Q1 2027 Navin Fluorine International Ltd Earnings Call
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Speaker #4: Please stay connected. The call will begin shortly. Thank you. Ladies and gentlemen, good day and welcome to the Navin Fluorine International Limited conference call, hosted by MUFG.
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Speaker #4: I now hand over the conference to Ms. Pooja Swamy from MUFG. Thank you, and over to you, ma'am.
Speaker #5: Thank you for this. Good evening, everyone, and welcome to the Q1 FY27 earnings conference call of Navin Fluorine International Limited. Today on the call, we have with us Mr. Vishad Maseklal, Chairman, Mr. Nitin Kulkarni, Managing Director, and Mr. Anish Ganatra, Chief Financial Officer.
Speaker #5: This call will contain forward-looking statements about the company, which are completely based on beliefs, opinions, and expectations as of today. Actual results may differ materially.
Speaker #5: These statements are not a guarantee of our future performance and involve risks and uncertainties that are difficult to predict. A detailed safe-harbor statement is given on page 2 of the investor presentation of the company, which is uploaded on the stock exchanges and on the company's website.
Speaker #5: With this, I hand over the call to Mr. Vishad Maseklal for his opening remarks. Thank you, and over to you, sir.
Speaker #6: Thank you. Good evening, everyone, and welcome to Navin Fluorine's Q1 FY27 earnings call. I am joined today by our MD, Mr. Nitin Kulkarni, our CFO, Mr. Anish Ganatra, and Ms. Payal al Dave, our investor relations advisor.
Speaker #6: I am pleased to share that we continued to execute our strategy with discipline, while responding to the evolving business environment. Our performance reflects the strength of our differentiated business model, the resilience of our customer relationships, and our continued focus on disciplined execution.
Speaker #6: Equally important is the safety, health, and well-being of our employees, which remains a core priority. And we remain committed to maintaining high standards across all our operations as we pursue sustainable growth.
Speaker #6: As part of our long-term strategy, we are building a strong pipeline of advanced materials that can evolve into a high-growth, high-margin business vertical. Our focus is on applications catering to sectors such as data centers, electronics, semiconductors, and defense.
Speaker #6: Leveraging our core fluorination chemistry, expertise, and strong R&D capabilities, we are developing differentiated solutions for global companies in these sectors. We have made significant progress in building our advanced materials business.
Speaker #6: Key achievements include cooling project, adoption facility of advanced materials, and a technology development partnership with DRDO. These milestones reflect our steady move toward commercialization.
Speaker #6: We remain positive about the long-term growth potential of this business, and are continuing to invest in the skills, technology, and manufacturing infrastructure needed for future growth.
Speaker #6: These initiatives are expected to generate meaningful contributions over the medium to long term as customer adoption increases. Now, let me brief you on these developments in detail.
Speaker #6: The adoption capacity. The board has approved a new capex of 90 crores, funded through internal accruals, towards setting up adoption capacities for our advanced materials business.
Speaker #6: This capex will cater to the pipeline of indigenous products, for emerging sectors mentioned earlier. DRDO. We are proud to partner with DRDO, Ministry of Defense, Government of India.
Speaker #6: On a critical TDF project to develop an indigenous specialty material. By transmissioning of this highly critical imported chemical into a localized asset, we are directly contributing to nation's strategic autonomy.
Speaker #6: This milestone underscores Navin's unwavering commitment to India's economic growth, technological capabilities, and the mission for Atma Nirbhar Bharat. Together with DRDO, we look forward to engineering a more self-reliant tomorrow.
Speaker #6: CMOS project. CMOS project, which also forms a part of this vertical, is targeted for completion by end of Q2 FY27. In addition, to the capex in the advanced materials, we have initiated, in our CDMO business, phase 2, CGMP 4 capex of 125 crores, funded through internal accruals.
Speaker #6: Expected to operationalize by Q4 FY27. Phase 2 of our capacity expansion is supported by growing demand from our European CDMO partner, and an expanded footprint in their supply chain.
Speaker #6: This capex was a part of the CGMP capex of rupees 288 crores, approved by the board in Feb of 2024. Phase 1 of this capex was operationalized in Q3 FY26.
Speaker #6: Let me now brief you on the ongoing capexes across our existing business verticals. The HFC capacity expansion—the additional HFC capacity equivalent of up to 15,000 metric tons of R32—remains on track for commissioning in Q3 FY27.
Speaker #6: MPP capacity expansion: debottlenecking activities are the hedge MPP facilities are progressing well, and are expected to be completed by Q3 FY27. A renewable energy project: an investment of 15.73 crores in a group captive hybrid renewable project for 14.9 megawatts of renewable power, supports our sustainability and decarbonization goals.
Speaker #6: Once operational, this project is expected to meet more than 60% of our energy requirements through renewable sources. Looking ahead, we are entering the next phase of growth, with a strong pipeline of opportunities.
Speaker #6: Multiple capacity expansion projects under execution, robust customer engagements, and a healthy balance sheet. While global macroeconomic conditions continue to remain dynamic, our focus remains unchanged.
Speaker #6: Investing in technology, strengthening customer partnerships, maintaining capital discipline, and creating sustainable long-term value for all stakeholders. I would like to thank our customers, employees, stakeholders, and partners for their continued trust and support.
Speaker #6: Their confidence and commitment remains the foundation of Navin Fluorine's success. Thank you once again for joining us today. And I would now like to hand over to Nitin to provide an update of our operating and business performance.
