financial year, towards the end of the financial year. We have implemented retention program, specifically for business critical roles. And that is across businesses, across functions and across levels.

Radhesh, that's pretty much clear. Just one additional data point of view can provide. What is the employee R&D strength today? And what is the targeted we are looking at, say, next 2 years with the Mumbai R&D center also getting commissioned?

So currently, we have approximately about 120 people across all the sites. And we are looking to take that number in first phase, we will be taking that number to 150, 150 plus, And eventually, we intend to take that in the short- to medium-term to at least 200.

That's fair. That's pretty much clear. And my second follow-up question, again, slightly bookkeeping kind of a thing. But the other expenses have also increased, is it predominantly because of the right? Or is there a one-off or anything we should know about?

Other expenses, yes, you are right. created one-off components. Thus, we've also, as we had spoken in the last call, we had this consulting firm which were doing consultancy for us. That cost is a significant cost, which is also part of other expenses. So the 2 primary things that are the other expenses for H1 has been these 2 plus with the uptake in production compared to what was it last year, the overall power fuel comes have also the R&M, the repair and maintenance expenses have also gone up because Q1 of last year was pretty much very, very low. So probably on an H-to-H basis, The primary components have been power and fuel, the maintenance expenses, the trade charges and the people even in professional where we have booked in the consultancy.

Fair enough. The consultancy should be going off, right? That's not a recurring one. How much it would be?

So for H1, it was about 5 crore. And you're right, this is the one-off this one, which will not be -- there will be, some of it will be there in the next quarter, but post that, it won't be there.

Got it. Got it. One last question on the business side. On the margin front, we did mention that we are taking a tariff some price hike. Considering that we are still at the same margin where we were earlier, we haven't seen any pressure from the raw material, at least on the margin in the Q2 number. I understand that the price hike started happening on the later half of Q2. But are we be able to maintain or improve from here, right? Because ref. gas prices are going up, but as raw material prices are not going up. To that extent, we should see improvement of margin from these levels? Will that be a fair understanding?

Yes, I think that would be a fair assumption. Our efforts are to ensure that we at least maintain the margin or move the margins up.

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

First question on the senior management churn that we have been seeing. So all the replacements have been largely done? Or there are still certain pending groups which you need to cover up?

Yes. So on this particular piece, and I know that this probably question will be there in mind of other people as well. So I think this churn that you're actually looking at is primarily driven by 3 reasons. One, in some of the businesses, we have done some kind of a business reorg. Because of which, some of these roles have actually become redundant. So those will not be replaced. For example, you talked about COO of CRAMS business. So the, it will not be replaced. Some of these have actually been prompted by company, and some of these have been driven by individual decisions. As I mentioned in my opening speech, decision related to Ketan's departure, It was his decision. It clearly will be missed because he's been an integral part of the family, and I'm sure he will continue to be part of Navin Fluorine family. But some of these, like, for example, we already have a new person on board who's joined about a month back. He comes from RPG Enterprises and having worked in Dr. Reddy's for many years, both in India as well as outside of India. And as far as the CFO position, as we mentioned earlier, the new person will be joining from 1st of November. So all the critical positions that we want to be filled have been filled up.

Sure, sir. That's helpful. And from an R&D investment perspective, you did mention a new center coming up as well as the increasing manpower as well as the business development on the CRAMS side. Correct me if I'm wrong, because earlier in the quarter, we did mention some bit of debottlenecking led initiatives in CRAMS business, which can drive the near-term growth. But from a fresh capacity, cGMP or a new CapEx, are we on time for that? Because if on one side, we are trying to scale up the CRAMS business, the capacity may not be in shape as much. So just your thoughts, both on, especially on the CRAMS side.

