Navin Flourine International

Changing its gear

Navin Fluorine signed a 7 year exclusive supply contract
with a global company for High Performance Product
(HPP) having a total revenue potential of Rs 29bn
starting Q4FY22. The product will be manufactured at
the recently announced greenfield plant at Dahej.
 Exclusive supply contract signed for 7 years: NFIL
(Navin Flourine International)entered into an exclusive
supply agreement with aglobal company for the manufacture
and supply of HPP in Fluoro chemicals. This product is
technically and application-wise completely different from NFIL’s
current product portfolio. The deal marks its foray
into a new range of products within fluoro chemicals.

 Better earnings visibility and tilt in sales mix
towards customized products: The deal will
strengthen NFIL’s global clientele further and provide
greater visibility for a sustained long term growth,
protecting earnings from wide fluctuations. Besides,
the supply pact will further boost sales mix towards
customized product supply. Supplies are guided to
begin from 4QFY22 and should generate revenues of
~Rs 4bn p.a. (i.e ~40% of FY20E revenues), which will
be distributed evenly over the tenure of the contract.

 Dedicated Green field facility at Dahej for supply:
NFIL will be investing USD 51.5mn (~Rs 3.65bn) to set
up the manufacturing facility and ~USD 10mn (Rs
0.71bn) for a captive power plant. The funding will
initially be from internal accruals and debt may
subsequently be raised. The plant will be built on the
technology provided by the customer without a
royalty payment. NFIL will execute this capex and the
project through its 100% subsidiary, Navin Fluorine
Advanced Sciences to avail tax benefits u/s 115BAA.

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latest results

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Hi,

I am v new to the chemical sector and really don’t know anything but I had some observations on the fluorine market that maybe some of the seniors can held address. The entire global flurochemical market is estimated to be about $20-25 billion currently growing at 3-4% annually. As per my research, the biggest players in the speciality fluorochemical space are Honeywell, Chemours (DuPont), Daikin, Solvay, Asahi Glass Corporation and 3M (Dyneon). The total flurochemical sales of these companies in 2019 was ~ $15 bn, roughly equally split between them at $ 2-5 bn each (75%+ market share). Fluorochemicals was less than 10% for all, except Chemours and Solvay where it has about half the business. Simply translating the multiples on their overall business to the fluorochemicals sub segment , market cap of these verticals is about ~$3 bn on average , with Honeywell at $9 bn.

Navin Fluorines current market cap is about $1.5 bn with about $150 million in sales. Refrigerant business is an oligopoly in India and HF acid is a commodity input. India has no captive fluorspar production and relies heavily on China for feedstock (China has 55%+ share of global fluorspar production) though we are diversifying to Kenya and South Africa. I’m uncertain that current valuations leave any room for growth over the next 5-10 years as the overall fluorochemical market appears small and oligopolistic at the top , and the size of companies and their market caps don’t provide any cushion - Navin is 1/20th the size and 80% of the average market cap. Even getting to a $1 billion in this market looks to be a real challenge if you’re going up against the giants above - R&D spends seem to be just 2-5% so that means the downstream CRAMs market for this industry would be capped at less than $1 billion globally for this market. Navin’s CRAMS has a wider base with life sciences cos, but unsure of what services they provide exactly and how much of a pharma R&D budgets would be devoted to fluorine , which from what I gather improves absorption of APIs.

This may be a naive analysis and I may be missing something obvious, do please correct me, but seems at first glance to be v richly priced.

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ICICI Direct has initiated coverage on Navin Fluorine.

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Nirmal Bang has initiated coverage on Navin Fluorine.

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Sujay/others, any thoughts on difference in the P/E ratio mentioned for Navin Fluoro (fy 20, 33 and fy 21 43) in the reports and in screener/ratestar(around 24) . Both SRF and Navin fluoro are by their own admission overvalued, yet want folks to invest.The idea is to wait patiently. Covid gave an opportunity, but Navin fluoro did not go down much, Navin fluoro looks a better bet with zero debt and singular focus on fluorine chemistry.

