Navin Fluorine International Ltd Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Rohit R. Nagraj - Centrum Broking Limited - Analyst : The first question is on HFO. So on Slide 8, we have mentioned that lower HFO. So is it basically volumes or is it value? And since the plant is now stabilized, when do we expect to go back into optimum utilization? And any take or pay that we have exercised in FY '24?

Question: Rohit R. Nagraj - Centrum Broking Limited - Analyst : Sir, when are we expecting to go back to optimum utilization? And any take or pay that we exercised in FY '24? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 1:00PM, NAFL.NS - Q4 2024 Navin Fluorine International Ltd Earnings Call

Question: Rohit R. Nagraj - Centrum Broking Limited - Analyst :

Question: Rohit R. Nagraj - Centrum Broking Limited - Analyst : All right. The second question is on CDMO. So until last year, we used to have about $40 million of yearly run rate. Obviously, it used to be lumpy on a quarter-to-quarter basis. Incrementally that base run rate, will it continue at 40 given that in FY '24, we have done close to about, say, $32 million, $33 million?

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : I got three. I will ask the three. One, on the CDMO business, can you help us explain that this European CDMO order which we have received 50%, what is the annual order for the...

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Okay. Is it good enough now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 1:00PM, NAFL.NS - Q4 2024 Navin Fluorine International Ltd Earnings Call

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : So on the CDMO business, I just wanted to understand this European CDMO, which we are expected to start from the second half of FY '25. And we have received a firm order. What is the size of this order? And this is why we are telling that the recovery will be in the second half. That means first half again, are going to be muted. Is that the right understanding? That's number one.

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Okay. Second, on the Specialty side of the business, what do we mean by performance material, what exactly are we indicating there? That's number one. And number two, with the Q4 exports being at INR 1,200 crores. Are we operating everything at full capacity, what we have started except the fluoro molecules, where we are charging now so that revenues will start probably coming from Q2 onwards? That will be a fair assumption? And last, on the margin side. This quarter, in the stand-alone, the EBITDA margin is at 12.8%, and the mix change between the Specialty and CDMO is there, but HPP contribution has remained stable. The understanding was that the margins are not very different for these two segments. Why is there a drop in the -- there's a sharp drop in the margin on that count? So these are the three questions.

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Got it. Got it. This is the electronic division, which we were earlier indicating? Is that a fair assumption?

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Okay, okay. Got it.

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Got it. On that specialty way, have we completely exhausted the capacity in MPP and dedicated now in this quarter?

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Okay. Got it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 1:00PM, NAFL.NS - Q4 2024 Navin Fluorine International Ltd Earnings Call

Question: Sanjesh Jain - ICICI Securities Limited - Analyst : Fair enough. That's fair enough. Just one bit. So considering that there is a gradual recovery in CDMO, margin of 25% will be more like a '26 number and not '25 number. Will that be a fair assumption?

Question: Sudarshan Padmanabhan - - Analyst : Sir, my question is to understand the underlying demand on the Specialty Chemicals side. So we have seen the fourth quarter to be much better than the previous three quarters. You had talked about at least the agrochemicals being a [pain]. If you can throw some color with respect to where are we seeing the longer-term demand coming in from? I mean, on a quarter-to-quarter the growth that you are seeing, is it a reflection of an improved demand environment or is it largely driven by restocking? Some color on this.

Question: Sudarshan Padmanabhan - - Analyst : Yes, sir. The second question from my side is on understanding the CRO CDMO space. What we understand from a lot of Indian players as well as global players is there's been a slowdown again because of higher interest regime. I mean not specifically taking about projects, but are we seeing that kind of a slowdown impacting us on the health care side as well?

Question: Sudarshan Padmanabhan - - Analyst : One final question before I join the queue is on the refrigerant gas. I mean, we have heard a lot of our peers talking about competition from China. And even we have seeing a lot of issues or pain in the past. We are seeing, I mean, as you had mentioned, green shoots over here. So can you -- I mean, given that we are putting capacity in here that R32 coming up. Can you throw some color with respect to how do we see the pickup that's happening there, both in terms of the volume as well as in terms of pricing?

Question: Chetan Thacker - ASK Investment Managers Limited - Analyst : Just one question. I see a contract liability of INR 90 crores on the balance sheet. What does that pertain to?

Question: Chetan Thacker - ASK Investment Managers Limited - Analyst : So once the revenue comes, that gets offset?

Question: Chetan Thacker - ASK Investment Managers Limited - Analyst : Once the revenue starts getting improved, that will get offset. That will be a fair understanding.

Question: Vivek Rajamani - Morgan Stanley - Analyst : Just one clarification and one question from my side. I think in one of the responses to the earlier participant, you mentioned CY '25 with the 2x of CY '24 and CY '26 will be 3x of CY '24. Just wanted to clarify, this was with respect to only the Fermion contract or with respect to your entire CDMO pipeline?