Yes. So there are 2 pieces. So one is that the assumption, I mean the statement that you made on the R&D lab in Mumbai. So that is currently being planned. It is not currently ongoing. It is not something that is currently happening. It's something that we are planning. And that's not related to CRAMS business. will be related to specialty business and some other opportunities that we are working on in some other parts of the business. That's not specifically related to CRAMS, and that's, currently, we are looking at multiple options Mumbai is one of the options that we are considering. As far as the capacity piece is concerned, as I mentioned in my earlier commentary, our first step will be to debottleneck our cGMP3 then we would be looking at CapEx for cGMP4. So as far as the debottlenecking of our existing cGMP3 is something that we are currently developing a detailed business case for that. And we are hoping that, that is something that we will go to the Board get approval for, and that will be implemented in the next financial year. Thereafter, by end of this financial year, beginning of next financial year is when we will actually start working on the cGMP4 business case. So that is how we are actually looking at it. Phase 1 which will come into play next year will be debottlenecking of cGMP3 for which we are currently working on the plan. And cGMP4, the work will start post approval for cGMP3 debottlenecking, which will happen the work will start from end of this financial year, beginning of next financial year.

Sure, sir. That's helpful. And lastly, on the margin front, you referred to the same question earlier as well. So if I exclude the consultancy charges, which will go away the Q4 onwards and the power fuel cost, which either will pass through over the next maybe a quarter also or it will be eventually being owned by the customer. And despite these elevated costs, our margins are still -- the gross margins are still largely stable year-on-year. So are we seeing a structural sort of uptick in these margins going ahead, maybe 2, 3 years down the line?

We would like to believe because if you actually look at all the new business opportunities that we are working on, either on HPP side or some of these other opportunities, our efforts always are to identify and develop opportunities, which will help us gradually move these margins up. So if you look at it from the 2- to 3-year perspective, yes, that is clearly our effort, and that is actually reflected in all the new opportunities that we're identifying and developing.

The next question is from the line of Tejas Sheth from Nippon India Mutual Fund.

Two questions, one on the CRAMS side, you did mention that there's a good repeat business on the existing clients. Now this repeat business, is it for the existing molecules or we have added new molecules from?

So it's a combination of both. Specifically, if you look at this particular period, which is H1 and the numbers therein, that is primarily coming from repeat business on the same molecules as those molecules are scaling up. Having said that, with some of these customers, we are actually seeing a number of new opportunities or inquiries that -- or opportunities that we are identifying and developing. But those, as you can imagine, are at an initial stage and hence, it's not getting -- it is not making a material impact on the number. But if you look at purely from the opportunity perspective, yes, we are actually seeing more opportunities come from the existing customers. But in terms of numbers, it's primarily driven by the repeat business or the same molecules.

Okay. Okay. And any molecule -- okay, I think you wouldn't be known -- but is there any idea that any of the molecules has moved to a higher phase will be Phase III trials and all?

Yes. So as we had indicated, we have 1 molecule, 1 additional new molecule, which is actually moving into Phase III next year. And some of these molecules are actually moving to the kind of a late-stage Phase II for which they need slightly higher volumes. Some of it will actually delivered in Q2.

Okay. Okay. On the second question, I would want your view on the sustainability of Ref. Gas prices. And does this entice us to add products to our portfolio where we don't have presence that is R32 and R134A, I think in the past, we had given a thought towards that. Does this price increase or realize an increase entitle us to add those capacities?

So as far as the price increase is concerned, a lot of that price increase is driven by the increase in the input costs. And some of these, we are actually implementing going forward will be implementing in our existing product, which is primarily. As I mentioned, we are working on fully of new products on the, in the Ref. Gas side. And that decision, the decision to invest or not in those products. are going to be driven by the long-term sustainability, long-term economics or prospects of those products rather than the short-term spike in the prices. So that is something that we continue to work on. And as I've mentioned earlier, we should be able to reach the decision on this by end of this financial year.

The next question is from the line of Manoj Garg from White Oak Capital Management.

First, I think in our prior interactions, you have alluded that we are working in a couple of new areas outside Spec and CRAMS or HPP. Is there any progress on that account, which you feel is worth sharing at this point of time?

No, not in fact, as I have actually commented earlier., These are typically long-term opportunities that we are incubating, and it will take us at least about 2 to 3 years for this to really take shape and then form a separate business vertical of its own. So these are typically opportunities. These are not opportunities like the ones that we currently have been working on. These typically take a longer time for qualification, for development and qualification. But once you're in, you're in for decades. So as I have mentioned before, it will basically take us approximately at least about 2 to 3 years to get to a level where it will actually start making a material impact on the numbers and will warrant consideration of setting up a new BU under which we put these opportunities.

