Navin Fluorine International Ltd

NSE:NAVINFLUOR

Earnings Call Analysis

Robust Performance with Optimistic Future Outlook

In Q1 FY25, Navin Fluorine achieved a 7% revenue growth year-on-year, reaching INR 524 crores. Their HPP vertical excelled, recording a 66% increase, driven by stable operations and strong R32 sales. However, the CDMO and Specialty Chemicals segments saw declines of 13% and 30%, respectively, due to inventory rationalization. Operating EBITDA dropped by 12% to INR 100 crores, with margins at 19.2%. The company is on track to meet its growth and expansion plans, including significant new capacities set to come online, with an optimistic outlook for improved performance in the second half of the year.

Strong Revenue Growth Amidst Challenges

In the first quarter of FY '25, Navin Fluorine International Limited reported a revenue of approximately INR 524 crores, reflecting a solid 7% year-on-year increase. This growth was primarily driven by the HPP division, which saw a remarkable 66% rise in revenue to INR 281 crores, bolstered by stable operations and robust sales of its R32 product. However, the company faced challenges in its Specialty Chemicals segment, which recorded a 30% decline in revenue due to inventory rationalization by global agro majors.

Challenges in Specialty Chemicals and CDMO Segments

The Specialty Chemicals division's decline from INR 230 crores in Q1 FY '24 to INR 160 crores in Q1 FY '25 underscores the pressures from market conditions affecting purchasing behaviors. Simultaneously, the CDMO vertical also experienced a 13% decline in revenue, attributed to the traditional challenges of analyzing this business quarterly. Management remains focused on improving order visibility and expanding relationships with major pharmaceutical companies.

Improving EBITDA Margins Despite Higher Costs

Operating EBITDA for the quarter stood at approximately INR 100 crores, reflecting a 12% decrease year-on-year. The operating EBITDA margin also declined from 23.3% in Q1 FY '24 to 19.2% in the current quarter. This margin decline can be partly attributed to exceptional gas pricing from the previous year and lower specialty sales. However, the company showed a positive trend of steady margin improvement from 15% in Q3 FY '24 to 19.2% in Q1 FY '25, indicating a gradual recovery.

Future Outlook: Revenue and Capacity Expansion Plans

The company is optimistic about a recovery in demand in the second half of FY '25, particularly in the agrochemical market. They anticipate peak annual revenues from new projects, such as the Agro Specialty project expected to contribute significantly post-commissioning. The INR 540 crores CapEx for this project aims for commercial production by September 2024, with estimated peak revenues targeted two years after launch. Additionally, management highlighted an ambition to achieve 24%-25% EBITDA margins for future projects.

Financial Health and Strategic Directions

Navin Fluorine's balance sheet remains robust, with a net debt-to-equity ratio of 0.38x, reflecting a commitment to financial discipline. The company plans to leverage its established R&D capabilities to bolster its product pipeline in the Specialty Chemicals vertical, targeting peak annual revenue potentials from newly introduced agrochemicals and patented products. Furthermore, management believes its investments in capacity expansions and diversification will yield positive returns in the mid to long term.

Guidance for Upcoming Quarters

Management provided a confident outlook, indicating that FY '25 will outperform FY '24, with expectations for gradual recovery and stabilization in key markets. They forecasted the potential for USD 100 million in revenue aspirations by FY '27 as capacity ramps up and the market recovers. The recovery strategy also includes optimizing efficiencies and maximizing capacity utilization.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Navin Fluorine International Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Bhavish Shah from Orient Capital. Thank you, and over to you, Mr. Shah.

[Bhavin Shah, analyst]

[indiscernible] Mr. Anish Ganatra, Chief Financial Officer of Navin Fluorine International Limited. This conference call may contain forward-looking statements about the company, which are based on beliefs, opinion and expectations as of today. Actual results may differ materially.

