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

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Thank you very much. Good morning, and a warm welcome to all the participants. I trust all of you and your families are healthy and doing well. I'm joined on today's call by Mr. B.K. Bansal, our Chief Financial Officer; and Orient Capital, our Investor Relations partner. 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 company website. Let me take you through the operating performance for Q3 FY '22 and 9 months FY '22. And then thereafter, Mr. Bansal will take you through the detailed financial performance. For Q3 FY '22, our revenue grew by 24% to INR 367 crores, whereas our operating EBITDA grew by 21% to INR 98 crores. Our operating profit before tax grew by 23% to INR 87 crores. For 9 months, our company grossed operating revenue of INR 1,000 crores with a growth of 24% on a Y-o-Y basis. Operating EBITDA of INR 260 crores, with a growth of 15% on Y-o-Y basis, and operating profit before tax of INR 226 crores with a growth of 15% on a Y-o-Y basis. All our business units showed very good growth in the last quarter. Our operating margins were slightly impacted due to higher employee costs and input costs. We consider the new employee addition as an investment to our business, and this will also enable future growth when our new CapExes come on stream during H1 FY '23. I will now discuss the operating performance of each business unit, starting with Specialty Chemicals business. Our Specialty Chemicals business reported sustainable revenue growth of 24% on Y-o-Y basis to INR 152 crores for Q3 FY '22 and growth of 26% on Y-o-Y basis to INR 406 crores for 9 months FY '22. The growth in this unit is primarily driven by partnerships with large international customers. In the third quarter, we manufactured and supplied commercial quantities for a few new products which would further help us scale up the Specialty Business faster as our plans in Dahej start later in the calendar year. Our CRAMS business reported a degrowth of 15% to INR 60 crores for our Q3 FY '22 compared to the same period last year. For 9 months FY '22, business has grown by 3%. There was a delay in our getting some POs, which further delayed start of manufacturing campaign, and this resulted in lower sales in Q3. Good news is that we have secured all these POs and the campaigns have already started in our manufacturing plant in Dewas. Of course, bunching up of orders put a lot of pressure on our operating deals, but we feel confident of shipping all these POs in Q4. In short, we are confident of maintaining a run rate of $10 million per quarter for the year. Based on improved pipeline visibility, the Board of Directors has approved debottlenecking of our cGMP3 facility. Our focus for this division will be to continue to expand opportunity pipeline with existing set of customers and further diversifying our customer base. Our ref gas business grew by 54% in Q3 FY '22 to INR 72 crores compared to the same period last year. And for 9 months FY '22, we delivered growth of 24% to INR 186 crores. Growth in revenue was primarily driven by increased realization of products in both India as well as international markets. We also witnessed strong volume growth from domestic markets whereas export sales were impacted due to logistic [ reasons ]. Our inorganic fluoride business grew by 47% for Q3 FY '22 to INR 83 crores compared to the same period last year. And for 9 months FY '22, it recorded growth of 52% to INR 203 crores compared to same period last year. This segment's performance improved due to increase in pricing and improved demand from the domestic market. We witnessed good traction from the end user industry within India. [ This view ] witnessed better profitability on the back of optimized sales mix between domestic and international markets. Our aim is to widen the end user segment, along with new customer addition to enable faster future growth. We are also seeing some interesting opportunities in newer segments and are in the process of developing new products for the same. Before I hand over the line to Mr. Bansal for a detailed financial update, let me also quickly brief you on the CapEx programs currently underway in -- primarily in Dahej. Our CapEx program in high-performance products where we signed a $410 million multiyear contract with Honeywell International is progressing well. Despite several COVID-related issues over the last 18 months, we expect to commence supply by end of Q1 FY '23. Our investments in specialty business through CapEx programs in entity and a dedicated manufacturing for another -- a dedicated manufacturing plant for another product, both of which are coming in Dahej, are coming up well. Both these plants will get commissioned later this year. As you know, we have planned to manufacture 5 products in MPP, and at least some of them have potential to successfully scale up and could require their own dedicated plants over the next few years. Launch of new products in agrochemicals through multipurpose plant delay foundation for the next phase of growth of our specialty chemicals business. Along with these CapEx programs in Dahej, the Board of Directors has also approved investment of INR 75 crore in Dewas for debottlenecking of cGMP3, and some investments -- and some of these investments will also be for infrastructure development. These investments and the underlying opportunity pipeline provide us very good visibility of revenue growth for the future. I will now hand over the line to Mr. Bansal to give you a brief on the financial performance of the company. Thank you very much.

Thank you, Mr. Radhesh, and very good morning to all the participants. I hope all of you and your families are in good health. I will share the highlights of our financial performance for the 9 months and this quarter and following which, we will open the floor for question and answer. So first, I will talk about 9 months of FY '22, on a stand-alone basis. So during this period, the company reported net revenue from operation of INR 1,005 crores as against INR 809 crores in the same period last year, delivering a growth of 24%. Operating EBITDA stood at INR 260 crores for the 9 months add against INR 227 crores in the 9 months of the previous year, showing a jump of 15%. Operating EBITDA margin stood at 26% as against 28% in the 9-month period, and impact on operating EBITDA margin was due to higher employee costs and consulting fees paid during the year. Operating profit before tax increased by 15% to INR 226 crores for the 9 months and against INR 196 crores in the same period of last year. Profit after tax stood at INR 188 crores for 9 months and PAT margin stood at 19%. Now I will talk about BU's performance for the 9 months. Our High Value business registered a growth of 17%, and our legacy business showed a growth of 37%. In legacy business, performance of inorganic fluorides improved substantially during 9 months as the business registered a revenue growth of 52% to INR 203 crores. Refrigerant gas business also saw a very good growth of 24% to INR 186 crores in the 9 months. The specialty segment grew by 26% to INR 406 crores, and trans business grew by 3% to INR 209 crores. Now I will talk of Q3 performance. So during this period, the company reported a growth of 24% in the net revenue from operation of INR 367 crores as against INR 297 crores in Q3 of the last year. Operating EBITDA delivered a growth of 21% to INR 98 crores for Q3 as against INR 81 crores in the same period of the last year. And therefore, operating EBITDA margin stood at 27% in Q3 in line with what it was in the previous year. Operating profit before tax grew by 23% to INR 87 crores for Q3 as against INR 71 crores in Q3 of FY '21. Profit after tax stood at INR 69 crores for FY '23 as against INR 59 crores in the same period of the last year. And this -- and the margin was at 19%. So that's all from my side. And with this, I hand over the floor -- I open the floor for the question-and-answer. Thank you.