Got it. Got it. And second, in the past, like we were also of the view that some of our customers may see the ramp-up in that product or the molecules for which we are exclusive suppliers. We may think about putting up the dedicated plant under CRAMS business vertical. So anything, again, Radhesh, where you're seeing traction and what do you see how far we are from that stage?

Yes. So there is a discussion going on with some of them. As you can imagine, in CRAMS, versus, let's say, specialty or in agro, where the volumes are typically multi-100 tonne level. In pharma, typically, the peak volume typically tends to be tens of metric ton. So when you talk about dedicated plant, you typically needs MPP kind of a configuration which is dedicated for a particular customer. So we've actually started this discussion with one particular customer where we are actually currently having a number of molecules that we are working on with that particular customer. So we have started discussion with that customer of possibility of setting up a dedicated plant that customer where we can actually put these multiple molecules that we are working for them, but nothing concrete at this stage.

Great. And just a last question from my side. Again, like Radhesh, you alluded that the endeavor over the next 2, 3 years is clearly to move up the value chain and hence, improving profitability at the gross margin level. You also, I think, responded saying that while the employee cost seems to be on a limited level, but with next year's revenue seeing income revenue coming in from the new project and all, probably, we are likely to have employee costs in the range of around 11.5%. So, Is it fair to assume that maybe from a 2 to 3 years perspective, we should start seeing a significant step-up in terms of the margins versus where we are today?

Most of -- so I'm not sure what you mean by significant. But as I mentioned earlier, our efforts are always to ensure that we continue to move up the margin curve. And that is also reflected in the kind of opportunities that we go after. So our focus is on selection of the right kind of opportunities, and we believe that we continue to do that. And if we execute well, the margin improvement will follow. It will be an outcome of the quality of opportunities that we go after and the quality of execution we have in the business.

Sure. And Ketan, wish you very best in all your endeavor. Thank you very much.

Thank you, Manoj.

Thank, The next question is from the line of Ritesh Gupta from Kotak Securities.

Just one on the Specialty Chemical business. I mean you did say about new projects, et cetera, as well. I mean so is there a chance that you may have to announce another opportunity on the MPP another MPP eventually in, let's say, next 6 to 12 months basis, the pipeline that you see today?

So I think the only thing I can say at this point in time is that we are working on a few opportunities. How many of those actually get converted into actual investments? It's tough to say, but we are working currently on multiple opportunities. As I mentioned in my opening comments, some of these are at advanced stage right now where we are actually doing the CapEx, et cetera. Once we complete the entire CapEx work is when we will try, we will, our efforts will be to ensure that we convert this particular opportunities into specific multiyear agreements with the customer. Once that happens, we take it to the Board for approval. And as soon as that happens, we'll make that announcement. But yes, we are working on a few opportunities. Some of these are at advanced stage currently.

All right. So mainly from, when I look at your next 12 months and I look at the aggregate CapEx plan, so let's say, you have to take a decision on refrigerants by the end of, let's say, this year, then you have cGMP3 debottlenecking, which I think is already approved and probably are going ahead with it is the correct understanding? That's one question. And then you probably will take a call on cGMP44 by end of this year or probably next year. probably next year, we will take a call on cGMP4. And then on the MPP, the next MPP for agro again, you will probably will be seeing a to take a call on that only towards the second half of '23, FY '23, right? Is that correct understanding?

So on the refrigerant gas, your understanding is correct. In specialty, we are actually looking at different kinds of opportunities. We are looking at some opportunities which will require for us to set up independent dedicated clients. Some of these are in form of MPP. As I mentioned earlier, when we presented the business case for in MPP1, we have a possibility of setting up another line there which we can expand the capacity of MPP1. So that, so rather than actually looking at MPP2, we would probably be looking at that as a first step. But there are some opportunities that we are looking at, which will probably require a dedicated facility within specialty. And then in CRAMS, what I mentioned was on cGMP3 debottlenecking is something that we are currently working on finalizing the CapEx for it. The CapEx is not approved yet. And that because it's just a debottlenecking project, that CapEx -- that execution should not take too long. And cGMP44, once this CapEx will take it to the board, get it approved, post that, we will actually start working on the CapEx for cGMP4. So our estimate, internal estimate is that we will actually start working on that by end of this financial year.

