Q2 Investor presentation: https://www.bseindia.com/xml-data/corpfiling/AttachLive/a92a059f-4763-4e3b-bd8f-cb1d47cd760c.pdf
The slide below was interesting:
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I think they are reporting it since Oct 2020 Investor updates, good to see they will be largely sticking to the Q4 FY22 completion time line.
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Another Long Term Contract
In Line with my thoughts in the July Post, there are several growth triggers at play here:
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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.
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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)
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Likely Capex announcement for newer applications like Electric Vehicles, Semiconductor,5G, etc in the next 24 months.
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High Probability of those 5 molecules for which MPP is being set up to move into Dedicated plants in the next 2-3 years.
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Further development of the HPP segment and opportunities in the intermediate space.
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Likely CAPEX announcement which will be relatively large in size in new age ref gas.
Another long term agreement. I do think this is at a superior juncture when compared to Pi Industries, which is currently going through the struggle of establishing the Pharma vertical. Navin is already there in Pharma Crams, Pharma intermediates for generic, Agro intermediates and other fine chemicals including the HPP.
Disc: continue to remain invested in line with our thesis.
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Business udpate call:- Regarding the contract
Navin Fluorine International (NFIL)-Key Takeaways of the Business Update Call-11th November,2021
#NFASL has entered into ~Rs. 8 bn agreement for manufacture and supply of a key agro-chemical fluoro-intermediate over a period of 5 years.
#The project will entail an investment of Rs. 1.25 bn which includes an approximate investment of Rs. 140 mn for expansion of effluent treatment plant. The facility will be located at Dahej, in the state of Gujarat and will be funded through a mix of internal accruals and debt. The supplies are expected to commence by end of FY23.
The deal will help build NFIL an opportunity pipeline for the future with the customer. The molecule is an existing product and there is a strong demand expected for this molecule. The client does manufacture this molecule in-house and has an alternate supplier for the same.
#The facility will be based out of Dahej and will share certain common infrastructure with the HPP and MPP plants.
Strict confidentiality agreement exists with regards to the potential of the molecule and other details. NFIL will be an important supplier of this molecule. Margins will be in line with the Specialty chemical margins of 28-30% and the return ratios of the project will be in line with the company as a whole
The initial focus of NFIL is to design the plant for this specific molecule and ramp it up to desired levels. The plant can be mapped to manufacture other molecules at a later stage. NFIL does not envisage any further technology transfer from the client. Demand is expected to gradually scale up and remain steady from the 2nd year onwards.
#Product development and scale up has been developed in-house-R&D/T&D teams. NFIL does not supply to the competition of the client as a principle even after 5-7 years.
Complete R&D, Pilot operations and the initial campaigns are run out of Surat and if scale up is feasible then subsequent operations are undertaken in the new facility in Dahej. Adequate land is available in Dahej for further expansion, if needed.
#Demand from end user industries of pharma and agrochemicals continues to be robust. NFIL is also seeing good demand coming from the industrials segment however this is yet to reach a sizeable level.
The entire process took 9-12 months to complete. There is a take or pay clause if the minimum volume offtake of 80% is not achieved.
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Investor Presentation – November 2021
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When valuations are high, one should have the ability to predict growth triggers beyond the other market participants to retain the conviction for the story. Lets see the upcoming growth triggers in continuation with posts on Navin for the last entire year on this thread.
Growth triggers:-
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365 crore capex for HPP segment is going live in Q4 of this year with 71 crores of investment for Power plant. Entire capex will give 400 crore types of sales with 26-28% Ebitda margins.
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195 Crore capex for MPP plant going live by Q2 of FY23. This will lead to sales of 260-280 crores. At a similar margin profile for the company. This MPP will initially have 5-7 molecules. Many of these in agro can get commercialised in dedicated blocks as the volumes scale up.
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Dedicated contract capex of 125 crores, which will sales of 160 crores per annum. This will go live by Q4FY23.
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There are 20-25 Molecules in the Pipeline in the spechem division out of which 15 are qualified opportunities. These will start getting commercialized over this and next fiscal. Can result in more capex. Source FY21Q3Concall.
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Debottle-necking of cGMP 3, approval likely by the end of this fiscal. Secondly, cGMP 4 capex to be announced next financial year. In total Navin has approval to set up 6 cGMPs for the CRAMS Business.
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Navin is one of the only companies in Western Asia to have the capability for HexaFluoro Platform that they acquired from the JV with Piramal. Already in talks with a European co for commercial applications. This platform is largely used in pharma (inhalers/Inhalation anesthetics).
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Company is first time looking to raise debt to finance upcoming capex opportunities in the next few years. This is the biggest signal for me, that tailwinds that the co is witnessing are getting stronger. Those who have tracked the company, know how conservative the management is. Indication of raising debt to finance capex really points to the longer term growth aspirations.