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

Just a couple. First one, the CRAMS business. If you could please quantify roughly how much of the revenue has been deferred from 3Q to 4Q? And then also on the debottlenecking that you've received approval for. Is there a rough time line that you could indicate by when it will be ready? And what could be the incremental revenue potential coming from that debottlenecking activity once it's completed?

Yes. So I think there are 2 questions. The first thing is in terms of CRAMS revenue. If you saw in this particular quarter, we delivered a revenue of, this one of INR 60 crores. As we have maintained, our target is to ensure that we deliver a run rate of approximately about $10 million. So that delta has actually got moved to the next quarter. So we should be able to deliver the $10 million that we were otherwise would have delivered in the next quarter, and this delta will get added to that. As far as the debottlenecking project is concerned, we expect that this project will get over by end of the calendar year. So we expect that by November, December period, it's when the project will get over and we will actually have the plant available for us from January of '23 onwards. We expect that -- and again, it's very difficult to discuss in terms of year-on-year. But we expect, overall, this CapEx should be able to get -- should help us to get our CRAMS business overall to about $65 million -- so $65 million to $70 million revenue.

Got it. So that's very clear and very helpful. And the other question I just had was on the refrigerant business. in the context of what has been a very sharp rise in the refrigerant prices in the past few months, not necessarily R22, but in other HFCs, et cetera. I just wanted to get your perspective on where you see that market heading overall. And in that context, in terms of your plans of possibly getting into HFC, if there's anything you could indicate.

No. So our -- so there are, again, 2 parts to this. One is increase in the overall refrigerant gas prices. As far as the pricing of R22 is concerned, as we have always indicated that the pricing for R22 will continue to go up. And we will probably have some volume dip on the [ NFIL ] side and some volume increase on the [ non-NFIL ] side. We are exactly seeing that play out. As far as HFCs are concerned, we have a plan, as I mentioned earlier. We intend to finalize the plan by, let's say, end of this financial year and then take it to the Board. So we -- that plan is currently on track. So there is no deviation from that plan given what is happening on the market.

Great. One last question, if I may just squeeze in. The consulting expense YTD, if you could just give us the number, that would be really helpful.

That's close to INR 7 crores.

The next question is from the line of Levin Shah from Valuequest Investment Advisors.

Sir, my question was on the strategy side of the business on the -- particularly on the ARV price. So we had -- last quarter, we had seen some pressure on the ARV business. So where we are in that business and if you can give us more light about the growth or the outlook on that segment.

Yes. So as you must have also seen in the results of some of the pharma companies who specialize in the ARV segment, the ARV segment continues to suffer right now, especially the markets which are supported by [indiscernible] foundation, [indiscernible] foundation, et cetera. So our performance in that particular segment continues to be down. Having said that, this is something that we had predicted when we went into this financial year, and hence, we're able to very quickly develop a backup plan. Because of which if you see the performance of specialty chemicals overall hasn't really got impacted as much. Though that one important big segment has taken a significant dip. We expect that from second half of the calendar year '22, the segment will again start picking up. But we expect that in Q4 and also Q1, and this is what we are hearing from the customer, the demand will continue to be low. And from H2 onwards is where the demand will start picking up.

Okay. And because what we have left in the...

I'm talking about the calendar year H2.

Understood. Sir, on the inventory pileup trend on ARV like what we are making that we have seen or pileup of inventory, has that been clear or -- that is one of the reasons that we had a couple of [ low ] quarters or it will increase?

Yes. So what we understand from the customer, overall, the demand was low, and hence, that inventory pileup actually happened. And now the demand has again started coming back and that inventory is actually getting consumed. And we believe that the -- so the demand has now again started coming back and the inventory rebuilding will again start from H2 onwards.

Okay. Sir, and just a follow-up on this. So what -- like you said, some of the customers and what we have seen in their commentary that they are expecting a pickup from next quarter as well. So is there this inventory issue into that is going to impact us? Or is that from next quarter onwards, what the other ARV companies are talking about that, the growth will come back?

Yes. So we have seen that commentary about the demand coming back from the next quarter onwards. Currently, we are not really seeing that in terms of demand for the raw material or the case that we supply to these pharma companies. It's quite possible that they are also sitting over some inventory share with them, and that is what they will start supplying to their customer. And their production might start later in the quarter or from, let's say, Q2 of the next financial year.

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

The first question is in terms of price hike. So have you taken entire prices related to logistic cost, input cost, material across our segments? Or there is something left and probably would be taken in this quarter?

So when you're saying across the segment, I assume you mean across the business, across the company.

Right, right.

So as we have given the commentary before, we -- our overall company, I mean, we have 4 BUs, right? And each of the BUs is very different from other. So in ref gas and inorganic, we have been able to successfully pass on the cost increase to the customers. In specialty, we've not been able to, in many cases. So almost half of it, we were able to pass on and half of it we were not able to because of various reasons. In some of the cases we took a call not to pass on because of strategic reasons. But in inorganic and refrigerant gas businesses, we have been able to pass on all the cost increases. And in CRAMS, any which way, it actually tends to be cost plus kind of a model.