Speaker #2: Thank you, Rishabh Bai. Good evening, everyone. And thank you for attending the call today. I am excited with the progress in the advanced materials business and the capex announced today that will unlock the growth potential of the business.
Speaker #2: Further, we are privileged to partner with DRDO in their drive for Atma Nirbal Bharat. Likewise, within the CDMO business, capex initiated today for phase 2 signals a deepening of relationship with our European CDMO partner.
Speaker #2: The quarter reflects a robust performance with all three of our business verticals delivering strong performance. The revenue of the quarter grew 44% YOY to rupees 1,044 crores, and EBITDA stood at rupees 357 crores, up 73% year on year, and packed at rupees 243 crores, registering a growth of 108% year on year.
Speaker #2: These results reflect the strength of our portfolio: the continued trust of our customers, and disciplined execution across the organization. Talking about the business verticals, the HPP business continued to deliver a strong performance during the quarter, with revenue of rupees 540 crores, registering a 33% growth year on year.
Speaker #2: Driven by healthy volume growth and improved realizations. The pricing environment of HFCs remained constructive, supported by favorable demand-supply dynamics. Our specialty chemical business has reported a revenue of rupees 325 crores, registering a growth of 48% year on year.
Speaker #2: This business vertical continues to witness sustained momentum, supported by good order visibility across both existing and new molecules. The product pipeline remains robust, with meaningful scale-up opportunities across existing molecules and a strong lineup of new product introductions.
Speaker #2: Moving on to our CDMO business, the business continues to demonstrate strong momentum with improved visibility. Revenue for quarter 1 FY27 stood at rupees 180 crores, growing 82% year on year, with strong outlook for the year.
Speaker #2: Our CDMO strategy remains firmly focused on maintaining a balanced portfolio comprising a healthy mix of commercial and early-stage programs. We continue to increase our participation across several promising therapeutic areas, including oncology, respiratory, cardiovascular, neurology, and animal health.
Speaker #2: Partnering with leading global innovators. Overall, we remain optimistic about the growth prospects across all these businesses. Our strategy of disciplined investment, deepening and broadening customer relationships, and expanding differentiated capabilities continues to create a strong platform for sustainable growth.
Speaker #2: Now, I would like to hand over the call to our CFO to provide you with details on the Q1 financials.
Speaker #5: Thank you, Nitin. Good evening, all, and I welcome you all once again on the earnings call. Moving on to the financial performance of the company in Q1 FY27, on a consolidated level, we reported a revenue of 1,045 crores for the quarter, reflecting a strong year-on-year growth of 44%.
Speaker #5: Operating EBITDA for Q1 FY27 was 357 crores, with a growth of 73% compared to the same quarter last year. The operating EBITDA margin stood at a solid 34.2%, a growth of 566 basis points versus Q1 of last year.
Speaker #5: Operating PBT for the quarter was rupees 283 crores, reporting an increase of 101%. Profit after tax stood at 243 crores, registering a growth of 108%.
Speaker #5: Operating cash flows for Q1 stood at 173 crores, and Navin also became net debt-free during the quarter. Our net working capital raised stood at 81 days, of sales which is again within the financial frame.
Speaker #5: With that, I would like to request a moderator to open the call for questions and answers.
Speaker #3: Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone.
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Speaker #3: Ladies and gentlemen, we will wait for a moment while the questions are assembled. The first question is from the line of Ankur from Axis Capital.
Speaker #3: Please proceed.
Speaker #5: Yeah, hi, sir. I'm audible? Yeah, yeah, hi. Thank you and congratulations on a strong set of numbers. My first question in on is on, you know, the capex program, and especially on the advanced medical side, the expansion there.
Speaker #5: If you can, one, highlight some details more, some more details on, you know, in terms of advanced materials, where and, you know, which all end-use applications, et cetera, are we looking to expand that our capabilities?
Speaker #5: And secondly, from a growth perspective, across speccam and other segments, HPP including, including advanced materials, how are we looking at growth from FY, you know, 29 onwards, given that the current capex will be suffice to drive growth till 28, but beyond that, if any thoughts over there?
Speaker #5: Thank you. All right. Thanks, Ankur. So again, we've always talked about advanced materials and said that we are incubating this vertical with a strategic intent to make it a material business unit by the end of the decade.
Speaker #5: And we've given a color to it in the past, saying that it should look like the CDMO business of today. The capex announced today actually starts to unlocking that position, and together with the other components of capex is, you know, we had earlier announced the Chemos project, which will also be part of advanced materials, as it's sort of growth.
Speaker #5: The DRDO announcement will also be part of the advanced materials vertical. And the not yet announced but, you know, that we're talking of electronic-grade HF, et cetera, which will also come into advanced materials as in when it's sort of comes through.
Speaker #5: The idea here Ankur is that these this vertical will focus on niche sort of applications in high-growth sectors, mainly data centers, electronics, defense and semiconductors, and will more specifically cater to applications that, you know, support the chip fabrication process, chip cooling process, you know, manufacturing of display, OLEDs, data centers, we've also talked about fire suppressants, which have applications in data center as well as beyond, you know, high-voltage electrical applications as well.
Speaker #5: And new energy sort of, you know, wind applications. Which will again focus on high-purity HF, et cetera, that will come in in due course.
Speaker #5: The sort of other area to look at is the advanced intermediates for fluoro elastomers. An advanced intermediates that go into sealants, yeah, sealants and films and coatings, et cetera.
Speaker #5: These are all sort of specialized products, you know, that will that impart sort of, you know, that require engineering at a very high level both from a molecule perspective and from the chemical perspective.
