Navin Fluorine Concall takeaways: Rs1.95bn capex - Launchpad for more series of capex in future
NFIL’s Rs1.95bn capex is used for setting up an MPP for 5 agrochem intermediates, already commercialised by customer in past one year. Current capex includes civil works provision for further expansion (only equipment will be needed), leading to asset turnover of 1.4x but better margins. NFIL believes some of these products will attain bigger size in the next 3-4 years and would require dedicated plants. NFIL has also back-up of 7 products (mix of agrochem and pharma), yet to be commercialized, which can be manufactured in the same MPP. NFIL may also go ahead with separate plants or expansion of proposed MPP for these products based on the commercialization and progression of 5 products to dedicated plants. The company believes this capex is a launchpad and opens up possibility for more similar capex going ahead. NFIL is confident of more capex announcements in specialty chemicals before commissioning of this MPP.
Revenue potential:
· Peak Revenue potential of Rs2.6-2.8bn and expected to reach in next 2-3 years post commissioning of the plant with slightly higher than current EBITDA margin and similar RoCE profile
· Management expects the project to start generating revenue from 2HFY23.
· Capex includes civil works also and provision for future expansion. For future expansion, NFIL will just need to add the equipment and can expand by 40%.
MPP will cater to 5 products:
· This MPP is for 5 products catering to agrochemicals. All the 5 products have been commercialized in the past one year and customers are banking on these products to become successful.
· These products are based on fluorination chemistry but involves more and complex steps
· NFIL is 2nd vendor for three of the products and the 1st vendor is from EU/USA. For the fifth product, customer was not happy with its earlier Chinese player because of the complexity of the product and gave it to NFIL
· NFIL took proactive approach and identified opportunities in all of these products and was not enquiry lead. Two of the products are developed jointly with customer and rest three developed independently
· NFIL believes 4 products have potential to become 300-500 tonnes in size over next 4-5 years and hence may require dedicated plats in future. In fact, one of the products is very encouraging and management plans to do discussion with the customer for dedicated plant in next 18 months.
7 more products in pipeline and backup to the 5 products:
· As NFIL expects these 5 products to mature and attain bigger size, some of these products will be taken to dedicated plants.
· NFIL has 7 products, catering to agrochem and pharmaceuticals, as backup which are yet to be commercialized but are promising. These 7 products can also be manufactured in this MPP if required.
· NFIL expects at least some of the products to commercialise in next 12-24 months and capacity will be allotted based on the availability that time or new capex will be done.
- I couldn’t attend, recieved a forward and verified the facts listening to it later.
My views:
Market has agreed with the story, that is the perception bit in P/E ratio
What is yet to play out and no one’s baking in:
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4th Plant for crams as the third on is already at 80% utilisation.
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Potential capex in Hexafluoro platform where they can enter into more intermediates for pharma and has application for electric vehicle, 5g etc.
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Dedicated plants for Agrochemical customers from Japan. This is the first time Navin is setting up agchem Mutli-Product Plants at this scale for Japanese. Japanese business grows like a hockey stick if you get acceptance. Dedicated plants can be a big boost here.
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Intermediates potential from HPP contract.
All of this potentially will be higher margin business, this will give the story legs beyond FY24. Till FY24 it is expected to grow at 30% Cagr.
Beyond FY24, potential for the growth rates to continue
Disclosure: invested and one of the higest allocation in the Pf.