All right, right. So in speciality, are we going to increase those -- I mean we'll be able to pass it on during this quarter given that the input cost inflation is pretty high?

In Q4, we will be able to pass on some -- for some additional products, especially those where the new contracts now come into play from 1st January, some of those, we will be able to pass on the price increase. We have already negotiated that in the last quarter itself. So yes, in some of those cases, we will be able to.

Got it, sir. Sir, the second question is your overall CapEx numbers, before the INR 75 crores for Dewas was close to about INR 900 crores. So let's say, INR 1,000 crores of overall CapEx. So what is the kind of revenue potential that we see as optimal utilization from this entire CapEx?

I think we have already given the numbers. Whenever we have announced the individual CapExes, we have already given the numbers. I think it will be misleading for me to give on an aggregate basis. I think it will be good for you to look at for individual CapExes because, as you know, some of these CapExes are related to infrastructure development, et cetera, for Dahej when we are -- the investment was just starting up in Dahej. So I think you will have to look at it for HPP separately. You'll have to look at MPP separately. You'll have to look at it for the other specialty investment, which we made for dedicated plants separately.

Sure, sir. Just in terms of time line for optimal utilization, normally, is it 3 years after the plant is commissioned?

So for MPP, we expect to hit the peak annual revenue from year 3 onwards. But for the other 2 projects, we expect to hit peak annual revenue from year 2 onwards.

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

Sir, I have one question. Sir, you indicated that like in specialty chemicals, we are up to a partial pass-on of driving [indiscernible] inflation has been done. And given in this quarter, CRAMS was also, relatively, run rate-wise, lower. So should we expect that this kind of margin which you have delivered in this particular quarter should continue? Because 2 value-added segments where one was one has underperformed and second was partial pass-on.

Yes. Currently, given the business environment, it's very difficult to predict what's going happen the following month, against for the quarter. But overall, if you look at our internal hypothesis, you're absolutely right. That is what our assessment is, that in this quarter, Q4, for the reasons that you just now described, the margin should be slightly higher than what we did in Q3.

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

Continuing with the same thought on the margin front, just 2 questions. One, the pricing like benefits which we have seen on the ref gas and inorganic, and the gradual pass-through which will be seen in [indiscernible], plus the ramp-up in the [ transferring ]. So should we believe that the 9-month number, which is around 26% of the [ pass-through ], is that basically set and incrementally [ terms ] should be improving on that side?

Yes. We believe so.

Okay. And from a revenue growth and this -- the consultation fee, or [ INR 700 crores ] YTD, is there some more [ outgo ] which will happen in Q4 or next financial year or this is it largely?

No, that's done. That's done.

Sure. From a revenue growth perspective, what could be an incremental, let's say, volume upside in the inorganic business side? Ref gas, you did mention that some little volume shifting between [indiscernible] than non [indiscernible]. But on the inorganic side, if you can highlight.

You're talking about in Q4?

No, I'm saying not in Q4 but from a, let's say, FY '23 onwards. After FY '22, what sort of incremental capacity will be there on the inorganic side, which can drive all the growth?

Yes. So we expect that, as we have mentioned, our inorganic business, at least in the immediate future, will continue to grow at a GDP plus/minus level. So it's basically -- because most of these products actually go into the industrial applications, which tend to grow at a GDP level. So it will continue to grow at GDP level. However, there are some new opportunities that we have just identified and just started working on in our inorganic business. And we believe that those opportunities will not come in immediately in FY '23, but we believe that from FY '24 onwards, those will probably start coming into our revenues. So which means that post that period, we will also start seeing further incremental growth because of these newer opportunities. It's a little difficult at this point in time to really quantify what exactly that number would be for FY '24 and then FY '25, et cetera. We probably should be in a better position to quantify and communicate that impact in another quarter also because we are still working on these opportunities right now.

Sure, sir. My question was were more from a capacity availability or a possible [ deal continuation ]?

In inorganic, we have capacity headroom available. And unlike in specialty, what happens in inorganic is it's typically possible for us to add capacity in -- so we have 2 things in inorganic. We have our base product, which is the hydrochloric acid, and then we have a lot of downstream derivatives. So the downstream derivatives, we can add additional capacity at a fairly short notice. On the upstream hydrochloric acid, we have actually just started some small debottlenecking project to get us further about 10%, 15% capacity and we are currently in the process of evaluating our CapEx for setting up a new hydrochloric acid plant in Dahej.

Sure. That's helpful. And lastly, if you can give some comments on your side on the incremental opportunities that we have seen in the [indiscernible] or the differences or [indiscernible] have been working on.

Inorganic fluorochemical you're talking about?

No. On an overall business side, not only in inorganic, but overall.

I mean if you look at Navin Fluorine, as I mentioned before, each of the businesses is very different, right? So it's very difficult to actually talk about this on an aggregate basis. So we have individual opportunities in each of BUs. And the ones which we have given commentary before is on the opportunities that we are seeing beyond the 5 BUs that we currently have. But right now, it will be difficult to add further comment to that commentary. I'll add further color to that commentary.

The next question is from the line of Naushad Chaudhary from Aditya Birla Sun Life Asset Management.

Congrats on a good set of numbers. Sir, a couple of clarity on the inorganic fluoride business. Firstly, in the new product pipeline, is it something which you're indicating for potassium fluoride, which we had talked about earlier? Or are we working on something which is very new and could be exciting for this division?

So it will be difficult for me to give you a specific name of the product, et cetera, but this is not potassium fluoride.