Understood. And just I got confused a bit. I mean you said that once this MPP gets commissioned, then you can call on the new opportunities because the new MPP itself will be able to take care. At least for the initial few quantities. And then as you're able to produce well and as let's say customer gets more comfort, you will probably take a call on the future CapEx after that. Is that the correct understanding? Or even without MPP1 getting commissioned and let's say running that full force, you may have, let's say, look at few CapEx even before that.

So there are multiple things here, Ritesh. One, the point that you mentioned is absolutely right, but that is in context of the products, which are planned in that MPP. So there are, as I used before, there are 5 products that we have planned in this MPP. The initial stage will be actually done in the MPP, and we expect at least a few of those products to scale up. And as they scale up, some of these will require a dedicated facility. So that investment obviously will happen. That decision will obviously be taken once we commission this MPP run, they may take for a while and then these opportunities scale up and merit a dedicated facility. So that's point number one. Point number two, as we look to identify and develop more opportunities which will require MPP-like investment, the immediate opportunity that we have is to just expand in MPP1 and basically set up additional line there because we have approximately about 80 days available for expansion there. So that's point number two. And point number three, which is a completely different point is we are actually looking within the Specialty business at other opportunities, which are -- which will require investment in dedicated facility for a specific product for a specific customer. There, it doesn't necessarily have to depend on the time line for commissioning of MPP1.

Got it, sir. Next question here. And just on the demand side, how have you've been seeing the demand, let's say, from the agro side, especially, there has been some concerns at least that agro demand may start to see some slowdown. I know it's only 40% of the overall Specialty Chemical business, but any sense that you have been getting from your customers? And when you look at new projects, are these like outsourcing projects, which are less coming in from Europe or these are like new molecules that are coming in or these are China plus 1? So if you could just try to bucket some of these opportunities that you're seeing there.

So I'm not going to comment on the inquiries that we are getting because inquiries actually are coming in various shapes, forms, and there is a very strong inquiry flow. But let me talk about more on the opportunities that we are actually going after. A lot of those opportunities are for newer products on the agro side. When we talk about newer products, unlike in CRAMS business, the newer products also have a multi-100 ton to start with it quickly into a multi ton level. and quickly graduates to 100 kind of a tonne level opportunity. But a lot of these are early-stage opportunities. When I talk about early stage, these are molecules which are under patent and just been launched by the customer and where they are actually just still in the process of getting registration for newer geographies. So they would have got it for 1 geography, launched it in 1 geography, and looking for registration to get approved in other geographies molecules which are still under patent. And typically, they would only have either we are the first supplier or they would have only 1 supplier and typically in the western hemisphere. So we typically would be the first supplier outside of Western Hemisphere. Most of the opportunities that we are seeing in Agro fall under that particular category.

The next question is from the line of Faisal Hawa from H.G. Hawa and Co.

Sir, my question is regarding the number of customers that we have added in the first half? And what is the concentration of the top 5 customers that we are having in our entire portfolio?

You're talking about across businesses or in specific?

Across businesses.

Sorry?

Across the businesses.

Across businesses, I don't think we have a significant concentration because as you can imagine, all the businesses actually serve completely different segments. CRAMS is primarily innovative pharma companies. Specialty is primarily agro and industrial -- inorganic is primarily large stainless steel, glass companies and again, mostly in India. Our refrigerant is particularly the OEMs and the trade market, again, primarily India and then in Middle East. So the segments are very, very different. So because of that, we don't have much customer concentration. The largest customer we have would probably have a revenue of about 12% to 15%. That's about it. And the remaining ones, we don't have many customers who constitute more than 10% of our total sales. Most of the customers are actually below 10%. So there is no concentration there. As far as new addition of the customers, again, we look at that number business-wise because in some of the businesses like inorganic, typically, the new customer addition is relatively small because we continue to serve for existing customers, and the new segment that we try to develop in inorganic, there again, there is a relative customer concentration. So in refrigerant gas as well as inorganic, that is not of material. In specialty, we've actually developed 2 new customers for our industrial segment, and both of these are international customers. In Agro, we basically, in which way the market is very concentrated. As far as agro is concerned, so we continue to serve the same customers, just expand our reach into the same customer. On the CRAMS side, we have actually added a lot of new relationships, mostly -- most of these are 2 smaller biopharma companies in the U.S., and there is 1 relatively large pharma company in Europe.

