Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Navin Fluorine International Ltd (BOM:532504, Financial) reported robust performance in the HPP and Specialty businesses despite global headwinds.
- The company delivered revenues of INR 2,065 crores and an operating EBITDA of INR 398 crores for FY '24.
- The Board of Directors recommended a final dividend of 750% per share of INR 2 each, bringing the total dividend for FY '24 to INR 15 per share.
- The R32 plant achieved higher than rated capacity in the last quarter, and domestic pricing of R32 is witnessing positive trends.
- The company has secured visibility of orders from existing MSA with European CDMO for FY '25 and completed validation campaigns for late-stage molecules from major pharma companies.
Negative Points
- The CDMO business delivered weak results due to deferral of sales of key molecules and validation issues with early-stage molecules.
- Operating EBITDA margin for FY '24 stood at 19.3%, down from 26.5% in FY '23, reflecting a decline of 720 basis points.
- Profit after tax for FY '24 was INR 270.5 crores, down from INR 375 crores in FY '23, due to higher depreciation and finance costs.
- The Specialty business faced challenges due to aggressive inventory reduction by global Agchem majors and dumping by Chinese players.
- The sales in Q4 FY '24 were impacted by lower sales in the CDMO segment and pricing pressure in the export market of R22.
Q & A Highlights
Q: The first question is on HFO. So on Slide 8, we have mentioned that lower HFO. So is it basically volumes or is it value? And since the plant is now stabilized, when do we expect to go back into optimum utilization? And any take or pay that we have exercised in FY '24?
A: So on the first question about what does that lower HFO means. It's primarily volume impact. If we achieve the same rate as what we've achieved in quarter 4 for the remainder part of FY '25, then we should expect a 1.3x increase in the volumes. We are already there in terms of utilization to meet the current demand. Take-or-pay, we've not had to exercise because the contracts from Honeywell are supporting the orders or supporting the minimum offtake. (Anish Ganatra, CFO)
Q: The second question is on CDMO. So until last year, we used to have about $40 million of yearly run rate. Incrementally that base run rate, will it continue at 40 given that in FY '24, we have done close to about, say, $32 million, $33 million?
A: It will continue at that. Our strategy to balance early and late-stage molecules is showing early signs of success. We have secured visibility of orders from existing MSA with European CDMO for FY '25. We certainly internally have strong belief of having a better year this year compared to last. (Anish Ganatra, CFO)
Q: On the Specialty side of the business, what do we mean by performance material, what exactly are we indicating there?
A: Performance Materials are basically all the emerging materials in both, whether you call them performance or advanced materials, but there would be things like solar grade HF, semiconductor grade HF, and advanced materials that go into specialized applications. (Anish Ganatra, CFO)
Q: On the CDMO business, can you help us explain that this European CDMO order which we have received 50%, what is the annual order for the...
A: Typically, we would not give out numbers. But we've always said that the Fermion order was a multiyear, multimillion dollar contract. The business is muted in the first half versus second half due to the validation process taking time. We expect the second half of this year to show recovery. (Anish Ganatra, CFO)
Q: On the margins side, this quarter, in the stand-alone, the EBITDA margin is at 12.8%, and the mix change between the Specialty and CDMO is there, but HPP contribution has remained stable. Why is there a drop in the margin?
A: The margins are lesser than last year due to lower CDMO contribution and pricing pressure in the export market of R22. We are on a journey from 15% to 20% to 25% margins. We are already part more than halfway through the 15% to 20% journey. (Anish Ganatra, CFO)
Q: On the CDMO business, these commercial stage molecules that we are now signing up, will margins on these be comparable to the rest of the CDMO business that we have been making thus far in past years?
A: When you're doing prequalification early trial, you have smaller quantities, higher margins. As you progress, you get significantly higher quantities and a decent margin. The commercial molecules will start to provide a base load, making the business more sustainable. (Anish Ganatra, CFO)
Q: On the Specialty Chemicals side, where are we seeing the longer-term demand coming in from? Is it a reflection of an improved demand environment or is it largely driven by restocking?
A: The Agchem environment has been full of challenges. We are in a relatively fortunate space because we have a good mix of innovator products. We expect the first half to remain muted compared to the second half. The recovery will be gradual and progressive. (Anish Ganatra, CFO)
Q: On the refrigerant gas, given that we are putting capacity in here that R32 coming up, can you throw some color with respect to how do we see the pickup that's happening there, both in terms of the volume as well as in terms of pricing?
A: R32 is very promising. In the global context, many geographies have gone through a quota cut restriction on GWP. China is already under a restricted regime. We remain very confident of the decision we've taken and the prospects of R32, both in the short-term and long-term. (Anish Ganatra, CFO)
Q: Just one question. I see a contract liability of INR 90 crores on the balance sheet. What does that pertain to?
A: Our customer wanted to bring in greater flexibility to the dedicated agro plant that we are currently commissioning. They have funded the CapEx associated with it, which represents that number. (Anish Ganatra, CFO)
Q: When we give the [GMO], you want to get to the $100 million annualized revenue. This project which you speak about, which is the billions of dollars in sales for the end product, does that assume ramp-up of that $100 million guidance?
A: Everything will play into getting there. The Phase 1 of the new CapEx will unlock the $100 million opportunity. (Anish Ganatra, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