All right. And in terms of the quarterly run rate for this division, so we have surpassed INR 80 crores in this quarter. Do you believe this kind of run rate could be maintained and given the product pipeline which you have in mind, can this division also be a INR 150 crores to INR 200 crores of quarterly run rate business in the coming years further?

It will be very difficult for me to predict at this point in time. I think it's important for us to look at this business on an annualized basis. And then, as I mentioned earlier, until we are able to translate those new opportunities into specific CapEx programs and bring them into our revenues. It will be fair to assume that what we will be doing for the annualized basis will actually grow at a GDP level because a lot of it, as you know, is also dependent on the demand from the end-user segment. So it is a little difficult for us to predict at this point in time.

Okay. One last, in terms of growth for this division, especially in this quarter, was it driven by our traditional end user steel, glass or the new end user industry, which we are targeting, I think pharma and auto, we were talking about, sir?

Driven by the traditional industries.

The next question is from the line of Dhavan Shah from ICICI Securities.

I have a question on the CRAMS side. So based on the $10 million kind of run rate for this fiscal, you may end up roughly [ INR 300 ] crores kind of revenue. So how are you seeing the -- the utilization will pick up for the cGMP3 coming next year itself? And what kind of -- the quarterly run rate you can see, can we end up roughly INR 400 crores kind of revenue the next fiscal for CRAMS business? Is that understanding correctly, potential thoughts on that?

No, it will be very difficult for me to give that kind of information at this point in time. As we have indicated, we -- so we have already provided indication in terms of what we expect from the main cGMP plant. The debottleneck that we are doing currently, as I mentioned, will get completed by December. And from January, this will be available. But specifically, what is that number in FY '23, it will be difficult for me to give that at this point in time. We continue to work. Clearly, there will be growth on this $10 million run rate that we are currently looking at. With current -- with this $10 million run rate, we are at a capacity utilization of approximately -- on an aggregate basis, we are at a capacity utilization of approximately about [ 62% ], 63% and we expect a significant improvement in terms of capacity utilization next year. But in terms of what that would get converted into -- converted in terms of revenue, et cetera, it's really difficult for me to give you that number today. We have planned a team meeting later this month when we are actually going to do a deep dive into understanding what next year is going to look like. So I think by March or so, I'll be in a better position to give you that commentary on FY '20.

Got it. Okay, sir. And on the gross margin side, if I look at your non-legacy business, composition was [ 58% ] this quarter. But still our gross margin was 55.6%. And that's maybe because of all the price growth we have seen for the non-legacy business. So do you foresee that in the years to come, when we see the non-legacy business will continue to drive higher growth we can see the expansion in the gross margin about in this 56-odd-percent? Can we see that run rate?

Yes.

Okay. So this could be a base -- even -- and this is basis sustainable working?

Yes. So I mean as you can understand, it will be difficult for me to predict how it's going to happen. I mean how the gross margins will fare on a quarter-to-quarter basis. But directionally, definitely, it will really move up.

Sure, sure. And just one last question is on the spec chem. So you mentioned some new molecules you have added for the segment. So can you share thoughts on that? I mean, what would be the price annually for the next months [indiscernible] come up, we'll see the growth over the years. So the present utilization of the spec chem and how is it placed in the coming year, if you can share thoughts on that, molecule-wise and utilization wise?

So the new molecules that we basically manufactured and delivered in this particular quarter were primarily in agrochemicals. And some of those will also then get mapped in -- as we scale these molecules and these opportunities, will get further mapped in our MPP in Dahej. Also, in terms of pipeline, we've got extremely strong pipeline right now in our specialty business, mostly coming from agrochemicals and non-pharma non-agrochemicals. We are not really seeing a strong pipeline on the pharma side. especially on the specialty, especially in the specialty business. So we are seeing it within agro business, and we are actually seeing in -- coming from segments which are outside of agro and pharma.

Okay. And what could be the utilization of the spec chem business currently? And how can you [ deliver ]?

You're talking about capacity utilization?

Yes, yes.

Look, capacity utilization is a little difficult to provide a number on because in specialty, we have a number of plants. So there is only one plant that is currently a dedicated plant, which is for a molecule in our industrial segment, where current capacity utilization is approximately about 75%, but all other plants are basically kind of MPP in nature. And hence, we continue to do various smaller debottlenecking projects [ basis ] per molecule, et cetera. Like for example, earlier, I talked about us working on a Plan B for the slowdown in demand in ARVs. So when we saw that happening, we immediately identified some other debottlenecking projects to retrofit that plant for some other molecules, et cetera. So those both kind of smaller CapExes, we continue to do to bring incremental capacity in the specialty in Surat. But of course, the major capacities, which will be coming up in specialty, will be later this year where -- when these 2 large CapExes will get commissioned in Dahej.

The next question is from the line of Anubhav Sahu from MC Research.

I have a couple of questions here. One is, if you could give an assessment of the quantitive landscape in fluoro chemicals within India, as [ some ] of the downstream companies are folding into fluoro chemicals, and so any view on this? And secondly, if you can elaborate what are our priorities in fluorochemistry? I mean, this subsegments, we want to focus on going forward.

Yes. So I mean, obviously, for short to midterm, our focus will continue to be agrochemicals and pharmaceuticals. I would say, mid to long term, the #1 focus area will be pharmaceuticals, which will primarily be addressed through our CRAMS business. And as I've mentioned, we are actually looking at a lot of newer opportunities, which are from newer segments. So going forward, a lot of new projects, we believe, will be actually coming from those segments because we believe that in the next 3 to 4 years, there would be -- the competitive intensity will actually become stronger, especially on the agrochemical side. So though now, it's short to midterm, we continue to grow our agro order book. And a lot of our growth, et cetera, will come from agro. We are cognizant -- we a,re cognizant of the fact that competitive intensity, especially on the agro, will grow. And hence, our emphasis is currently on identifying a lot of opportunities outside of agro so that from, let's say, FY '24, '25 onwards, a lot of the new growth will actually be coming from newer segments. And just to again answer your question on the competitive intensity, we believe that there will be more players coming in the fluoro side. And we also believe that people who are currently there will grow stronger. But we don't -- we are not seeing a significant competition in this space beyond agrochemical. Most of these companies are limiting themselves to agrochemical and, hence, the need to diversify outside of agrochemicals for us.