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Large size capex for new age ref gas is also likely to be announced. Moreover, for newer applications in the area of 5g and EV’s the co is setting up a R&D centre in Mumbai. This is what they had to say in a recent management interaction:-
“Navin is working on 2 Lithium Based molecules on Hexafluoride chemistry. One of the molecule is in collaboration with a French Company. The molecule is manufactured through Organic route and is touted to replace Lithium.”
- Planning to forward integrate from just manufacturing intermediates into APIs for commercial molecules in CRAMS Business. Currently 2 molecules are in commercial stages and Navin only supplies intermediates for these.
Navin vs Pi
That’s a question I have often asked myself in last 2.5-3 years of owning both the positions. Pi has been facing severe challenges of scaling up the Pharma vertical. We have been hearing about the pharma foray since 2014. Acquiring a pharma asset and just getting it CDMO ready itself will likely take more than 5 years. No other CDMO co in Pharma has been able to scale up the business in less than 5 years.
Navin on the other hand has been through the gestation in pharma cdmo of nearly a decade after acquiring MOL, and still has approval to set up 3 more cGMPs. Moreover, many agro CRAMS opportunities are fructifying for the co, another indicator is that they might change the name of spechem business to Contract Manufacturing services.
Most importantly, both growth and ROCE profile coupled with base effect is in favour of Navin over Pi Industries.
Disc:- Just wanted to post my views for my own benefit and everyone else’s benefit. I own the stock. Not sebi registered, and no transactions in last 30 days.
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Coming to the negatives:-
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Valuations are stretched. No second doubt about this. One has to see how they think about what the correct valuation for this business is.
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Senior Management churn with the cfo who was long associated with the co leaving.
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Significant capex plan and its implementation. Let’s see how they execute, as they have never implemented such large capex’s together in the past.
Management bandwith is an issue in the real world. Let’s see how they tackle this.
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HONEYWELL PARTNERS WITH NAVIN FLUORINE TO ADD HYDROFLUOROOLEFINS (HFO) MANUFACTURING CAPACITY IN INDIA (Earlier announced in Feb’20 but client name revealed today)
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One of the probable triggers, announcement being made.
Approval is here for cGMP 3 debottlenecking:-
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@Dr.Midhun @Worldlywiseinvestors @harsh.beria93 @Dev_S @Chins @phreakv6
https://pubs.acs.org/doi/10.1021/acsomega.0c00830
From the above report it is evident that the usage of Fluorine is increasing in Pharma. Could someone explain in simple terms (a layman can understand) what is this means ?
The value chain of any drug is KSM - Key Starting Material - > Intermediates → API → Formulation
In this value chain where exactly Fluorine fits in ? Whatever little reading I have done so far, my understanding is Fluorine is used in small molecule (link to understand what is this )
Found Some answers here
Many Thanks
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Good report on Fluorination along with Navin & SRF
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I have been tracking capex guidance of Navin very granularly, another huge development this Quarter
Another 540 crore capex announced for a dedicated capacity
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With all capex projections ( hpp+ mpp+ Agro chemical intermediate+ New flouro specialty molecule ) and subsequent asset turns they can double their top line in 2 years.
Hpp : 2800 over 7 yrs = 400 cr/Annum
Mpp : 250 cr/ annum
Agro intermediate new contract : 800 cr over 5 yrs = 150 cr approx/ annum
New specialty molecule : 600 cr/ annum
Total new revenue proj in FY 24 : 1400 cr.
FY22 Revenue : 1400 cr.
New businesses must be higher margin profile compared to legacy businesses.
Disc : Invested
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Hi @Midhunjoe - directionally the calculation is straight however I have reservations on timelines. This new specially has potential run rate of 600 Crs/year at peak utilization. This has been announced just recently. Production commencement is expected by Q4’24. Will need another ~2 Years post commencement to reach peak utilization.
Nevertheless, positive direction. Just that we need to keep the timelines realistic.
Thanks,
Tarun
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Just to add crams Debottlenecking of 70 crores which can lead to 200 crore topline. Debottlenecking in FY23 too
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Calculate the project level margins.
540 crore fixed assets
200 crores working capital
740 crore capital deployed
According to Management, significantly higher Roce and margins Vs 3 projects. Which have Roce of 24%
Thus, assuming 30% Roce
222 crore of Additional Ebit and Roce of 30% + Margins close to 40%.
Just some rough math
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Very comprehensive Annual Report. Resonates strong business undercurrent. Some key readouts:
- Our Company revenues grew Rs. 271 crores to Rs. 1,404 crs and our Specialty business revenue crossed Rs. 500 crores during the year under review.
- Fluorides business grew 42% from Rs.193 crs in FY 2020-21 to Rs. 274 crs in FY 2021-22;
- Specialty Chemicals business grew 25% from Rs. 453 crs in FY 2020-21 to Rs. 566 crs in FY 2021- 22;
- Our CRAMS business grew 6% from Rs. 279 crs in FY 2020-21 to rs. 297 crs in FY 2021-22.
