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

Ladies and gentlemen, good day, and welcome to the conference call of Navin Fluorine International Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sumeet Khaitan from Orient Capital. Thank you, and over to you, sir.

Thank you, Nirav. Thank you, everyone, and welcome to the conference call of Navin Fluorine International Limited. Today on this call, we have Mr. Vishad Mafatlal, Chairman; Mr. Radhesh Welling, Managing Director; Mr. Anish Ganatra, Chief Financial Officer; and Mr. Niraj Mankad, President, Legal, and Company Secretary of Navin Fluorine International Limited. Please note that this call is organized to update the analysts and investors about the recent development in the company and to address any queries related to the same. We will not be able to address any queries or questions or provide information related to the performance in quarter 2 FY '24 or the ongoing quarter due to compliance regulations and restrictions. However, this conference call might contain forward-looking statements about the company, which are based on beliefs, opinions and expectations as of today. Actual results may differ materially. These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict. Investors should not place undue reliance on these forward-looking statements, which are based on information available to us as on date of this call. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. With this, now I hand over the call to Chairman, Mr. Vishad Mafatlal for his opening remarks. Over to you, sir.

Thank you. Good evening, ladies and gentlemen. At the outset, I would like to thank all of you for attending this call. As you are aware, Radhesh has tendered his resignation as Managing Director and Director for personal reasons. The Board, at its meeting on 28th September 2023, accepted his resignation and he will be relieved from close of business hour on 15th December 2023. The search for his successor is underway and will be a subject of a separate announcement. As Executive Chairman, I'll steer the company ably assisted by the leadership team. On behalf of the Board, I thank Radhesh for all his contributions to Navin Fluorine, and wish him all the very best for his future endeavor. Radhesh will work closely with me over the remainder of his time with Navin to aid a smooth transition. I strongly believe that Navin is well positioned across our business verticals: HPP specialty and CDMO to capture the growth opportunities presented. Our vision, strategy and growth priorities remain directionally intact despite near-term headwinds from a challenging macro environment. Our focus on safe, compliant, reliable, and efficient operations continues to remain our top priority. We will also continue to pursue growth opportunities as and when they are mature in a disciplined fashion and within the construct of a strong financial framework. Our operating model, with each business vertical headed by respective CEOs complemented by site and functional leadership, has served us well. Experienced leadership enabled by a robust operating model remains a key enabler of our program. The model allows us to remain agile, drive customer centricity and strong operational discipline in everything we do. Our partnership with key customers is stronger than ever before, and we continue to deepen our relationships with them across businesses. I am also excited to share with you the appointment of Mr. Sudhir Deo as additional director to the Board. Mr. Deo brings to Navin over 4 decades of rich technical and relevant operational experience, including significant expertise in the field of ESG and sustainability. In conclusion, we look forward with optimism, knowing that our company is well equipped to sustainably grow over the coming years. Thank you all for your time. I now open the floor for questions.

[Operator Instructions] The first question is from the line of data from Sudarshan Padmanabhan from JM Portfolio Management Service.

If I look at the growth trajectory in the last 2 to 3 years, we have forged the long-term...

Sorry to interrupt you. May I request you to speak a little louder, please?

Yes, can you hear me now?

Better. Yes, sir.

Yes. So in the last 2 to 3 years, we have seen a more aggressive CapEx, more aggressive growth across verticals, and also the emergence of the long-term contract with Honeywell and extension of that. So with the departure of -- do we actually see a change in the CapEx intensity? Or do we continue to grow with the strategy that we have embarked on on the growth and capacity? My second question is on the R&D side. So there has been a lot of emphasis on the R&D, specifically in the last few years, which has borne fruits. I mean, I'm coming back again to the HPP side, would there be a change in the strategy on the R&D side as well? These are my 2 questions.

Yes. So to take the first question, our relationships with the customers like Honeywell and like have been deep and they are based on mutual trust and performance. So the company, at all levels, owns this relationship. The CapExs with all these customers and business for the future in different formats are on track. There is no change or any impact from any of these large customers. In fact, a lot of them are actually in talks with us for future projects. As far as the R&D spend and the development, the way we have been operating is the same way Navin will continue to operate. The growth trajectory and following up of new businesses will be done in a proper framework keeping in mind the strong balance sheet. So in short, to answer both the questions, Navin will continue as it has always been doing in the last 4 years.

Next question is from the line of Abhijit Akella from Kotak Securities.

I have two, sir. First, just on the upcoming project pipeline. We have this fairly significant INR 540 crore CapEx getting commissioned in December and then there's also the R32 project and the EHS projects. And I believe we also expected to announce maybe 3 more projects during the course of FY '24, including a new contract with Honeywell for a new product possibly and then something in specialty chemicals, something in cGMP at Dewas. So just to sort of get an update on whether this management transition that's happening now or the uncertain macro that we are passing through, whether that might have any impact in terms of the execution of any of these projects or the new announcements?

Yes. So as far as the project pipeline, as you mentioned, we are underway on 3 projects. All of them are on track. There is no issue on delivering this. As far as the future projects, whether it is in specialty or cGMP 4 or any other, these are under thorough evaluation. They would be impacted, if at all, for maybe a month or 2 or 3 based on the overall global environment. As far as the company, we have geared up to executing and initiating all new projects.