So yes, that's quite helpful. So I mean, do you have a set of segments in mind within fluoro chemicals there incrementally, we won't be investing more or we won't be venturing into because maybe probably the ROE is lower or the competitive intensity is high?

Yes. Yes, absolutely. We have already identified those segments, and the work is going on in those segments.

Okay. Okay. And sir, if you can just mention here how much specialty chemical revenue growth for the pharma end market?

So if you see, this year, we've actually seen a degrowth primarily because of the ARV piece. We would like to see how this ARV comes back next year. But minus ARV, we are actually seeing kind of a low double-digit growth for next year coming in specialty from pharma. So we have identified some new intermediates, which we have just started sampling and we're basically looking at mapping the plants in Surat for those molecules. So of course, if the ARV comes back as it is anticipated in the second half from second half onwards, the growth will be more. But otherwise, it will probably be low single digit. I'm only talking about pharma speciality, yes. I'm not talking about pharma CRAMS.

Yes, that I got it. So I mean, within specialty, what percentage of revenue goes to pharma, I mean as of now?

No, that's very difficult for me to give. I don't have those numbers immediately available with me because what we will rather dare look at -- because earlier the split was 40-40-20. 40 from pharma and 20 from Agro. This year, the split has actually skewed towards agrochemicals. So we will have to basically -- and the pharma fee, which is almost 40% of the total basket, will probably, this year, will probably come down to almost 20%. So then if that is -- that 20% actually grows by 10% or so, it will be probably about 2%, 3% or so. But we will have to look at that exact number. I don't have that right now number available with me. If we finalize the budget for next year, that is when we will actually look at that exact number.

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

Sir, just taking from the previous question only. So retail, we are seeing that in Specialty Chemicals, the pharma business has still grown and probably the contribution probably in the entire specialty has come down from almost 40% to 20%, which means that from agro, a lot of growth has basically been there because the specialty, overall, has grown significantly. So just wanted to understand, if next year we see that pharma growth comes back even at a lower single digit also, when we see this agro growth, what has been in the current year, can sustain in Specialty Chemicals next year also? Or is it going to be non-agro, non-pharma which is going to be the driving factor.

See, if you actually look at next year, which is FY '23, there are a lot of newer variables which are coming in because of your MPP as well as the other dedicated plant actually gets commissioned in FY '23. But if you look at FY '24, which is a full annualized year that we will get for all these newer plants, and if you look at, let's say, FY '24 performance of specialty versus, let's say, FY '21 or FY '22 performance of specialty, you will see a disproportionate growth in specialty would be actually coming in -- from agrochemicals, primarily because a lot of these newer projects, which are coming up newer CapEx programs, are all for agrochemicals. Specifically in FY '22, if you see, you're absolutely right, a large portion of -- a large percentage of that growth has come from agrochemicals. But at the same time, we've also seen a very good growth come from the industrial segment and in specialty in FY '22. In industrial also, we are actually looking at some other newer molecules which we can actually add to our industrial specialty basket.

Sir, within pharma, though you have mentioned that it's basically from your [ BP ] where we have seen a slightly degrowth coming in the current year. The companies are not being able to focus on the segment. But how do you see the overall pharma business in terms of -- for Indian context, we are seeing that in agrochemicals. India continuously, mean not only our company, but many payers have seen significant growth in intermediates and agro chemical AI in the current year in last year. How do you see the pharma piece going forward? Are there enough opportunities in pharma, and for next year, may be slightly weaker. But over the next 2 to 3 years, can there be growth in pharma? Can be there, or is the business model right now under pressure?

No. So I'll tell you -- I'll given that answer slightly differently. If you look at the pharma piece where the end product is actually going into the regulated market, A lot of that, we actually do under CRAMS. So there, we are actually seeing pretty good positive traction. And the specialty, we primarily supply to the Indian pharmaceutical company. Again, a lot of those are generic molecules, , et cetera. We're really pleased that as we move forward, that will basically -- we intend to be focused on that particular segment, in that particular area. The reason being we are seeing the level of predictability there is very low. In all our businesses, our aim is to ensure that we bring predictability, the earning predictability. Of course, in CRAMS, it tends to be lumpy from quarter-to-quarter. But directionally, there is a very good predictability in terms of how the business is going to scale up, et cetera. In domestic pharma, we just don't see that. We see that most of the customers actually give us a commentary in terms of what is going to happen the following quarter. And the following quarter, the things actually are completely different from what the customers have actually told us. Even in some cases, the customers actually forget about the agreement. In some cases, the customers will give us the POs and don't pick up the material. That's just not kind of an engagement we would like to base our growth on. So we are actually kind of defocusing and deemphasizing the domestic pharma piece. That's -- so the quality of business perspective is not something that we want to really focus on.

So we can say that in pharma, from our dependency on the generic companies, we are moving towards the CRAMS model, which will be more customable and high margin, depending on the [indiscernible] market?

That's correct. Even in the domestic market, we probably will pursue some opportunities on the -- we'll probably pursue some -- just on an opportunistic basis. But strategically, that's not an area that we would really like to emphasis upon, emphasize on.