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Hi,
Isn’t this https://www.hindustantimes.com/india-news/govt-bans-import-of-air-conditioners-with-refrigerants/story-IhjVUVelGQpWtam1QXTduJ.html positive for Navin Flourine?
Please share your thoughts, if you think it is not positive.
Disc: Invested.
Thanks,
Anto

this news is positive for srf and gujarat fluorochemicals and not for navin and navin makes r22 which is banned in india for RAC usage and company uses r22 gas for feedstock as propellants in its plant

Cash flow from operation is very low as compare to net profit for 10yrs.pls share if it has valid reason.

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:

  • 4th Plant for crams as the third on is already at 80% utilisation.

  • Potential capex in Hexafluoro platform where they can enter into more intermediates for pharma and has application for electric vehicle, 5g etc.

  • 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.

  • 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.

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Navin Fluorine Con Call Q3FY21

Business:

  • Revenue: ₹809 crores ( 7% Growth), Operating EBITDA: ₹228 crores (18% Growth), Operating EBITDA Margin: 28% (Up by 260 bps) (9MFY21 vs 9MFY20).

  • EBITDA Margins have improved on the back of increased share of high value business. Operating Profit: 197 crores (17% Growth), EBITMargin: 24% (Up by 200 bps) PAT: 178 crores (35% Growth) PAT Margin: 22% (Up by 460 bps) (9MFY21 vs 9MFY20).

  • High Value business grew by 33%, Legacy Business: -22%. The high value business in speciality chemicals grew by 16% i.e ₹322 crores & CRAMS business grew by 71% i.e ₹204 crores. (9MFY21 vs 9MFY20).

  • The de-growth in legacy business was due to fall of about -14% i.e ₹134 crores in the inorganic fluorides business -27% i.e ₹ 150 crores in the ref gas business on YOY basis.

  • Q3FY21 Performance: Revenue: ₹297 crores (18% Growth YOY), Operating EBITDA: ₹82 crores (26% Growth YOY), EBITDA Margin: 20% (Up by 185 bps YOY), EBIT: ₹72 crores (27% Growth YOY), EBIT Margin: 24% (Up by 180 bps YOY), PAT: ₹59 crores (30% Growth YOY), PAT Margin: 20%.

  • The high value business grew by 35%, Legacy Business: -5% for the quarter. In the high value business, the speciality chemicals grew by 27% i.e ₹ 122 crores. The CRAMS business grew by 52% i.e 71 crores. In the legacy business, Inorganic Fluorides revenues moved up by 10% i.e ₹57 crores, Refrigerants Gas business declined by18% i.e ₹47 crores (YOY basis).

  • There are two very good customers that Navin acquired in this quarter for the Inorganic Fluorides business out of which one is from India and the other one is from US.

  • The refrigerants business is seasonal in nature.

  • In the CRAMS business, the particular molecule that was commercialised has done well and Navin has got repeat orders for the particular molecule this financial year. This molecule is for a US based customer primarily for US based markets.

  • There are two more molecules in the pipeline which are little further away from commercialisation and the results have been progressing quite well.

  • Typically as the molecule progresses from preclinical to stage 1 to stage 2, right up through commercialisation. It actually moves from gram level to Kg level to metric ton level.

  • The molecule that Navin is currently manufacturing and supplying for the commercialised product is on a metric ton level. However, unlike agrochemicals, the volume doesn’t go up till 100s of metric tons in pharmaceuticals. It remains at tens of metric ton level.

  • Regarding the dedicated plant, in a lot of cases the customer doesn’t have complete visibility how the molecule is going to work for the next 5 to 7 years to be able to justify a dedicated capex.

  • Manchester Organics efforts have been slower due to what is going on in UK.

  • Brought in two new resources out of which one is a full time resource in North America and one in the form of a consultant in Europe to strengthen the order book for the CRAMS business.