Question: Vivek Rajamani - Morgan Stanley - Analyst : Got it, sir. And the second one was also...

Question: Vivek Rajamani - Morgan Stanley - Analyst : Sure, sir. And just the second question was also on CDMO. I think, you've been talking about the strategy to have a much better balance of early-stage and late-stage molecules, which you guys have been working on. Just internally, I just wanted to get your sense on how long do you think the strategy is going to take before we start to kind of see this reflected in the numbers from a volatility perspective?

Question: Abhijit R. Akella - Kotak Securities (Institutional Equities) - Analyst : First, on the commercial molecules that we're now in the process of signing up in CDMO, just to understand...

Question: Abhijit R. Akella - Kotak Securities (Institutional Equities) - Analyst : Can you hear me now?

Question: Abhijit R. Akella - Kotak Securities (Institutional Equities) - Analyst : Yes, yes. Just on the CDMO business. These commercial stage molecules that we are now signing up, will margins on these be comparable to the rest of the CDMO business that we have been making thus far in past years?

Question: Abhijit R. Akella - Kotak Securities (Institutional Equities) - Analyst : That's helpful. And one more question is on the agrochemical side. So when we are talking about still some lingering softness in FY '25, does this pertain primarily to the multipurpose plant, MPP1 or is it also related to the Surat portfolio of products we have, where is the softness?

Question: Unidentified Participant - - Analyst : My question is on the CDMO side. We mentioned that there is some approval from the FDA recently for one of the drug, which will be delivered in CY '25. So what is the opportunity size there? I mean, what could be the size of the molecule there? And what is our opportunity size in CY '25 or maybe the overall?

Question: Unidentified Participant - - Analyst : Right. And the delivery would be starting in CY '25 itself or it will be gradual, maybe from '26, '27?

Question: Unidentified Participant - - Analyst : Okay. And I think there is some difference of the molecules also plus the Fermion cells would be there plus this molecule in CY '25 or maybe FY '26 itself. So what kind of run rate are we looking at? Because right now, CDMOs are running at roughly $30 million kind of annual run rate. Considering all this...

Question: Unidentified Participant - - Analyst : Sure, sure. And the last one, would it be possible to break it up the gross book among the three segments. Right now, roughly in FY '24. And I think we have roughly INR 2,000 crores gross book. So what could be for spec and CDMO and HPP? And what kind of the peak revenues can we expect from this current capacity?

Question: Archit Joshi - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : My first question is within the spectrum piece, especially with the multipurpose plant comment about capacity utilization that you made earlier that our exit rate was approximately 80%. I was just trying to do some numbers here given that you have mentioned the total potential from the MPP with respect to sales that we can deliver close to INR 270 crores to INR 280 crores. And going by the same (inaudible), there were approximately four to five products, which would have contributed to that kind of a top line. So with this 80% utilization that we mentioned, are all those four or five products being produced? Or there is some more product launches eventually that will help us to get to that number, let's say, a couple of years down the line?

Question: Archit Joshi - Batlivala & Karani Securities India Pvt. Ltd. - Analyst : Got it. Perfect. Sir, one last question on CDMO. While it's quite appreciable that you've started giving out some details on how we are progressing with some pharma companies and the U.K. pharma major addition after the previous quarter announcement with some strategic dealing with a U.S.-based company. I just wanted to understand if one has to substantiate this. Is this in the same direction that you mentioned earlier that will help us reach a 50-50 split between early stage to commercial molecules? And would this also mean that in the next leg of our CapEx, which we announced last quarter of INR 288 crores, these initiatives will land some place in that new plant over a period of time?

Question: Madhav Marda - Fidelity Investments - Analyst : I just wanted to -- I have one question. When we give the [GMO], you want to get to the $100 million annualized revenue. This project which you speak about, which is the billions of dollars in sales for the end product, does that -- like -- do we assume ramp-up of that $100 million guidance or because that is a very large opportunity that start (inaudible).

Question: Madhav Marda - Fidelity Investments - Analyst : Yes. No, but this $100 million assumes the ramp-up of that particular molecule, which we are talking about?

Question: Madhav Marda - Fidelity Investments - Analyst : Okay. Okay. And just a follow-up there, like we're basically supplying an intermediate for this drug is like a fluoro intermediate or something like that? Is that how we should look at the product which you supply?

Question: Madhav Marda - Fidelity Investments - Analyst : This product which we are supplying or the molecule which we are supplying for this blockbuster drug, it's like a fluoro intermediate or something of that sort?

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : In the last quarter, you had mentioned that the HPP Honeywell contract would give about INR 450 crores revenue in FY '25. Does that guidance remain? And is there any implication because of any raw material price movement for us to change [our guidance]?

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : There should be no implication of further downwards because of the RM pricing.