Okay. Sir, another question is once again from the previous participants where you had talked about the rising competition in the fluorination chemistry. So sir, you see that -- are there enough growth opportunity. Though you mentioned that your focus will be competing on agro and also diversifying into other industries. But so as other companies also, like some companies are focusing more on the on the batteries and for the future developments and some are like yesterday only we have [indiscernible], which once again happened to have a presence in the fluorine chemistry. So there are less inorganic is probably putting another capacity betting into that. So what I think the competitive intensity in the fluorine where probably the market was dominated by 3 leading players in the country is now seeing a multiple players trying to enter into the market. Though fluorine [indiscernible], what we understand is a complex chemistry. But definitely, that with the more players getting into that, we saw some rising competition. So how do you see -- are there enough growth opportunities in domestic or in export market, which can absorb this rising competition? And are new players entering into market? Or you see that the composition itself will increase significantly in this segment?

So just to give you some idea on this. If you look at these 3 players that you are talking about. Now if you look at specifically for Navin Fluorine, we have been doing this for last 50 or almost 55 years. So there is a lot of resident knowledge, et cetera, which exists. This is not something which is very easy to acquire in a year or 2. Having said that, we believe that in the next 3 to 4 years, if you look at the value pyramid, within the fluorine space, right at the bottom of the pyramid in terms of chemistry complexity, et cetera, is agrochemical piece. And that is why I believe that, that is a piece where the intensity will first come in. But the other piece is, the pharma piece, especially where you supply to the regulated market tends to be extremely sticky business. And in some of these other non-pharma, non-agro sectors, the chemistry capabilities and the engineering capabilities that are required to be successful, I don't see any of the current new players who are trying to get into fluorination, actually having those capabilities. So for -- I mean, I have mentioned this before as well, most of these other players probably have F1 capability. None of them have F3 capability or F4 capability or F5 capability or F6 capability. A lot of fundamental building blocks in F3, F4, F6. There are very, very few players globally who actually have these building blocks. We are one of the very few players globally. I'm not just saying in India, globally, to have those building blocks. So even if some of these newer companies have to get into those chemistries, they will have to be dependent on us for those building blocks. And again, those chemistries are extremely, extremely difficult to handle. We've actually tried for 3, 4, 5 years, failed and then eventually have kind of gained expertise in those. So this is not something which is very easy to acquire. Having said that, we believe that the intensity will definitely grow stronger on the agrochemical side, which is at the bottom of the value pyramid.

So you want to say that even the competition goes up probably these new players will enter into lower end of the product, and that actually will be a positive for you? Because ultimately, like as you mentioned, that for F5, F6 and those kind of intermediates and building blocks, they have to be dependent on you and that will further drive the growth for your company and the old fluorine chemical chemistry players in the country?

Yes. And I mean, just to give you some numbers, if you actually look at, let's say, fluoro intermediate market for pharma or, let's say, fluoro intermediate market for agrochemicals, total supply from India is less than 5%. It's about 3% to 4%. So there is a significant upside possible.

Sir if allowed, I have one more question. Otherwise, I can get back into queue. Sir, in the refrigerant gas business, we have seen that the significant pickup in revenues in the current quarter, which I understand is primarily driven by the price increase, are there any -- is there any scope for further volume growth because what I understand is R22, they were fully utilized. And as per the protocol, whatever we can sell outside, we were selling it outside. So is there any scope for volume growth in the refrigerant gases? Or in the current quarter, the growth is also driven by the volume or oil price increase?

Directionally, the growth in refrigerant gas will not come from volume growth of R22, the main product that we have. We will actually see degrowth in the [ invasive ] side, which will get compensated by the growth on the non-invasive. It's primarily because most of the OEMs have now moved out of R22. A lot of growth there will now happen through to new products that we will actually work on and develop.

[Operator Instructions] The next question is from the line of Chintan Modi from Haitong Securities.

So I have just one question. When we look at the recent trends, like inorganic fluoride that started doing well, the ref gases started doing well, and more like commodities across the board is doing well. Secondly, when we read your commentary, other companies' commentary, the intensity of focus on domestic market has also improved in the last couple of quarters. Do you believe that this is more -- this is coinciding with the logistics issues and most of the regions have got isolated? So do you believe this is more like opportunistic until the time logistics issues are there and the revenue, once this gets resolved, everything will come back to normal?

Yes, so if you actually look at the growth that we have been seeing or we will see moving -- going forward as well. So our growth will be across the base. A lot of these pricing -- movement because of the pricing which have primarily happened in inorganic and that happened primarily in inorganic and ref gas. But in specialty and CRAMS, a lot of that growth is basically from -- coming from the international markets. So to your observation that the growth is primarily coming from the domestic market, that is true for inorganic business and ref gas. How will this pricing actually fare going forward for inorganic and ref gas is a little difficult to predict. Having said that, we believe that both CRAMS and specialty will continue to grow, will continue to be strong.

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

So my question is on the CRAMS business. Just to be able to reconfirm, have we said after the debottlenecking, the optimal capacity [indiscernible] possible on this plan to be about $70 million, $75 million?

I said close to about $70 million, $70 million plus/minus. But again, this is something which is really difficult to predict because depending on which molecule scaled up, what kind of chemistries will be required for those and how these molecules actually bunch together, what type of molecules we do in a particular quarter versus the chemistries that we do over the year, spread over the quarter. There are a lot of things which actually play into this. But we believe that will be about $70 million plus/minus.

And sir, and you say the debottlenecking cap would be in place by the end of this year, almost about the end of FY '23, the increased capacity.

That's correct.

And sir, on the pipeline in the business, currently, how many commercial products are we doing here?

No. We typically don't give this information.

Okay. Okay. And sir, qualitatively, how -- what kind of conversations -- how much do your conversations changed in the CRAM business, in Pharma CRAMS versus the conversations that you'd be having with the investors maybe a few years back? I mean, in terms of the complexity of the products that they talking to you about, intermediates versus APIs and the size of the contracts. Has there been any meaningful changes in your conversations?