Speaker #5: But they're intended to give specialized properties in their end applications. That is the intent. I'll take a pause here if you have any questions on that before I go on answering the other.
Speaker #4: Anish, that's interesting. And just one clarification our earlier growth across speccam and CDMO has been more in collaboration or in partnership with the global innovators.
Speaker #4: We'll be fair to say that the growth outlook over here will also be on the similar lines.
Speaker #5: So this will be a combination of product and service play. I mean, the Chemos project is a service play, as you know. The adoption capacities that we are putting on largely build on our fluorination capabilities, but we have along with the infra last two years in the R&D side particularly.
Speaker #5: And there, the intent is to progress it more as a product play. Of course, there will be service components to that too, you know?
Speaker #5: So a combination of the two. But it will play out as we sort of go through it, you know?
Speaker #4: Sure, that's helpful. And if you can highlight on the medium-term capex, yeah. Thanks.
Speaker #5: Yeah. So like you rightly said, the growth perspective, you know, with the capexes we have already got ongoing growth to FY28 is largely baked in.
Speaker #5: These capexes we are putting through now, both the CGMP phase one, the adoption capacities, and possibly Chemos as well as the adoption increases, will start to figure out on the growth beyond FY28 sort of thing.
Speaker #5: That is the idea. The capexes are also being put in a very thoughtful manner. So the adoption capacities we are putting out in two phases with the idea that, you know, the first phase of the capex will be complete, more towards you know, kind of the middle of last quarter of this financial year.
Speaker #5: And from there, that should allow us to start doing qualification of commercial sale quantities with customers, which should then open up the funnel for further capex.
Speaker #5: And accelerate the growth. That is the idea.
Speaker #4: Okay.
Speaker #5: Yeah. On HPP, speciality, et cetera, I mean, on HPP, if you look at it, the HFC capacity is already being put in, you know, you know that that's going to come up.
Speaker #5: That will fuel the growth over the next sort of two years. Beyond that, we're talking of electronic grade. Of course, advanced materials, when I talk of it being incubated, it will figure into the existing vertical until the carve it out as a separate vertical, right?
Speaker #5: So all these three verticals have got solid sort of tailwinds around it, you know, in terms of and the activity sets we are putting behind it.
Speaker #5: HPP will continue to grow from that perspective. Speciality business, you know, we've been very thoughtful about how to navigate that space, given what we all know on the AdChem side.
Speaker #5: You know, while volume growth is recovering, rising pressure continues to remain. Particularly in the latterm market, which is already well-supplied, right? So that we all know.
Speaker #5: But our strategy around increasing our footprint into the innovator's pipeline as well as broadening the customer base is working well, you know, like we said last year we did about 13 to 14 new molecules and this year we are strong visibility to campaign orders at least of four to five molecules in the AdChem space, which gives us very good confidence of the growth this year.
Speaker #5: And then going into next year as well. CDMO, we've already talked about it, right?
Speaker #4: Yeah. Yeah. Great, sir. Thanks for, you know, the detailed answer. I have a few more, but let me get back into the queue. Thank you.
Speaker #2: Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from the participants in this conference call, please restrict your question to two per participant.
Speaker #2: Should you have a follow-up question, please rejoin the queue. The next question is from the line of Madhav from MLP. Please proceed with your question.
Speaker #6: Hi, good evening. Thank you so much for your time. Sir, just my question in R32, I wanted you to understand that if I look at the presentation, we've indicated about 15,000 tons of volume.
Speaker #6: And peak revenue of ₹600 to ₹825 crore—that roughly implies pricing of, I think, $5–6 per kg. Should we take that sort of benchmark? And, I think, we've indicated some incremental volume coming from more contractual-based off-take.
Speaker #6: Is that how we should read in like the pricing environment for contracted R32 as we go into next year and the years after that?
Speaker #5: No, Madhav, I just kind of, you know, the R32 number that you see in the slides is actually a number that we gave out when we approved the capex.
Speaker #5: So we are holding to the same asset term that we had reflected at that point in time. But I do think that it's important when we look at R32 that we do not look at it like a deer who's gazing through headlights, yeah?
Speaker #5: And not seeing anything else. The important part here is to understand that 32, the long-term demand environment remains constructive. We all know that over a decade, you know, the demand for 32 is going to double while the supply quota-driven supply is going to sort of shrink to half.
Speaker #5: So there is nothing to kind of concern around the 32 long-term demand. Now, in the near term, you know, one has to look at beyond pricing.
Speaker #5: Because pricing is neither in your hands nor my hands. What we actually do is we tend to remain as the most competitive cost of manufacturing on 32.
Speaker #5: Our integrated HF value chain the effort that we are doing on productivity, improvements, along with, you know, the example of that being the hybrid power, et cetera, which will start to give in, you know, close to about 60 percent of our power coming from renewable sources.
Speaker #5: And we'll also result into savings on power, will ensure that R32 remains very competitive on the pricing side. The third thing to remember is that I currently have a 9 to 10,000 tons of capacity and I'm adding in 15,000 tons of capacity.
Speaker #5: So for Naveen, the operating leverage on 32 is going to be fantastic. You know, and that will play out in our favor and support the EBITDA growth and the margin growth.
Speaker #5: Frankly, in any pricing environment.
Speaker #6: No, sir. That point is very well taken. I understand the opinion on that part as well. But I just wanted to, you know, understand if you think from—and I guess this is probably well debated already—that in terms of the capacity that is coming in India for R32 from yourselves, some of the incumbents, and some new players.