  • In CRAMS business, plans to bring in a new capacity in a period of 9 to 12 months. In the speciality chemicals business, the plans are to do brownfield capex which takes about 9 to 12 months. For greenfield capacity to bring speciality chemicals to Dahej will take about 15 to 18 months.

  • 20 to 25 molecules in pipeline and 15 new qualified opportunities (speciality chemicals business)

  • Ref Gas volumes dipped due to the slowdown in the market.

  • Navin plays primarily on the small molecule side and the focus is on intermediates and advanced intermediates.

  • When the molecule is in early stage, the price tends to be very high and the price continues to move down. The margin at a contribution or gross margin level kind of starts dipping in especially when the molecule is just getting off scale to 5x scale and you see the margins declining but at the same time because of the scale at the EBITDA level. Directionally it continues to be the same as typically the fixed cost starts building up as Navin has brought more people in CRAMS etc so this leads to fixed cost going up and EBITDA at operational level comes down. As the scale goes up, it starts absorbing that. Not on quarter on quarter basis.

  • The CRAMS business is all pharma based.

    Management:

  • MD: Radhesh Welling, Vice President Finance: Ketan Sablok

  • Potential to increase utilisation in the CRAMS business and expect to reach the peak annual turnover in 3 years post commissioning of the plant. The commissioning of the cGMP plant happened last year.

  • Plan to continue with brownfield capex and de-bottlenecking at the existing plants. These will contribute to the growth in FY22.

  • Seeing small growth coming back in the inorganic fluorides business and this can see a growth of 10% ± through the base line effect and the new customers that Navin has been acquiring.

  • Expect the growth to be in low teens for the inorganic fluorides business.

  • Expect the Ref Gas business to grow in low teens.

  • Expecting another molecule to get very close to commercialisation and the customer has already started ordering for the commercialisation for that molecule. This molecule is for a European customer primarily for the European markets. Navin has been working on this molecule for the past 6 years. In the last 1 year because of the way the relationship has developed with the partner, currently Navin has 5 new opportunities with that partner.

  • Focusing on upgrading the R&D capability in Manchester Organics and also expanding the capabilities. Plans to bring piloting capability through which it will be able to do multi 100 kg level product in Manchester. Expect the business case to be ready by Q1FY22.

  • The growth on the agro side is driven by new product launches etc that are happening for the customers and this will continue going forward. On the life science side, this includes the molecules which are getting off patent and this primarily driven by generic opportunities (Import substitution).

  • Don’t see anybody in India, very few companies in Asia and there are very few companies in the Western Hemisphere which offer the similar value proposition like Navin Fluorine.

  • For CRAMS business, the focus is on bringing stability and aim at generating a run rate of $10 million per quarter. In speciality chemicals, expect a growth of 20%.

    Risk:

  • Legacy business prone to cyclicality.

  • Molecule getting failed in the process.

    Disclosure: Invested

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One of the better chemical companies in the county IMHO. The thesis is fairly straight forward

  1. Strong industry tailwinds from China+1. Many companies looking at India as an alternative source
  2. Within chemicals, Flourine is the fastest-growing chemistry given its lipophilic properties. A lot of incremental projects in pharma and agro R&D contain flourine - 1 out of every 2 molecule in R&D will have flourine
  3. Flourination is a very complex chemistry and hence has a high gestation period. While its easy to replicate basic chemistry , very few players globally have been able to transition to higher value add chemistries like fluoropolymers, spec chem , CRAMS. The entry barriers are high
  4. With in the space , NFIL has successfully transitioning its business from legacy segments like inorganic flourides and refrigerant gas to spec chem and CRAMS. High value add businesses have higher margins and hence all growth will be value accretive
  5. Strong medium term visibility from multiple contracts. CRAMS is ramping up well as projects move up the r&D chain , 7 year contract of approx 3k cr starting FY 23, 190 cr contract for various intermediates - strong enquiries continue and the company has already taken approval from the board for future capex
  6. Led by a technocrat - Radhesh Welling (ex Laxmi Organics), the company has been aggressively hiring people to beef up the top management and position itself for multi year growth. The management has very high ambitions for the business.
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Any commentary on future growth avenues and current capacity utilisation? What would be the expansion avenues here?