Sure, sure. I think there are 3 things that have changed a lot. One, we've actually started talking about a number of more opportunities with the existing set of customers. As I mentioned before, whereas we were actually maybe supplying or we were having opportunity of one molecule with each of these customers. Now with some of the customers, we actually have 4 molecules in the pipeline, 5 molecules in the pipeline. So we're supplying more molecules to the existing set of customers. So that is one change. The second is that -- so earlier, we were actually supplying, primarily, intermediates. Now a lot of conversation is around advanced intermediates. And we have just started looking at opportunities on the API side as well, basically to go further down into the further cGMP steps. We don't know yet if we will actually go all the way to API or we'll limit to advanced intermediate. We are very clear that we don't want to be API player, but that is something that we are actually looking at as an option or to have available to provide additional service to the existing customers. So for the existing molecules, if the customer wants us to do further GMP steps, we could look at that opportunity. We don't see ourselves as becoming an API player because that's not where we believe the real value addition can happen from a Navin Fluorine side. So I think that is the second one. The third is that we are actually seeing -- we have actually talked about this before, but we are actually seeing more traction now with small to midsized biotech, biopharma companies, where we've actually seen a lot of newer opportunities coming from these set of customers. So those, I would say, are the 3 fundamental changes in the quality of discussion currently happening in the CRAMS business.

And sir, can I just probably push in a last one on that. Sir, in your -- typically, are customers insisting on you having upfront investments in larger capacity before they commit businesses? Or that is not really a constraint for you? Because you don't have too much surplus free capacity in this business?

No. So there are -- for these molecules, which are scaling up, there, we are always supplying the molecule. So there is no need assets for them -- to actually see the steel in the ground. But having said that, when we actually have these discussions going on with the customer where they kind of give us some kind of an indication in terms of how the molecules are scaling up, it becomes important for us to ensure that we have these capacities available for these molecules to scale up. And as I have mentioned before, we've already started having a lot of these dialogues with the customer and trying to see how many of those opportunities then would be required to put in a cGMP4. So we've already started having those conversations, and we are hoping that in the coming year, which is FY '23, before end of FY '22, we would probably have a lot more concrete plan on cGMP4, which we'll be able to take to the Board.

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

I'm shifting to the same question of competition, competitive intensity, agrochemical versus pharma. In our discussion previously, you indicated that we will be focused on pharma and your focus on agro will significantly increase and you have identified certain customers where you think this will happen. And your today's commentary looks very, very different and this discussion probably happened not beyond, say, the quarter or within this quarter, right? So what has changed here to think -- what's happening on the agro chemical side? And why there was a change in the forecast. That's number one. Number two, on building the capabilities from F3 to F6, which is a competitive sense for Navin Fluorine, we are also taking off what commercializing them in '25 or somewhere into '24, '25, '26. It's like 4 years from now. And there is one company which is already non-fluorine from a manufacturing, less fixed on [ electrolyte salt, ] which comes from a non fluorine background. And I think 3 to 4 years for chemistry to develop is a fair enough time for a strong company. What gives you confidence,e that the competition will not catch up as we catch up by that time? These are the 2 initial questions from myself.

So let me take the second question first. These chemistries will not take until FY '25 to develop. We are already doing these molecules. I'm saying that it will basically require until '24, '25 to really scale up, wherein it will require dedicated CapEx and will have material impact on the P&L. So these molecules, all of these molecules that I mentioned, based on F6 chemistry or F4 chemistry or F3 chemistry, we are already manufacturing and supplying. On your first question, you talked about the change in the commentary. I don't believe there has been any change in the commentary. We have always maintained that short to midterm, our focus will be on agrochemicals. Over a period of time, we believe that agrochemical is a sector where a lot more companies will come in. And hence, it is important for us to diversify beyond agrochemicals, which is what we have already started working on.

I will take this offline some time when we meet again. Just to -- sticking on to the pharma side of it. We have been constantly telling that CRAMS will remain the 2 parts of our business. And probably, we are incrementally putting a lot more capital base, which is clearly a stated intention. How should we -- and these are specialty chemical in that perspective that agrochemicals will remain a lower focus and that domestic pharma will remain lower focus. How should our specialty chemical looks like, say, 3 year, 4 years down the line?

So I don't know if actually you heard me correctly. I didn't say that agrochemical will be lower focused. I said for the short to midterm, agro is going to be the main driver of growth. All the new CapExes that are coming in Dahej, if you have seen the commentary, they're all based on agrochemicals. So until FY, the growth that is going to primarily happen in specialty is primarily going to be driven by agrochemicals. So there is no mention that the immediate -- there is immediate defocus on agrochemical. What I'm giving you is a short to midterm focus and the mid- to long-term focus. When I talk about the agro piece, it's more to do with the mid- to long-term focus. Short to midterm, it will continue to be on the agro sector. On the pharma piece, especially on the specialty side, as I said, that will -- we will continue to pursue those opportunities, but it will be more at a transactional basis or more on an opportunistic basis rather than saying -- rather than on a very strategic [ reason ], saying that, okay, this is a piece that we really want to grow, like the way we are actually talking about far more on the CRAMS side.

Fair enough. Fair enough. Fair enough. Just last bit of clarification on the agrochemical side. So from now to say midterm, if I take midterm as 5 years, it would be predominantly, again, the agrochemical side where we will be competing with all the other fluorine agrochemical intermediate companies, right?