Speaker #6: How do we think about that from a calendar year 2027 perspective? It is a free year. Like, you know, quota probably kicks in from Jan 28 is what my understanding is.
Speaker #6: Please correct me if I'm wrong. So if you think about the next year, yeah. Thank you.
Speaker #5: No. So I think, again, when you're looking at India capacity is why you're only looking at 27. You should look at the next five years view, right?
Speaker #5: We all know that in the next five years, all the Indian players will not India is going to be oversupplied for five years, right?
Speaker #5: We are going to be servicing the export and the global market. So 32 is not going to be seen as only an India demand-supply situation.
Speaker #5: One has to look at it from a global context point of view. And in that context, it's, you know, one of the comments we've always made is, you know, the end our customers today are increasingly interested in contractually committing for 32 over the next five years.
Speaker #5: And we've been in conversations with in advanced conversations with a couple of them, you know, and our idea is, as we said before, to look at about 35 to 45 percent of the, you know, total capacities will be contracted for the five-year period.
Speaker #5: This is not a necessary thing, but this is something that we are working towards. You know, as you get into beyond 27, you will see the gains coming in as China goes through a cut, et cetera, et cetera.
Speaker #5: There's a lot that will evolve over the next five years. For one particular year, like I said, the fact that I am the lowest cost of manufacturing on 32, I will always have a competitive play.
Speaker #5: And my leverage will always protect my EBITDA earnings of the group level because, again, Naveen, on an overall basis, is also well diversified. So I don't want to labor the point too much on 32, but I don't think it's just a 32 story.
Speaker #5: And that's what I meant when I started the conversation.
Speaker #6: No, absolutely. That point is very well taken. Great. Thank you. Thank you very much.
Speaker #5: Thanks, Madhav.
Speaker #2: Thank you. The next question is from the line of Sanjesh Jain. From ICICI Securities. Please proceed with your question.
Speaker #7: Hi. Good evening, sir. Thanks. Thanks for the opportunity. I have a couple of questions. First one: the CDMO business, this new capacity—will it be entirely dedicated to the existing contract?
Speaker #7: And when you say we want to participate more in the supply chain, what does it really mean?
Speaker #5: Yeah. So Sanjesh, you're right. The new capacity will be dedicated to the European CDMO partner. And it's a reflection of the increasing demand on the molecule itself.
Speaker #5: We are also getting into an MSA for an extra molecule in the same supply chain. So this takes us to an API minus one, effectively.
Speaker #7: Okay. That means you will be equivalent to your competition in India in terms of supply chain for the CDMO?
Speaker #5: I think it will only get you know, if you look at what I am talking of the asset term, you'll get enough indications from that.
Speaker #5: I mean, on the ₹288 crore, we talked of an asset term of 3x. And I think you said that by FY29, if I remember correctly.
Speaker #5: So sorry, not even 29. Maybe sooner. So that's there, you know? So I mean, whatever you want to read out of that, frankly. You know, I don't think this is a case of being equal.
Speaker #5: You know, we will be at similar par levels—whether one is higher or up, it doesn't matter. Ultimately, we are part of the supply chain.
Speaker #7: No, no, no. I'm asking for the supply chain participation perspective. We will be supplying the similar level of product, or we will be moving up higher in the value chain than the competition?
Speaker #5: I actually don't know that answer. I mean, you know, I honestly don't know if our competition has got a similar offer going on, to be honest.
Speaker #5: We'll have to ask them.
Speaker #7: Got it. Got it. Got it. One more on CDMO. We were looking at a couple of readouts. I think one didn't come quite well.
Speaker #7: But remaining how are we placed for the new lateral entry for FY 27 and 28?
Speaker #5: Yeah. I mean, the one not coming well is all part of the game, which is why we all.
Speaker #7: I agree. I agree. I agree. I agree. But how many are we looking at?
Speaker #5: Yeah. Which is why we've always maintained a portfolio. As I'm talking now with you, we have got three more molecules that are expected to go through an FDA readout over the next 8 to 12 months.
Speaker #5: So you know, there is enough in the pipeline to not worry about an outlier, yeah?
Speaker #7: Got it. Got it. On the margin side, if I look at the console minus standalone on FY, which you should be very strong, this quarter it appears to be slightly weakish.
Speaker #7: The Vita margin, which used to be in the range of 40, 45 percent, I think that's calculated because you have some elimination. But the Vita percentage on a similar parameter has come down to 32 percent.
Speaker #7: So there is a sequential drop of 12 percentage point in the margin. Any particular thing to call out there? Because it is all coming up from gross profit margin contraction.
Speaker #5: No. So two things. I think when you when you are taking out standalone from console, you are implying the subsidiary NFASL, right?
Speaker #7: Correct. Correct.
Speaker #5: Yeah, so there are two things. One, you know how this business is driven through campaigns. So every quarter may have different campaigns going through, which may have different margin profiles.
Speaker #5: So there is that that is playing out. The other important thing to remember is that we have commissioned the AHS capacity in the subsidiary.
Speaker #5: And as AHS capacity commissions, you know, the transfer of material from the H into Surat or NFIL is where the value is occurring, right?
Speaker #5: Because you are transferring HF on an arm's length basis, as opposed to transferring a value-added product. So, you know, as we get into more HF, you would see that overall the margin will remain at a group level quite solid.
Speaker #5: The individual moments in the subsidiary will happen. That's not to worry about it. We are also looking at further expansion capacities of downstream products at some point that will come into NFASL, which will again then make it margin accurate.