These statements are not the guarantees of the future performance and involve risks and uncertainties that are difficult to predict. A detailed safe harbor statement is given on Page #2 of investor presentation of the company, which has been uploaded on the stock exchange and company website.

With this, I now hand over the call to Mr. Vishad Mafatlal for his opening remarks. Over to you, sir.

[Vishad Mafatlal, executive]

Ladies and gentlemen, I would like to welcome you all to Q1 FY '25 earnings call. I am joined by our Managing Director, Nitin Kulkarni; our CFO, Anish bhai; and Payal from Orient Capital, our Investor Relations adviser. I hope everyone got an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as our company's website.

Before I move on to discussing key business updates, let me introduce Nitin to you all. Nitin to charge as Managing Director of our company on June '24. Nitin brings over 3 decades of rich experience across the specialty chemicals value chain. He is a highly respected leader with a proven track record of driving growth, establishing new business verticals, embedding manufacturing excellence and execution of large projects, both brownfield and greenfield.

He is well connected in the industry with strong and deep relationships across leading domestic and global majors. In his last role, Nitin was an Executive Director at OC Specialty for over a decade. Prior to that, he had worked with Navin Fluorine for a period of 7 years heading BD, where he was instrumental in establishing the Specialty Chemicals business.

He also worked with Aditya Birla Group, Chemicals business, including Tanfac and HUL Lakme. We welcome Nitin to Navin, and we are sure that the company will scale new heights under his leadership.

Moving on to discussion on business. Our focus remains on achieving operational excellence, ensuring financial robustness and executing our plans with discipline. We continue to make progress in diversifying our revenue streams, strengthening our partnerships and building scalable platforms. These initiatives are foundational to our long-term sustainable growth and profitability.

In the last quarter, despite adverse market conditions, we recorded a robust 7% year-on-year top line growth. Revenue growth was underpinned by stable orchid operations and strong sales of our new R32 capacity. Agro demand continued to witness near-term headwinds with global majors rationalizing inventory levels impacting our specialty business.

In CDMO, our strategy to increase share of late commercial molecules is bearing results with increasing success with big pharma customers. We continue to believe second half of Navin Fluorine will be better than the first half, with improving margin trajectory.

Let me also give you a quick update on the capacity expansion. Over the past year, we have launched several expansion projects, and I'm happy to report that all of them are advancing smoothly. Our Agro Specialty project with a CapEx of INR 540 crores is targeted to commence commercial production by September. As mentioned, we have secured firm orders for the dedicated capacity for financial year '25.

Our AHS project involving an outlay of INR 450 crores and enhancing our HF capacity by 40,000 metric tons at Dahej is on track to commence by end financial year '25, early financial year '26. This expansion will support the growing demand from emerging and new sectors. Phase 1 of the approved INR 288 crores cGMP4 CapEx is underway, progressing to plan for commissioning by end of calendar year '25.

Additional R32 CapEx of INR 84 crores to boost capacity by 4,500 tonnes is on track for completion by February 2025. Given the high operating level of our existing R32 capacity and with a solid pipeline of inquiries, additional capacities will be ramped up at a faster pace upon commissioning. The INR 30 crore CapEx for development of new capability in Surat, which is progressing as planned, to be commissioned during quarter 2 financial year '25.

Our existing partnerships with key global players continues to deepen, while we continue to make progress on expanding to newer partnerships, both in the product and service play.

Before I end, let me once again assure you our long-term view of our businesses remain intact, and we are well positioned to secure growth opportunities. I would now like to request Nitin to discuss the operational highlights of the business.

[Nitin Kulkarni, executive]

Thank you, Vishad bhai. Good evening, everyone, and thank you for joining our call at this hour. It is still early days for me at Navin, though my initial impressions are extremely encouraging, and I believe that we have done reasonably well in this quarter in what is otherwise a challenging industry environment.