No. So the growth that we are actually going to see from today still, let's say, FY '25 in agrochemical, those are primarily going to be driven by the opportunities which are already there in the pipeline or the emerging ones that we have already initiated the discussions, et cetera. We don't see in those molecules currently any competition from any of the other Indian companies. Typically, the way agrochemical companies work is that they don't typically have 2 or 3 companies in the same country or same geography working on the same molecule. So typically, if there are 3 companies in India, they will not give the same molecule to 3 companies. They will select 1 company for a molecule. So the molecules that we are working on, the molecules on the back of which we are actually predicting this growth or the CapEx on the back of which we have actually done the CapEx program, those molecules are being developed and will be supplied only by Navin Fluorine.

Got it. Got it. Got it. Just one big -- so in terms of the way I understand, so say for '25, the focus will be agrochemicals. How should we see these contracts which will be ending at 4 years or 5 years down the line, what -- there will be a significant competition for the renewal of this , right? For the long term perspective...

Let me again repeat. For these molecules, we will continue to be the supplier after -- beyond -- a lot of these agreements that we signed, either for 5 years or 7 years, all of them have clauses for continuation of those agreements. Typically the only variable that comes into picture there is how well are those molecules performing on the market. If the molecules continue to perform or if the performance actually improved, we will continue to be the supplier. As I mentioned earlier in my commentary, some of the molecules that we have currently mapped in our new entity in Dahej, we believe that as those molecules scale up in the years to come, they would also require dedicated plants. When you talk about competitive intensity growing, let's say, in the next 3 or 4 years, those are for new opportunities, which will come up in '23, '24, '25. The opportunities which are already in the pipeline will remain with us.

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

Sir, one clarification. You mentioned that the fluoro intermediate market for pharma and agro, which is getting supplied from India, is about 3% to 4% of the global market. So based on that, if I do a rough math, the market size comes to be around, what, $15 billion to $20 billion, somewhere in that range. So is that a good sense of the overall market for intermediates for pharma and agro. Because this data is currently -- I mean, not readily available. So this is -- just wanted to clarify?

No, I don't have the data right now with me. But we just did that assessment on the part of -- that consulting assessment, and that is where this one has come. But the overall numbers, et cetera, I can have those in front of me right away.

The next question is from the line of Dhruv Bhatia from BOI AXA Mutual Fund.

A couple of questions. On the CRAMS side, the visibility that you're getting into this debottlenecking of cGMP3 and probably, you'll probably announced, the cGMP4, is it coming more from existing projects which are ramping up further? Or is it coming more from, as you mentioned, midsized biopharma? Or are there more new inquiries which are there, which are kind of converting into commercialization?

So those are primarily basis the way the existing molecules are performing. And we're hoping that more of these molecules will actually scale up and, hence, will require larger manufacturing footprint. So for example, if you see cGMP3, it's a much larger plant than cGMP2 and similarly cGMP2 is a much larger plant than cGMP1. When we come up with cGMP4, it will probably have some specific capabilities. So it could have, let's say, larger high pressure fluorination block, et cetera, et cetera. So that -- we will decide at that point in time. But currently, if you see, our overall plan is basis the way the existing molecules are looking to scale up. So the way it will happen is the existing molecules will scale up, will require larger plants, et cetera. And as those move into the newer plants or these larger plants, these new opportunities that I was talking about from the new biopharma companies, et cetera, will come into cGMP1,cGMP2, et cetera.

Very clear. And sir, on the agro side, if you just talk about more of this multiyear contract, the INR 800 crore contract. Can you just give a little more color around is it from a -- is it a patented molecule, which you've won, or is it you won this order from an existing suppliers who are supplying to the customer I mean if you could just give a little more color on that.

So this is a molecule which has just got off the patent, but the customer continues to develop, formulate and launch new formulations, along with some other patented molecules, et cetera. There, the molecule is performing extremely well on the market, and they believe that it will continue to perform very well, at least for the next foreseeable future. So on the basis of that, they have actually signed this contract, which is also -- which also has a take-or-pay attached to that particular contract. Currently, this molecule is being supplied by another -- we believe that there is -- initially, it was supplied by a company from Western Hemisphere. Then thereafter they are qualified manufacturer in China for this molecule. That is what our understanding is.

Sure. And lastly, sir, I mean, this midterm opportunity you talked about in agrochemicals, is this coming more from a lot of molecules going off patent and Fluorine as a chemistry getting more used in these molecules? Or is it coming more from this Western Hemisphere to Eastern, where you're seeing a lot of players looking at Indian companies supplying to -- as a supplier base?

No, A lot of these newer opportunities -- and when I say newer, I'm talking about new to Navin Fluorine, are actually new to market opportunities. So these are not where, let's say, Navin is replacing either another company in India or Navin replacing a company in China. There is a possibility that in some of these cases, initial volume at a [ KG ] level was supplied by some company in the Western Hemisphere. But otherwise, we would be the first manufacturer and supplier for a commercial scale quantity. So a lot of these are actually new to the market.

So this will give you a lot more comfort in terms of visibility for the future or for any of these molecules which are getting commissioned by you?

Yes. So I think that comfort clearly depends on how these molecules perform on the market, right? Sometimes, it's actually good to work on the molecule, which has been there in the market for a long period of time and performing extremely well because, then, there's a clear visibility. It's a very established molecule, it's probably going to be in the market for the next 10 years or so. So it's very important that you have the right balance. So if you today look at the investments that we have, one, which is a dedicated plant for one molecule; and the other one, which is in the form of MPP. The MPP basically give them products which we have mapped MPP. Most of them are either new products or new formulations. The dedicated plant is for a molecule which has been there on the market for some time. So we try to ensure that there is a right balance and the right mix so that -- because you don't want to have too many uncertainties also where we have all the new molecules and, certainly, if they don't perform well, then you could have a problem. So it's important that you have the right balance between the two.

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

So I would like to thank everyone for joining on the call. I hope we have been able to respond to your queries adequately. If you have -- if you need any further information, request you to get in touch with Orient Capital, our Investor Relations Advisor. Thank you very much, and take care.

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