Speaker #5: So there's a combination of two things, you know? That's happening over there.
Speaker #7: Very clear. Very clear. Thanks. Thanks, Anish, for all those answers, and just a plug for the coming quarters.
Speaker #5: Thank you.
Speaker #2: Thank you. The next question is from the line of Rohit Nagraj from 361 Capital. Please proceed with your question.
Speaker #6: Yeah. Thanks for the opportunity and congrats on a strong set of numbers. So, first question is the 90-crore capex on the advanced materials. Given that it will be completed by Q2 FY 28, what is the kind of gestation period in terms of qualifications and based on which what could be the timeline where we can go ahead with material significant capex to go from these maybe pilot scale capacities to commercial scale capacity?
Speaker #6: Thank you.
Speaker #5: So Rohit, as I mentioned, we've been very thoughtful of how we've progressed the advanced materials capex. The pipeline of products that we have, we have at least about four to five products that have already been lab qualified by the customer.
Speaker #5: And this adoption capacity will take it to commercial scale qualification, which is why we are doing the capexes in phases to prioritize the commercialization of those five at a faster pace than the others in the pipeline.
Speaker #5: While those five are being commercialized, you will also see that the pipeline has progressed to bringing the next set of four to five products into the adoption capacity.
Speaker #5: So this will act like a wheel, one has to think about it like that, you know? You will have new products coming into this wheel, as the products go through commercial scale, they will come out, whether they go into an MPP or a dedicated capex, that's a conversation for the future as the commercial scale gets qualified, etc.
Speaker #5: But we are in a good state because customer relationships have already been established, you know, the basket is pretty wide, you know? I'm talking of close to about, you know, at least a dozen of products that I'm referring to, five of which are at a sort of early lab scale approved already, and those will then sort of move into commercial scale.
Speaker #5: This is also sort of across geographies. So you know, so very set. Plus, you know, like we've always said that we don't want to be in the me too business.
Speaker #5: This is all going to be niche chemistries. And to be honest, we would probably be one of the most credible supply chain partners over here if somebody is looking to be the spare supply chain.
Speaker #6: Perfect, got that. Second question is: Chemours, in their presentation, have indicated that during this quarter gone by, they have recorded something like $1 million of sales from the two-phase cooling liquids.
Speaker #6: Would we be the largest supplier for the same? And. You know?
Speaker #5: We. Yeah.
Speaker #6: Yeah.
Speaker #5: Sorry, I didn't mean to cut you off. Finish what you're saying.
Speaker #6: Yeah. And does this mean that the scalability would be relatively faster once we commission the project by the end of this quarter?
Speaker #5: So, we are the only supplier to Chemours. We are today supplying the products that Chemours is actually supplying at the other end. And, like we said, this is the only manufacturing site that Chemours has.
Speaker #5: Regarding scale-up and all, let's wait to see. Like, I think that 15-month window that we've always said to watch is still very valid. And, you know, as we hear something different, we'll obviously keep you guys updated on that.
Speaker #6: Sure. Thanks a lot, and all the best, sir.
Speaker #5: Thanks.
Speaker #2: Thank you. The next question is from the line of Jason. From IDBI Capital, please proceed with your question.
Speaker #6: Yeah, sir. Thank you so much for taking my question. So my first question just pertains to the specialty chemical business. Now, after a subdued FY 25, we saw very, very strong growth coming in the spectrum business.
Speaker #6: So, I just wanted some color on it. I mean, of course, I understand that there is a lot of ramp-up in whatever capexes we have commissioned.
Speaker #6: So that is well understood. But just in the backdrop of AgChem recovery still being gradual, my understanding is that this growth will predominantly be volume-led with the ramp-up, and pricing probably will play a minimalistic part in this.
Speaker #6: Is that the right way of looking at it? And just wanted some more color on the growth trajectory ahead for FY 27.
Speaker #5: Yeah. So Jason's, I think, again, no, if you look at what we started talking a year and a half ago when we said that, you know, we are navigating this phase very differently, right?
Speaker #5: And today, what you're seeing for Naveen is actually those coming into play. You know, when I'm talking that we are participating into five new molecules, it means that our customer relationships are both deepened and broadened in that space.
Speaker #5: It also means that out of those five, there are three which are patented molecules and do not face the kind of rising pressure that one would expect.
Speaker #5: Of course, does it mean that we are going to go back to the old days of 30% EBITDA that's taken for granted in spec chem?
Speaker #5: I don't think so. The philosophy here is always going to be to keep driving productivity gains. To keep driving efficiencies. And if you see how we've kind of worked that space, we are not investing today to create large capacities, but we are investing today to extend current capacities.
Speaker #5: Like, the MPPB bottlenecking capacity is coming at a two-asset term, which is, in some sense, if you look at even our own history, unheard of in the AgChem space, right?
Speaker #5: So it's how you navigate. I don't know; what you said is generally true, but I think what differentiates us is how we've navigated that landscape.
Speaker #6: Sure, sir. Thank you so much for that. And sir, just another question. In terms of a stated AHS capacity, which is 60,000 tons, just wanted to understand, sir, how much is captively consumed and how much is sold externally?
Speaker #5: So we don't sort of give out those numbers, but I'm sure you know the R32 capacity, etc. You can work it out backwards. We've talked before that when we started this capex, we would look to do some intermediate, you know, some interim sales of AHS downstream.
Speaker #5: And that will continue for some time, obviously, till our own capacities come up. But I would leave it at that, Jason, if you don't mind.