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Annual Audited Standalone and Consolidated Financial Results for the financial year ended March 31, 2021:

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Navin Fluorine concall updates - Business Updates:
• High value Business grew 32% with respect to past quarter.
• Navin is continue focusing on new products and introducing new product in the market.
• Added new customer even in pandemic times.
• Undertaken cost optimization, which will reduce cost in FY22. Specialty Chemical:
• Supply chain issue lead to margin dip.
• New product are already in the pipeline of Specialty. Run Rate of the Pipeline has increase, while the quality of the products (in terms of market size). CRAMS:
• Overall growth in CRAMs is continue to be visible, however the current growth is not applicable every year.
• Overall due to huge tailwinds and company past strategies will work well for Navin in CRAMS segment.
• Working on 25 new products
• Agro and Pharma are showing strong momentum. Inorganic Fluorides:
• There is incremental growth happening in the end user industry.
• There wont be any significant investment as company is seeing more good and consistent opportunity in other segment. Refrigerant Business:
• Refrigerant Business was high margin business for Navin. However face out schedule and dip in sales of also impacted the overall margins of business. Gross Margins:
• Primary driver was Refrigerant Gas, while exports of the business grew leading to increase in margin.
• In specialty, product mix was good however supply chain was the reason for decline in margin. (Supply stock issue).
• Agro side see decline in margin. Exceptional Item:
• 34.8 cr gain was due to giving off the right of leasehold land, and this gain was from the subsidiary co.

Growth:
• Navin is seeing strong momentum in Specialty, CRAMS and HPP business. Co. is able to retain growing demand from existing and new customers. CAPEX:
• New big brown field project is not possible in Surat, hence company is having new CAPEX in Dahej. Business Strategy:
• There is noise of import substitution, however looking at general market over there is not much impact on difference in price. Navin never rely on external factors, and will focus continue growing business with internal operations.
• There would many investment to be carrying in next 4-5 year in Dahej facility. Raw Material:
• For Specialty CRAMS side RM, increase in price is an easy pass through to the customers (with certain lag).
• Certain Commodity RM has seen increasing inflation like of Bromine, Chloroform, however company is continuously maintaining the price. HPP:
• Greenfield expansion is done, and the timeline for start was end of Q4FY22.
• However due to increasing problems, there is delay in the project of around 1 quarter.

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Navin Fluorine Con Call Q4FY21