So is the shift towards manufacturing in India or outsourcing to India, also part for the constant change in social economic conditions in Europe, where the initial manufacturing there is continuously going down and the people there are much less interested in actually manufacturing things and particularly with not environmentally friendly? But do you see that as a constant change, which will drive outsourcing to our company?

So you're talking about moving the manufacturing from Western Hemisphere to India? Is that what your question is?

Yes. Yes.

Yes, kind of business that we have, that's not the case, okay? Because we typically look at -- relatively speaking, these are higher margin, lower volume kind of opportunities. We are not looking at commodity chemicals et cetera. And in a lot of these, if you look at the environment standards, et cetera, we have much more stringent requirements and standards in India than in some of the European companies. So we already significantly higher in terms of standard than, let's say, in countries like even U.K. or Italy, et cetera. In terms of the business that we have of the business profile of the focus that we are trying to drive in the business, just to some of the businesses like specialty, we are actually taking some of this business from some of the companies in Western Hemisphere because as I said earlier, typically in Agro India used to be #3 or #4 supplier. The first will be in Western Hemisphere. Second would be, let's say, in China, and the third one would be in India. Now we are actually moving up that chain, and we're actually now competing with Europe to become the first supplier for some of these agro opportunities. But no, we are not really seeing any significant shift especially for the kind of business that we have from Europe to India.

The next question is from the line of Naushad Chaudhary from Systematics Group.

Couple of quick questions, sir. Firstly, I just wanted to understand your vision. We have launched 2 products in this quarter. So 2 quick questions on that. Are these -- first -- or are we first or second supplier of this product or third or fourth supplier? And what could be the revenue potential if you can quantify? So this is my first question, sir.

Yes. So I wouldn't really like to talk about the revenue potential because that will depend on how quickly this molecule scale up. But I can add some more color to it. One of them is in the agro sector, where we have actually just made the first commercial supply from our plant existing plant in Surat. This is where we are not the first supplier. Currently, there is another supplier who is already supplying to this particular customer. And here, the commercial supply of this molecule will continue for the rest of the year. And this is what we had actually done a debottlenecking project for in Surat last year. If you remember, I had made that comment last year. The second one is in the Specialty Materials segment. So this actually goes into completely new applications, and that is where we have actually supplied product from pilot for initial qualifications. So we earlier supplied material from R&D, and we got approval, and the customer came back to us for supplying or supplying products from the scale up. So this is basically at a kg level. So there, we have actually supplied the product at a kg level from our pilot plant, and we are in discussion with the customer on usually supplying at tens of tonne level from our existing facility in Surat next year and thereafter, possibly setting up a dedicated plan for this. But that, the second one is where we are the first supplier which was primarily done by the customer themselves earlier at a very, very small R&D level. And then we optimize the process and we actually also made a lot of changes to that process. And because of which the customer was very happy and then they asked us to do the piloting for this. For that, we are the first supplier. And this is, as I mentioned earlier, this is going into a completely new segment.

Perfect sir. Secondly, on the balance sheet side, sir, if I look at our overall working capital days, especially on the data as it has gone down. So just wondering, is it because of the product mix? Or are we taking some serious steps to improve it or should it maintain going forward?

No, our efforts will be to actually maintain this because there are some specific efforts that we have undertaken in the business on the execution side to ensure that there is clear focus on bringing these notes down so that we are, at least our efforts will be to ensure that we sustain this.

Okay. Any number or target you have in mind to bring it to a certain level?

So we don't really have exact numbers as a target, but we try to optimize the overall receivables and just tend to ensure that the receivables are good. And the efforts, as Radhesh said, we are taking with the business to ensure that the entire visible market is under control.

We have a budget number, which is different for different BUs, but that's basically meant more for our internal consumption.