- The Company reported 14% growth in EBITDA in FY 2021-22 due to better price realisations.
- We have generally worked around superior EBITDA margins, measured at 27% during the year under review (32% in FY 2020-21). Even as we continue to expand aggressively, we expect to protect our EBITDA margin within the 25-30% band, based on our existing synergies, competitive advantage, resource stability, projected demand-supply dynamics and order book visibility.
- "The volume offtake remained creditable in an otherwise challenging year for the economy,
protecting the Company’s industry visibility. - The Company sustained its working capital cycle at around 90 days of turnover during the year under review; the Company expects to grow its business without stretching this working capital cycle (on account of its secure resource supply chain, strong product basket and customer relationships).
Capex:
- We closed the financial year under review with a capital expenditure of more than Rs.1000 crores (and another capex announcement of more than Rs. 500 crores thereafter. full outcome of which is likely to be visible from FY 2023-24 onwards.)
- Navin Fluorine Advanced Sciences Limited’s new process plant at Dahej is likely to be commissioned in FY 2022-23; it is engaged in commissioning MPP at Dahej for fluoro specialty products. The Company expects to generate attractive revenue growth and contribution margin arising from the expansion, strengthening business viability.
R&D:
- .“We are also investing in the upgradation of our R&D and pilot plant infrastructure in Surat. This will enhance our ability to undertake complex projects with global multinationals in existing and new segments”
- “During the year under review, the company engaged in significant recruitment in the T&D,
R&D, Projects and Operations across locations and businesses.”
Others:
- In the area of Partnerships, we now have two client relationships fast approaching revenues of US$ 100MM a year and another two shaping into potential US$ 100MM+ relationships
- In the area of Products, we started by focusing on three value chains and building blocks, out of which two are scaling up well. We identified two new building blocks of substance that we expect to grow. These building blocks offer us opportunity to own critical value chains, offering our customers with clear risk mitigation
- “In the area of Platforms, we have been working on new chemistry and engineering technologies which can be widely applied across businesses, reinforcing our technology
leadership.” - The Company is rapidly globalising its revenue profile: Around 50% of the revenue being derived from international operation. The export orientation of the CRAMS and Speciality Chemicals businesses could sustain or increase the share of international revenues.
- The Company’s projects have been provided complete assured offtake commitments by long-standing customers, eliminating open positions and strengthening revenue visibility. The relationship-driven approach of the Company is reflected in the fact that good amount of revenues of the Company in FY 2021-22 were generated from customers of three years or more.
- We believe that the underlying realities driving the various segments of our business will continue to stay favourable. For instance, Specialty Chemicals demand from the agrochemical and pharmaceutical industries will remain robust; our Company is attractively placed on account of our strong proprietary R&D and process technology, multi-year customer engagement and engagement with a more customers during the last financial year. Similarly, in the CRAMS business, we enjoy a low share of a large mature market that could progressively correct itself.
- The Company’s subsidiary (NFASL) was sanctioned Rs. 500 crs of debt during the year under review to fund its greenfield projects. Even after this entire quantum has been drawn in phases, the Company will remain relatively under-leveraged. This debt will finance projects with a revenue potential of H1000 crs, the returns from which will be adequate to cover the related interest outflow and loan repayment.
Disc: No investment as on date
Regards,
Tarun
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FY 2022-23 looks to be interesting year wherein new facilities will be commissioned and growth trajectory will be get heads up… If they are able to maintain the current margarine then it should do well in medium term
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More on hydrofluoroolefins| The end molecule Navin is manufacturing for Honeywell
The global hydrofluoroolefins (HFOs) market is expected to grow at a CAGR of 20.8% during 2017 – 2023 to reach USD 5,784.3 Million by 2023. Factors propelling the growth of HFOs market include exceptionally low GWP compared with HFCs and HCFCs, few facility modifications required to transition from HCFCs, EU regulations phasing out HFO from other fluorinated greenhouse gases, and low to mild flammability.
The increasing use of HFO in refrigeration, mobile air conditioning and foam are attracting the investors to generate business from HFO market. Moreover, environmental issues have made these industries to transit from HCFC to HFO. The companies are now taking lead in manufacturing HFO grades. Industry pioneers have patented HFO and markets them under a brand for instance Honeywell markets HFO under the name of Solstice and Arkema markets HFO as Forane. On the consumer side HFOs are being blended with hydrocarbons and water in order to reduce the incremental operating cost.
- Geographically, North America was holding the largest market share for hydrofluoroolefins (HFOs), in 2016 and is anticipated to dominate the market, throughout the forecast period. Growth of hydrofluoroolefins (HFOs) market in this region is attributed to the stringent environmental regulations leading to replacement of HFCs and HCFCs.
It seems HFO is replacing HCFs and HFCs+Other ref gases. Worth a deeper inspection for those invested in fluorine companies
Hydrofluoroolefins (HFOs), a low GWP Solution to F-Gases,.
Disclosure:- continue to remain invested.
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