Business:
• Office in Mumbai remains closed except for some emergency work.Plant operations in Surat & Dewas & project activities in Dahej are running smoothly despite covid related disruptions.
• Currently around 68 of our people including contract workforce are out due to covid across all our sites, only a few of them are currently hospitalised. All of them are doing well and recovering well & providing the with all the support they need. Rate of infection across all our sites is coming down.
• Operating revenue stood at ₹ 324 crores (up by 22%) , EBITDA stood at ₹ 84 crores (up by 25%), Operating PBT stood at 73 crores (up by 29%) for Q4FY21
• The performance was driven by growth in Specialty Business & CRAMS. The specialty business registered a growth of 26% & the CRAMS business registered a growth of 40%
• For FY21, Navin delivered operating revenue of ₹ 1,133 crores (11% Growth YOY), Operating EBITDA of ₹ 311 crores (Growth of 19% YOY) & Operating PBT of ₹ 269 crores ( 19% Growth YOY)
• The overall growth has been driven by high value businesses which have seen a growth of 32% at ₹ 732 crores for FY21. It now contributes 65% of the total revenue as on FY21.
• The speciality business reported a growth of 19% YOY at ₹ 453 crores for FY21. Business has shown strong growth driven by mix of customers, new products & market share gains
• Continue to focus on introducing new products by leveraging our R&D capabilities and deep fluorination expertise as well as continue working on de-bottlenecking initiatives in Surat along with building new capacities for existing as well as new products
• CRAMS business has reported strong sales with growth of 62% at ₹279 crores for FY21. The strong performance was driven by new customer acquisition and repeat business from existing customers. Envisage sustainable growth for this business backed by good project flows from new & existing innovators. Also undertaken few cost improvement initiatives for FY22 which will lead to better operating efficiencies.
• The legacy business of Refrigerants & Inorganic Fluorides performance has shown positive momentum on back of new customer signups & demand recovery from the end user industry during H2. For FY 21, revenue stood at ₹ 401 crores (down by 14% YOY) & for Q4 FY21 revenue stood at ₹ 117 crores (Up by 10%) as we see demand normalising. Inorganic Fluoride business stood ₹ 193 (down by 7% YOY) & For Q4FY21, it recorded good growth of 16% at ₹59 crores. The segment’s performance improved quarter on quarter supported by capacity enhancement through de-bottlenecking and recovery of end user industries like stainless steel & glass. The Rev Gas business revenues stood at ₹ 208 crores (down by 20% YOY) & for Q4FY21 revenues stood at ₹ 58 crores (up by 4%). The trade & service sectors have registered strong demand in the quarter. The demand was also aided by addition of new customers in international market.
• Work at HPP project continues at full swing in Dahej.
• During the year we completed the CCPL transaction on 24th Feb’2021 as informed earlier we divested 49% stake in JV for ₹ 60.1 crores & gave up for the rights on the legal land in Dahej for ₹7.9 crores.
• The company also gave up its lease all rights in the land situated at Dahej to the wholly owned subsidiary Navin Fluorine Advanced Sciences and record the gain of ₹ 34.8 crores.
• The decrease in gross margins was driven by particularly rev gas & specialty. The demand for the domestic R22 . One of our main customers had actually taken a shutdown for a month so the sales into that non-invasive category was low and that is clearly a high margin business versus exports of R22 which actually grew in this particular quarter and is a low margin business. On the specialty business, it was because of product mix, we have one big product in industrial segment which we basically export and because of the supply chain issue, the demand was lower in US. It was because a lot of the containers got stuck because of the Swiss canal issue.
• We currently have 4 de-bottlenecking projects going on in Surat, not all of them require capex. We continuously identify ways and means to spread the assets that we currently have so that we can map new products or get extra volume of the existing products.
• What we typically do is as the molecules come off the pipeline, we keep adding new molecules so the run rate right now is slightly higher than the run rate that we had last year. The quality of the projects has improved significantly. For example, earlier around 18 months back, the opportunities that we were working on were the molecules which were already launched or where we were the 2nd or 3rd or 4th supplier whereas now the opportunities that we are working on we are either the 1st or the 2nd company with which the customers are working with. Wherever we are 2nd company, we are the first one in the eastern hemisphere.
• Growth in the domestic was driven both by agrochemicals as well as pharmaceuticals.
• There is one new introduction which we made this year where the molecule has actually gone to another Indian company to make the final formulation and the it is going to get exported to multiple countries.
• We have just brought on board a new customer in speciality on the industrial side, Korea. This will be relatively a big customer going forward.
• There are two sets of opportunities that we have- Phase 2 Phase 3 which are developing quite well and then there are number of opportunities at the beginning of that pipeline. If you look at the kind of opportunities that we have today in phase 1 and phase 2 versus the ones that we had last year, the numbers have gone up significantly. More importantly these opportunities are with the same set of customers that we have been working closely with.
• CRAMS website will be launched soon & plans to update Navin’s website as well