And that's just check-in terms of our capital deployment to our CRAMS and Spectrum business as per my understanding, a record of we have spent so far around INR 200 crores which we have capitalized on CRAMS and a similar figure for the spectrum, these numbers are correct? Or if you can share how much we are expanding both the division?

You're talking about what we are planning or what we have already done?

What we have already done.

Yes. Yes. So we did that CRAMS cGMP3 project 1.5 years back. So that was about INR 120 crores. And then we've done some debottlenecking projects in the specialty side. So yes, that's -- these are the 2 large spends we've done over the last 2 years. The balance is all coming up currently. The INR 200 crores specialty which you're talking about is the one which we are scaling up at the MPP at the edge.

I just trying to understand how much so far we have spent to CRAMS broadly would have been around INR 200 crores. Are this figure, correct, sir?

No, these figures, total trend is higher than this INR 200 crores.

Okay, okay. And in terms of revenue potential, should we just multiply it by 2, 2.5x of asset turnover? Or is there something else to read it?

No, that's what we have said that the asset turn in the CRAMS will be about 2, 2.3x the investment.

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

Ketan, best of luck for your future endeavor. Sir, about the Specialty Chemicals business, we indicated last time that there were some issues with the inventory pile up in our customer and in the pharma business. So those issues are behind now?

Yes. So that commentary was specifically related to 1 product, which is -- which actually the end market is ARVs. And this product is actually primarily, this goes into unregulated market in Africa, et cetera and is primarily financed by this Bill Clinton and the Gates Foundation, et cetera. And because a lot of those funds have been diverted to providing COVID vaccines, there's no funding available right now for this. We expect that, that issue to actually continue at least for the rest of this financial year. For our internal calculation, we are assuming that we will actually not see any business from that this financial year, and we've already started looking at opportunities to remap those assets.

Okay, okay. And secondly, sir, the RM inflation which pressure which we had seen last quarter in the Specialty Chemical business, and we were looking to pass on those prices. So are those price parcels are done and that is what is reflecting in the margin?

Yes. So some of it is done. Some of it is actually going to be done from January of next year because that is what the customer requested us for because even the customer had a back-to-back order, and this is a large U.S. customer for us in the industrial segment. So some of it has happened, some of it will actually happen from January onwards.

So basically, there is a further scope for margin improvement at least from this side?

Yes. Assuming the costs don't further again go up.

Yes. That is true. That is true. And sir, thirdly, on the CRAMS business, like this current run rate crew is like a kind of a peak run rate for the current facility until the time the debottlenecking doesn't happen?

No. So currently, from the execution point of view, as I mentioned, our focus is to ensure that we a run rate of $10 million every quarter plus/minus. That's our focus for this year. And then we will actually see start seeing uptick from the next financial year onwards. We have some headroom from the capacity point of view. But again, when you talk about capacity, there are a number other variables like what are the exact processes that -- what are the exact unique operations that those products require, what is the capacity required in the high-pressure fluorination side, hydrogenation side, et cetera. But overall, yes, there is headroom available even at about INR 82 crores. But currently, from an overall execution point of view, our immediate focus at least is to ensure that we maintain this $10 million rate, $10 million plus/minus, every quarter.

The next question is from the line of Rishit Shah from [indiscernible] Securities.

So just 1 bookkeeping related question. So in the consolidated balance sheet, if we see. So there is, I mean, INR 100 crore-odd increase in the other financial liabilities in the current side, current liability side, So can you just elaborate what particularly that is?

We're talking about what?

Yes, first half, yes.

So I'm thinking -- we're talking about the borrowing part in the other financial line?

So in the current liabilities under the head other financial liabilities, so it has gone up from around INR 31 crores as on March to INR 136 crores on -- as on September in the consolidated balance sheet.

So in the consolidated balance sheet, that increase is because of the increase in capital creditors in [indiscernible] . Let me check that, and I'll get back to you on the details. I don't exactly have that breakup in front of me, but let me check that and I'll be back to you.

Thank you very much. Ladies and gentlemen, due to the constraint, that will be the last question today, I will now hand the conference over to Mr. Ketan Sablok, for closing comments.

Yes. This is Radhesh Welling. 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 and stay safe, and best wishes for the festive season. Thank you very much.

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