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : Okay, sir. And the second question is just to get a summary on the spec chem. So this year, I think you're about INR 850 crores revenue. You have the INR 540 crores project coming up. But -- so overall, how should we see growth for the next year, say, it verifies. If you can give some guidance in terms of growth that you're expecting for FY '25? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 1:00PM, NAFL.NS - Q4 2024 Navin Fluorine International Ltd Earnings Call

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : Yes. So just to clarify, because your comments just to be sure. So you have these two MPPs, one [PPM] dedicated, which is almost fully ramped up. There is no weakness in this segment. The weakness that we are seeing is probably in the new business or the -- some of the existing businesses which are already weak. Maybe weakness probably could be there, but the existing contracts or entities been dedicated in MPP, where the run rate of revenue should probably continue.

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : That's helpful. And sir, quickly, what is your CapEx guidance for FY '25?

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : Sir, CapEx for FY '25?

Question: Dhruv Muchhal - HDFC Asset Management Company Limited - Analyst : For FY '25.

Question: Ranjit R. Cirumalla - IIFL Research - Analyst : Thank you for the opportunity, just carrying forward the CapEx question. So now most of the issues that we had in FY '24 seems to be stabilized and running at an optimal utilization. So what's the thought process on the next level of CapEx? I believe AHF is what is likely to be there by the end of this financial or early next financial year. So how do you intend to utilize that and the thought process behind utilizing that incremental AHF capacity?

Question: Ranjit R. Cirumalla - IIFL Research - Analyst : So if you say the next 12 to 18 months, then probably that will take another 12 months to take shape.

Question: Jason Soans - IDBI Capital Markets & Securities Ltd. - Analyst : I just wanted to know, sir, when you go back, the breakup for the Specialty chemicals, usually used to be pharma, 40% agrochem 40% and electronic materials of this industrial would be 20%. Now in the wake of this weakness in the Agrochemicals segment, how does that revenue contribution look? And you've already given a lot of commentary on agrochem. So I just wanted some color on the outlook for the pharma and the Advanced Materials or electronic materials, whatever name you call it. Just some color on the potential for both these segments and the outlook for pharma as well as electronic materials.

Question: Jason Soans - IDBI Capital Markets & Securities Ltd. - Analyst : Sure, sir. So in spec chem we are around 80% to 90% Agchem and probably 10%, 20% must be electronic materials. That's what you're saying.

Question: Jason Soans - IDBI Capital Markets & Securities Ltd. - Analyst : 80% on Agchem. Sure, sir. And just further going, so I just wanted to know, I know it's been a volatile environment, and it's been a difficult year for the company. But just wanted your view on traction on further multiyear or long-term contracts. We've been winning -- it's been some time we have won some. So just wanted to know what's your outlook on further winning some multiyear long-term contracts going ahead?

Question: Jason Soans - IDBI Capital Markets & Securities Ltd. - Analyst : Sure. Sir, just lastly, if I can squeeze in. There have been enough questions on CDMO. But sir, just in terms of our performance perspective, there were big plans as such. And of course, FY '24 has been weak in that perspective. It's quite heartening to know you have a lot of things in the pipeline. So -- but what has transpired in this year, of course, you want to scale up this business. But is it a lot of increased competitive intensity from other CDMO players? And how do we just plan to correct the situation? Just wanted your thoughts on it.

Question: Surya Narayan Patra - PhillipCapital (India) Pvt. Ltd. - Analyst : My question is on the CDMO business. Is the softness in the CDMO business, what we have seen in the fourth quarter, is it because of the inventory rationalization trend that has been there in the pharma space or it is because of the pricing angle or it is because of your larger dependency or your dependency on the small and midsized biotech pharma company? What would be the kind of reason for that? And when you are saying that the sequential recovery and all that, so what would lead the recovery on the CDMO side of that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2024 / 1:00PM, NAFL.NS - Q4 2024 Navin Fluorine International Ltd Earnings Call

Question: Surya Narayan Patra - PhillipCapital (India) Pvt. Ltd. - Analyst : Yes, yes. And along side, sir, I just wanted to understand maybe about the industry trends and all that. So do you face even pricing challenge for your CDMO business? That is one. And whether you have faced the inventory rationalization trend, what the pharma expecting currently? And do you -- what portion of your business would be dependent on the small and midsized biotech pharma companies?

Question: Surya Narayan Patra - PhillipCapital (India) Pvt. Ltd. - Analyst : Yes. But if you can still share, sir, what portion of your business CDMO would be dependent on small and midsized biotech industry?

Question: Surya Narayan Patra - PhillipCapital (India) Pvt. Ltd. - Analyst : Okay. If you just allow one more question, sir. On the Honeywell side, if there is a kind of moderation, it could be because of what reason, if you can just share?

Question: Surya Narayan Patra - PhillipCapital (India) Pvt. Ltd. - Analyst : No. In fact, we have seen some kind of a slowness and uptake the HFO, right?

Question: Surya Narayan Patra - PhillipCapital (India) Pvt. Ltd. - Analyst : Okay. And sir, any update on the debottlenecking of the Honeywell project, in the plant associated with Honeywell?