Management:
• CEO: Radhesh Welling CFO: Ketan Sablok
• Widely of end user segments in few products along with new customer additions in exports will drive future growth in the legacy business.
• We will be able to successfully complete work on HPP project with a potential delay of around a quarter.
• We continuously do do de-bottlenecking projects. Dahej’s capex will get completed next year and till the. We’ll continue to get get growth through these initiatives
• Currently seeing number of new products in the pipeline both on the specialty chemical side & on the CRAMS side also we are seeing pretty good generation of opportunities on the HPP side which we are working on.
• The next big capex or capexes will happen in Dahej
• We will not let our strategy be driven by import substitution, we will do what is the right thing for us. It will not be a primary driver for us.
• We are seeing momentum kicking in at least 3 of our businesses- CRAMS, Specialty & HPP because of the way we are working with our customers. The customers are now comfortable with coming to us with more projects, more complex projects & more value-added projects. We also believe the same will happen in HPP business as well. The kind of technology required to handle these projects is very different from the kind of technology that we are used to. Some of these we are developing for specific set of partners and there are some which we are developing jointly with some of our partners and in some cases the partners are giving their proprietary technology which we will be able to leverage that as a platform for multiple products.
• If you look at the size of the company that we are. We are nowhere close to fully exploring & then exploiting the opportunities that even the western hemisphere has to offer.
• Currently evaluating a possibility of setting up an innovation facility outside of India for focusing on developing new products & applications.

Risk:
•Supply chain risk
•Cyclicality in the legacy business

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Navin Fluorine: Turning into a Butterfly* Q1FY22

-All Business segments have shown good growth compared to Q1FY21. Although the base was lower. Work on HPP is going well and we expect the commissioning to happen in Q4FY22. Work on MPP in Dahej is also progressing well.

-High-value business contributes 64% to the entire business. Speciality business was 1% QoQ basis. We gained market share in one of our large products in the US.

-We are seeing strong demand for our capabilities in Agro and other industrial segments.

-QoQ basis crams business was down by 11%, primarily due to moving of one order from June to July. We are seeing good traction amongst our existing customers, seeing good order flow. We have added a few new customers in crams this quarter.

-Legacy business contributed 36% this quarter. This segment has seen good demand traction from stainless steel and glass.

-Growth here was driven by new international customers.

-EBITDA Margins stood at 25%. Marginally impacted due to raw material prices & pricing pressure. Annual increments and new employees were added during the last year.

-PAT Margin was at 18%. High-value business grew by 52% and Legacy by 55% this quarter.

-We are seeing very good repeat orders in CRAMS, we have added new customers which are mid-sized Bio-Pharma customers based out of the US. It took us more than 2 years to crack these customers. We have long-lasting relationships with customers in Europe, we are seeing very good traction from there.

-HPP capex is an all new application. Electric vehicle opportunity, we are working in an incubation space. This is the reason why we have added a lot of employees on the R & D side. It’s not only about synthesis, it’s completely about developing new products to make sure it has the right functionality for the end usage. We are investing a lot of time in these new areas, this will translate into a capex in the next 18months or so.

-In Next 12months, we will announce capex in traditional applications like Pharma and Agro.

-Some of the projects that we have discussed in EV and new application space. Some of the basic technology has been developed by our international partners. Our responsibility would be to ensure proper successful absorption and scale up. We are looking at opportunities to set up a R&D lab for these applications either in Mumbai or Surat.

-Margins in this particular quarter were impacted due to-

1)In Ref gas, as a % of total sales in Domestic markets went down. Which is a significantly higher margin business. Sales in the international market went up, which is a significantly lower margin business.

2)In speciality, one Raw Material for our spechem molecule, price went up drastically. We expect that to come down in another quarter or so. In this molecule we have a long term supply agreement with 2 customers in the USA. Both of them have agreed to absorb the price increase in principle from Next Quarter. Another customer has requested us to increase the price by Q3FY22.

  1. One Product we were supplying to customers in Indian markets primarily because of inventory build up. Overall demand remains quite strong for the end molecule, demand we expect to come back towards the end of this calendar year.

4)Employee increase due to increasing R&D+Retention bonuses to retain people. This quarter there was a double increment as we deferred increment last year.

-We are working on some very interesting opportunities. It’s difficult to give a timeline, but our efforts are underway to make it happen this year either for refrigerant gas or speciality chemicals.