Got it. That's helpful. And the other thing I just was hoping to get your perspective on is, what were the key -- what was the key portfolio of responsibilities that were primarily vested with Mr. Welling? If so, what are the plans to reallocate those across the senior management team now? And just wondering whether the Board has sort of evaluated whether attrition in the senior management ranks at Navin Fluorine has perhaps been a little bit higher than the peer set. And if so, what steps if any might be required to arrest this trend?

Yes. So Radhesh, the Managing Director and driving all the teams is what he was doing. As far as the transition, the same would be done by me. We have a strong second line and third line. This is one of the advantages that Navin has seen over many years of having a very strong manufacturing and R&D and technical services department. As far as executing businesses, we are on track. We have no issue. The Board has taken note of the fact that incidents like this can happen. We have already on way to look at a replacement. But it has to be a balance to make sure that the continuity remains so that whatever growth and strategy we have planned need to be ably executed in the future. The Board has also set up through the NRC Committee, which will look at specifically issues on HR. And hopefully, we will arrest a higher attrition rate, as you mentioned.

Next question is from the line of Ankur Periwal from Axis Capital.

First, on the leadership bit, you did mention that NRC will be taking care of the leadership going ahead. Just your thoughts in terms of any preference for an internal or an external candidate? And how do you think, from a culture or a continuity of strategy perspective, things going ahead?

Yes. So it will definitely be an external candidate. The search is already on. The NRC is going to be a part of this search. It is a very laid down clear process, which will be in place for the search. Execution, leadership and continuity and these are the top 3 priority. And we will definitely be objective, have many references, look at this in a very balanced manner along with the NRC will be involved in this search.

Sure, sir. Secondly, I'm sure you must -- would have had some initial word with the clients as well in terms of the exit and the continuity, et cetera. And there is a clear cut business for CEO. So there is obviously a continuity in terms of business growth, project execution, as you highlighted. But any feedback, any pushback from the clients given again, coming back to the same point, that there has been some attrition which we have been facing as a company over the last few years earlier at the lower level, mid-level, but now at the senior level as well. So how do you target to address that?

So number one, there is no pushback from any top customers. They, of course, have been informed and I have personally informed our top 10, 15 customers. They are very clear that the multiple touch points that Navin has to offer in these relationships is one of the reasons and criteria they have looked at while working with Navin Fluorine. Therefore, they believe that things remain unchanged and the focus going forward will be to engage deeply with us at, again, many levels, including myself and strengthening all our relationships.

[Operator Instructions] Next question is from the line of Chirag Shah from White Pine Investments.

Sir, just one question -- rather two questions. Question one, from Khanolkar to Radhesh, we have seen a very different set of skill sets that Navin has looked at while looking at successor or in that end. So from here on, given the size, the scale, what are the key things that you would be looking at? You highlighted continuity. That's a normal part of process, but anything specific that you would be looking at, looking at the past, just trying to understand that. Where are we in terms of organizational growth path that you would like to address when you look for the successor of Radhesh?

Yes. So your observation is definitely great. All of them have great skill sets, even Radhesh for what he has done and Anish for what he did. Going forward, the importance of execution and capabilities of taking on large projects and delivering them efficiently on time continues to be very important. So having a deep experience in technology and operations would be on top of the mind.

Sir, second question was actually to Radhesh, if he wishes to, and also to Vishad yourself that -- how could you have ensured that Radhesh would have stayed? Because another 2, 3 years, and this company would have done great wonders given that we are at an incubation of a next leg of journey. So -- and that's one thing that is there in everybody's mind that -- why he is leaving at this point in time? Another 2, 3 years or 4 years would have been done wonders for the company actually. If Radhesh would like to share his view, it would be helpful.

This is Radhesh here. I think as our Chairman already laid out, we, as an organization, have extremely -- we, as a company, have extremely strong organization today. As you know, all the 3 businesses have their respective CEOs. We have actually significantly strengthened our execution team, be it in projects, T&D, R&D, et cetera. And all our large key accounts, international key accounts have multiple touch points. So we believe that either on the existing projects, which have already got commissioned or on the new projects which are in the pipeline or new projects which are currently being discussed with the customers, we believe we will continue to operate in the same fashion in the next few years as we have been in the last 5 years. So I feel pretty confident that external stakeholders would not see any difference in the way we are lead or the way we execute or the way we continue on the growth trajectory.

Next question is from the line of Sanjesh Jain from ICICI Securities.

Vishad, one on a much broader level. Our balance sheet used to be a net cash. Now we are almost 2x net debt to EBITDA, and we have a strong pipeline of CapEx, which is already being announced. And there is a few more on the annual to be considered. So balance sheet right now, probably the investment is ahead of the cash flow generation. That's always the case in growth, nothing wrong with it. But we have been very cautious, and we have always highlighted the strength of the balance sheet will continue, and we are cognizant of that. But on the other side, promoter stake in the company is relatively low, which caps the ability to raise equity beyond a point. How do you see the balance between the growth, cash flow generation, managing the strength of the balance sheet over the next 2 to 3 years. We know that we have already announced a fundraise, but what will be the priority in the 3 -- for next 2 to 3 years?