Speaker #6: Sure. Sure, sir. And just finally, sir, just one if I can add, I mean, you have spoken about advanced materials. So one thing, just wanted to understand that you've mentioned 90 crore of the capex and it's coming on stream in Q2 FY 28.
Speaker #6: Are there any asset terms or something you're working on, and, you know, a certain timeline by which we can reach that for the advanced material section?
Speaker #5: So like I said, this is akin to a wheel of fortune, right? You turn the wheels and you have new products coming into that wheel and they will throw out into your commercial scale opportunities, which is what will fuel the growth engine.
Speaker #5: The 90 crores that we are spending is sufficiently risk-managed because what I said was, you know, there are five products that have already been lab-approved.
Speaker #5: So I'm going to go into commercial scale production for those for commercial scale approval of those products. Obviously, on the back of orders. So this project, while it's an adoption project, is also going to self-earn for itself, you know?
Speaker #5: And in some sense, we'll pay back the money faster. Now, this vertical is also going to be highly accretive to our EBITDA margins. So from that point of view, you can obviously understand the payback is going to be pretty soon.
Speaker #5: But when Naveen is investing into this wheel, we are looking at this as a ceiling investment. You know, it's an investment to capture the longer-term growth play.
Speaker #5: And not necessarily an asset turn on ₹90 crores, which is why we've consciously not reflected that in any number.
Speaker #6: Sure. Thank you so much for answering my question. Thank you.
Speaker #5: Thanks.
Speaker #2: Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in this conference, please restrict your question to one per participant.
Speaker #2: Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Sajal Kapoor from NT Fragile Thinking.
Speaker #2: Please proceed with your question.
Speaker #6: Yeah, thank you. And congratulations to the team. What stands out to me is not the growth itself, but the consistency with which things discussed over the last several quarters are now showing up in execution—and in numbers, of course.
Speaker #6: If I could just ask one question, it would be: your European CDMO relationship is clearly deepening. What evidence should investors look for that the CDMO business is also broadening across customers, rather than growth being driven primarily by deeper penetration of one relationship?
Speaker #6: Thank you.
Speaker #5: No, I think it's so thank you for recognizing what you know, our sort of walk-the-talk mindset. But, you know, see, a couple of quarters ago, you know, this is we were thinking how do we get to scale in CDMO.
Speaker #5: The deepening of relationship is actually a great opportunity because it gives us a strong baseload on which we can work. And that's exactly what we've done.
Speaker #5: You know, today, if I talk about my molecule pipeline, we are talking about 30 to 40 molecules that I'm actively working on, about 10 molecules are into late stage, of which I'm saying 3 to 4 molecules have got a FDA readout in the next 8 to 12 months.
Speaker #5: You know, so as these readouts come out and we start announcing more capacities for growth, I think that's what you watch for. Now, do we have anything to know, you know, crystal ball gaze and know for sure evolve we are going to work out on an FDA approval?
Speaker #5: We don't. But that's how we manage it at a portfolio level, right? By constantly making sure that our portfolio remains relevant and is continually refreshed.
Speaker #5: Yeah, thank you.
Speaker #6: Amazing honesty. Thank you so much.
Speaker #5: Yeah.
Speaker #6: Yes.
Speaker #2: Thank you.
Speaker #6: Thank you, sir. Thank you.
Speaker #2: The next question is from the line of Prasad from Union MF. Please proceed with your question.
Speaker #6: Hello. Hi, sir. Congratulations on a good set of numbers. Sir, in your previous communication, you highlighted that you have an upcoming MSA within the same value chain.
Speaker #6: So could you please clarify more on in terms of which therapeutic area it will cater to? Is it a same therapeutic area or will be a little bit different therapeutic area?
Speaker #6: Thank you.
Speaker #5: No, so Prasad, thanks for the question. What I meant was the MSA I think my own voice is echoing, which is not great. Just give us a minute.
Speaker #5: Better now? Can you hear me, Prasad?
Speaker #2: Yes, sir. We can hear you.
Speaker #6: We can hear you.
Speaker #5: Yeah, but everything is echoing here. Okay, let me sort of continue. So Prasad, the MSA that you're referring to, or that I was referring to, is actually extending our participation in the same supply chain and hence I meant API minus one.
Speaker #5: So we are deepening that relationship with the same molecule. By participating further, deeper into it, additionally to that, we are also working on an early phase molecule for the same customer which is an early phase molecule.
Speaker #5: So there is a broadening of molecules also with the same customer. Apart from that, of course, like I said, you know, we've got a working relationship with all the top majors or top 20 pharma companies.
Speaker #5: And in fact, some of the four to five, three to four molecules that I'm talking about are all with different sort of global majors, yeah?
Speaker #5: And the therapeutic areas are also quite broad. So, like we've said on our slide, we are focused on cardiovascular, respiratory, oncology, animal health, and neuro, yeah?
Speaker #5: So those we believe are the high growth areas. Those we believe where our credentials are greater value. And therefore, we are making sure that these projects or any RFQs that are received on this are we have a solid reason to be rejected for.
Speaker #6: Oh, okay, sir. Sir, these molecules are in the early stage—so how big could this opportunity be in terms of market?
Speaker #5: Yeah, in early stage, you know, if you do a Google on any molecule that's early stage, you will find ranges of peak revenue that will probably lead you to believe it guesswork.
Speaker #5: So I don't want to get into that. Because to give you a sense, you know, if you look at something that's early stage and you try to figure out what its peak share revenues are, you will find that the estimates go from 1 billion to 3 billion.