-We want to develop an integrated business model that will inculcate the pharma piece within crams and the pharma piece within the specialty. Working with a big consultancy for the same.

-On Capacity creation:

1)We continue to manufacture and supply molecules from surat for new opportunities.

**2)If you look at the MPP we have invested in, there is room for us to add another line fairly quickly. The products that we have planned in MPP, hopefully will go into dedicated facilities 2-3 years down the line. We are readying up a new set of opportunities to go into MPP. **

We have already invested in OSBL (Basic infra) at Dahej. New plants will take a shorter period of time to come up.

**3)Currently we are working on Debottlenecking of cGMP 3 facility. Our immediate priority is to debottleneck in cGMP 3 plant. Next quarter we will take up to the board. Post that we will take up cGMP 4 to the board. Debottlenecking will happen in less than 6months. Post capex approval cGMP 4 will take 12-15months. **

-We are looking at PVDF and LipF6 and other products in the EV space. But we are approaching it differently. Once we have the right business opportunity for these it will translate into business plans. We are looking at what and how. We want to be on the top end of the value chain and not at the end. A lot of the chinese players are at the bottom end of this value chain.

-We have seen challenges on the mining side of our raw materials. One of the large mines closed down recently which led to a price hike in Raw material.

-Freight cost has increased in recent times. We are trying to increase the prices accordingly.

-For FY22 our priority in crams is to hit a certain revenue stability every quarter in the Crams business. We are expecting to reduce the lumpiness of the CRAMs business. We have developed new relationships with new customers, we expect these interactions to translate into order books.

-In specialty the approximate business mix 40% Agro,40% Pharma and 20% industrial. 2 0% industrial is multi year contracts. 40% in Pharma is spot, in Agro half of it is multiyear contract and the rest of the half is on 2-3 quarter basis.

-There are 2 customers we have in Korea, one is in the industrial segment and the second is in inorganic fluoride business. (In last quarter they mentioned about some customer wins here and further capex requirement)

My Thoughts- The market has agreed with the growth story, is there still money on the table given earnings growth can be really strong?

  • In the next 4 quarters we will see the addition of 500crores+ to the netblock. 195crores in MPP+365 crores for HPP and 70 crores in the power plant.

  • cGMP 3 will be up for debottlenecking in the next 6months and post that there is a real possibility of the addition of cGMP 4 given the quarterly run rate is becoming stable and project flow is increasing.(Management hinted in the call)

  • Likely Capex announcement for newer applications like Electric Vehicles, Semiconductor,5G, etc in the next 18 months. Given their track record of developing these opportunities, expecting this co to be at the top end of the value chain. Remains to be seen can gujarat fluoro do it? Or they chase the next hot thing with incremental capital like they have done in the past?

  • High Probability of those 5 molecules for which MPP is being set up to move into Dedicated plants in the next 2-3 years.

  • Further development of the HPP segment and opportunities in the intermediate space.

  • Likely CAPEX announcement which will be relatively large in size in new age ref gas.

In my view this co, will likely see growing opportunities in the fluorine space. Given their calibre and patience in the developing the CRAMS business. I expect them to be the major beneficiaries in growing adoption of fluorine. In most of their projects as mentioned previously they don’t even compete with Indian companies, rather they are bidding against western chemical/crams MNCs like Dotticon, Wuxi, Solvay. Set for multi year growth journey in the coming times. I will much rather do high PE investing for fast growth and longevity than just for longevity.

Risk:

1)High Multiple, which will likely reduce given high probability for PAT to double in next 2 years.
2)Dependence on mining of raw material.
3)Building up the organisation to handle multiple growth projects coming up.

On Competition, this is what the management indicated. Do think basic fluorine is easy to do and can be combined with other chemistries to make compounds. High-ended, downstream molecules and multi-step synthesis require years of handling the molecule. Source-scuttlebutt(talked to a friend working as chemical engineering)

Not SEBI registered. Not a buy/sell. Remain invested.

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