Speaker #5: Now, what does that mean, right? So I don't think at the early stage you look at that. You look at the therapeutic area, and you look at the promise of that therapeutic area.
Speaker #5: In terms of what is happening globally around health and, you know, the dynamics around healthcare. And as the molecule progresses, then the novelty of that molecule is certainly better.
Speaker #5: The patient size it is addressing is certainly better, and you get a more realistic sense of the potential.
Speaker #6: Okay, sir. Thank you.
Speaker #2: Thank you. Ladies and gentlemen, in order to ensure that management is able to address question from the participant in this conference, please restrict your question to one per participant.
Speaker #2: Should you have a follow-up question, please rejoin the queue. The next question is from the line of Abhijeet from Kotak Securities. Please proceed with your question.
Speaker #7: Yeah, thank you so much. Just one question on the CDMO side. So just to clarify, Aneepa, you mentioned this ₹288 crore capex has a 3x asset turn, is it?
Speaker #7: And that, we are expecting by FY29 itself. Just wanted to clarify that I heard that correctly. And the other thing was, just for this year, you know, we had previously spoken about $100 million.
Speaker #7: So, does that still seem on track?
Speaker #5: Yeah, yeah, the 100 million dollar is pretty much on track. I mean, there is I mean, that's we are now talking of exploring that business, yeah?
Speaker #5: So FY 29, 3x is correct. And it will actually be longer than that, but I've given a near-term view of what that will be.
Speaker #7: Okay, so just to clarify, ₹900 crore from the CGMP 4 itself—phase one plus phase two combined—plus whatever we had from the first three CGMPs.
Speaker #7: Is over and above that.
Speaker #5: Yeah, yeah, possibly. I mean, that's math, right? So that's absolutely right. 288 into 3—yeah, roughly, it will come to that, I think.
Speaker #7: Okay. Thank you so much. All the best.
Speaker #2: Thank you. The next question is from the line of Arjit Joshi from Duvama. Please proceed with your question.
Speaker #7: Sir, thanks a lot for the opportunity to do quick ones. If sort of spoken of increasing interest for contractual off-take in HSCs, so if you can elaborate a bit if there's an there's a contract in place or there's an emerging one that we are expecting?
Speaker #7: And second, the EHF capacity utilization and the contribution for the quarter, if you can help us out with that. Thank you.
Speaker #5: So, increasing interest is, you know, we were originally thinking of trying to do 30%, but I think where we are now is we've already entered into a couple of contracts.
Speaker #5: And we are also having a couple more in the recent stage of conclusion. So that is what I meant by increasing interest. Of course, like we've always said, we are going to take a balanced approach here.
Speaker #5: So beyond that point, we will refuse contracts because we think there has to be some open position here as well over the next five years, yeah?
Speaker #5: So, we are going to take a balanced position on this. What was your other question?
Speaker #7: Yeah.
Speaker #5: The HF utilization—I mean, we said we're not going to talk about specific capacities here. But, you know, between Surat and Tahit, 60,000 should be good enough for us over the next sort of four to five years.
Speaker #5: Of course, barring what we don't see at the moment as a speed. But if we need to, we will go for an expansion also.
Speaker #5: That's not a problem. In the interim, while we come down with downstream capacities, you know, there will be more sort of downstream, value-added focuses for EHF.
Speaker #5: The advanced materials, like we've said, talking about building on the fluorination capability, is exactly trying to achieve that, yeah?
Speaker #7: Sure, sir. Thank you very much. All the best.
Speaker #5: Thank you.
Speaker #2: Thank you. The next question is from the line of Vidram Mehta from ASK Investment. Please proceed.
Speaker #8: Yeah, thank you for the opportunity, sir. I just wanted to understand on the margin front. If I look at quarter on quarter, that is Q4 of FY 26 and Q1 of FY 27, the margins are more or less, you know, stable.
Speaker #8: But, you know, in terms of segment-wise mix, you know, HPP plus CDMO, if I add up, it is around 69% as against 62% on a quarter on quarter basis.
Speaker #8: And, you know, ref gas, you know, higher pricing in terms of, you know, ref gas and higher contribution from CDMO should have generated, you know, higher margins, right, on a quarter-on-quarter basis because usually HPP being supported by higher ref gas and CDMO structurally has a higher margin.
Speaker #8: And the same is, you know, contradict when I look at on a YOY basis. Because, you know, in Q1 of FY 26, it was 70%.
Speaker #8: The mix contribution of HPP and CDMO. And right now it is 69%. But our margins has expanded. So how should one look at margins from a structural?
Speaker #5: No, I think—yeah, I think like with everything else, you know, numbers tell you only half the story, right? You have to relate this to the context.
Speaker #5: I mean, Q1 of last year, HF prices were very high. So in some sense, the margin profile of the HF itself was high. Forget 32.
Speaker #5: You know, today as we are talking in a, you know, in a heightened global war tensions with supply chain risks, the cost of raw materials increasing, et cetera, that profile will change.
Speaker #5: It's just obvious that it will happen. I mean, even between Q4 to Q1, you will see gross margins have taken a hundred bits sort of dip.
Speaker #5: But then we've made up through productivity improvements coming through fixed cost initiatives and still held the EBITDA at that level. Now, this doesn't mean this is permanent, but I can't be taking price increasing every month or every day, right?
Speaker #5: So there is going to be a lag effect to this. So we constantly look for making sure that the price increase or inflation that we are seeing on the RM side is being passed on to the products.
Speaker #5: Wherever we have the pricing power, you know? If that makes sense. So, you have to look at it in the context of the environment, is what I'm saying.
Speaker #8: Okay. So on a normalized run rate basis, how should one expect margin over the next one to two years?
Speaker #5: Yeah, so where we are today and what we can see from upcoming capacities—you know, you've got the new HFC capacity coming in.
Speaker #5: You've got the de-bottlenecking plant coming in, you've got Chemos coming in. So, you know, we've got enough to have confidence, from a point of view of operating leverage, that what we are talking about will be in the range of that 32-33%, plus or minus 1% here or there. Yeah?
Speaker #5: So there will be a range. But I think it's fair to assume that that's what we are working on. Of course, we'll keep sort of looking at this every quarter when we come on, you know, review our numbers and seeing, again, the environment in which we operate and what's that doing to us.
Speaker #8: Yeah. Sir, just one more thing. On the fixed front, over the last, you know, five years, we have roughly spent more than ₹3,000 crores.
Speaker #8: And, you know, in the coming three to four years, you know, we are again going to spend around 3,000 odd crores. So you know, roughly 6,000 crores of capex is what we are doing over a period of, you know, seven, eight years.
Speaker #8: Now, broadly, when you incur a capex, what kind of revenue visibility do you have in terms of RFQs or order backlog you already have in place? And what could be the gradual utilization or asset turn that can ramp up over a period of, say, one to two years?
Speaker #5: Yeah. So again, I'll take your question from a past standpoint. From a future standpoint, we've always indicated that our capex framework allows that. We will only pursue those capexes which are value-accretive, and that's what our sort of discipline around investment guides us to, yeah?
Speaker #5: So but, you know, if you want asset turns are something that, again, you know, not relevant for a high margin business because typically you look at asset turns more relevant in low margin commodity-type place.
Speaker #5: But having said that, you know, asset turns are something that you will sort of see play out, you know? I mean, what sort of—I mean, I don't know what to answer on that, to be honest, you know?
Speaker #5: I mean, if you're asking me, you know, it will be different for different businesses. But the philosophy here is that we will play both a product and a service play, you know, where we believe that our sort of technical competency lies in the product or the R&D side, much like the adoption capacity capex that you're seeing today.
Speaker #5: We will go ahead with sort of putting in the capacities on the basis of engagement with the customer. That necessarily doesn't mean that we have purchase orders.
Speaker #5: There's visibility, so, you know? So I think there are shades of gray over there. But of course, if it's a service contract, it will always be backed by a proper sort of order projections and commitments, yeah?
Speaker #5: And that's an example with the Chemours project. So, you know, we have both that we will play. We de-risk our capex allocation quite significantly, you know, in both stages.
Speaker #5: There are stage gates we follow for technical evaluation, technical clearance, and commercial evaluation, commercial clearance. And then ultimately, the financials sort of framework that we have in place as the threshold before which capexes are put to the board for approval.
Speaker #8: Okay, sir. Thank you. Wish you all the very best. Thank you.
Speaker #5: Thank you.
Speaker #1: Thank you. The next question is from the line of Siddharth Gadigal from Equinius. Please proceed with your question.
Speaker #8: Hi, sir. So first of all, the ₹90 crore capex—largely, we will be doing this capex in the half itself, and it would be largely for setting up some dedicated capacity or more like a pilot plant.
Speaker #5: So, this capacity will create sort of two core platforms and also augment our capabilities around equipment, etc., for analytical. We've already set up, but there is a need to augment those too.
Speaker #5: So this capex will address that. The idea of calling this adoption capex, as different from pilot capex, is because lab-scale products have been approved.
Speaker #5: So, in effect, we've already made the product at lab scale. Of course, there is scale-up involved, and the risks associated with not being able to scale up.
Speaker #5: But again, that's why we have a product portfolio that we are working with here. And this is being done at the Surat site, you know?
Speaker #8: Okay. So second, on the HFO part, if you look at our annual report, our HFO revenue to Honeywell has been in the range of ₹460–470 crore.
Speaker #8: And our contract was for five years. So how should we think beyond FY27 on this?
Speaker #5: There's time for that. Beyond '29. So the asset commercialized in July '22, if I remember correctly. And, you know, the original term was for seven years, and there is an auto extension to that at Honeywell's interest for further three years.
Speaker #5: So we have enough runway to go by us. Not something to worry about today.
Speaker #8: Okay. Thank you, sir.
Speaker #1: Thank you. We will take the last question from Hiral from Shatrunjala Investment Manager. Please proceed with your question.
Speaker #8: Yeah. Hello.
Speaker #5: Yes.
Speaker #8: Yeah. Good evening, sir. Yeah. I wanted to understand the DRDO order that you have received. So can you, sir, give can you give some more details on that, that what how will it impact our revenues and margins?
Speaker #5: So, the DRDO order, I think, only tells you what you've seen on the internet anyway because it's bound by confidentiality. But obviously, the product name is out there, and the product has applications beyond defense.
Speaker #5: And again, you know, that application beyond defense is also a material opportunity that Naveen can pursue. So I'll leave it at that if you don't mind.
Speaker #8: All right. Okay. Thank you.
Speaker #5: Yeah. Thank you.
Speaker #1: Thank you. Ladies and gentlemen, that was the last question for today. I now hand over the conference to management for their closing comments. Thank you.
Speaker #1: Over to you, sir.
Speaker #5: All right. Thank you again all for taking the time to join us today. Really appreciate it, and have a great evening. Thanks.
Speaker #1: Thank you. On behalf of Naveen Fluorine International Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