While I continue to connect with employees, customers and other key stakeholders, I'm also clear that in the near term and particularly in coming quarters, our key priority will be to maximize capacity utilization, improve productivity and drive efficiencies while commissioning projects and developing growth opportunities.

Let me start my discussions with segment by segment performance update. So to begin with, the HPP vertical. The revenue for this vertical increased from INR 169 crores in Q1 FY '24 to INR 281 crores in Q1 FY '25, which is 66% Y-o-Y growth.

Good performance was a result of stable HFO operations and strong sales of new R32 capacity. We are seeing healthy domestic and export order book for R32. The pricing for this product is showing an uptick in the domestic market, and this reaffirms our decision to double our R32 capacity, which will be operational by February 2025.

Compared to Q4 FY '24, R22 prices are also showing signs of increment in the export market. We have also seen an increase in volumes in the last quarter at our HFO plant in Dahej, reflecting both in the quarterly sales as well as in margins. Our HF R22, R32 and HFO plants have operated at optimal capacity for another consecutive quarter.

As per our spec chem of Specialty vertical is concerned, the revenue for this vertical decreased from INR 230 crores in Q1 FY '24 to INR 160 crores in Q1 FY '25. This is 30% Y-o-Y decline. As anticipated, Specialty Chemical vertical was impacted due to inventory level rationalization by global agro major, reflecting in deferred purchasing decision. We continue to maintain that demand scenario should start to show recovery in second half of FY '25.

Irrespective of such market conditions, during this quarter, we have continued to strengthen our product pipeline in Specialty Chemicals vertical by leveraging on our newly established R&D Center at Surat. We have added a new molecule at Surat for a global agro major with a peak annual revenue potential around INR 40 crores to INR 50 crores over a period of next 3 years.

Complementing to this, we also signed a couple of agreements for a patented agro products catering to the Japanese market with an incremental annual revenue potential of INR 20 crores to INR 30 crores from calendar year 2025.

In the coming quarter, a key priority remains to steadily commission the new specialty CapEx, which is already in place.

As far as CDMO vertial is concerned, the revenue of this vertical decreased around INR 92 crores in Q1 FY '24 to INR 81 crores in Q1 FY '25. There is a decline of 13% Y-o-Y in this particular segment. As we have mentioned in the past, this business cannot be analyzed on a quarterly basis.

And our focus here is to improve order visibility, increase share of late stage and commercial molecules while deepening our relations with big pharma, biotech customer, and we are progressing well in this direction.

In the last quarter, drug application of European big pharma players expanded in one of the therapeutic area, leading to optimism on the initial peak annual revenue projections for the interest. This is clearly a positive development for us.

Apart from these three verticals, our R&D efforts on the performance Advanced Materials business continues to make progress, including co-development with leading global performance chemical majors catering to sunrise sectors like semiconductor. I think with this note, now I would like to hand over to Anish to brief you on financial performance in the Q1 quarter. Over to you, Anish.

[Anish Ganatra, executive]

Thank you, Nitin. Good evening, and I welcome you all once again on the earnings call. Moving on to the financial performance of the company in Q1 FY '25. We reported revenues of approximately INR 524 crores in Q1 FY '25, an increase of 7% year-on-year basis, largely led by an increase in revenue from our HPP division.

Operating EBITDA for Q1 FY '25 was approximately INR 100 crores, a drop of 12%. On a year-on-year basis, this reflects the exceptional gas pricing witnessed in Q1 last year, lower specialty sales has also some impact from the lower CDMO mix in the overall revenue basket. Operating EBITDA margin stood at 19.2% as against 23.3% in Q1 of FY '24.

We continued our trajectory on improving the margins from 15% in Q3 FY '24 to 18.3% in Q4 FY '24 to 19.2% in the current quarter, and remain on track to improve it gradually during the year. Profit after tax in Q1 at FY '25 stood at INR 51.2 crores as against INR 61.5 crores in Q1 FY '24, a drop of 17%.

This reflects higher depreciation costs associated with commissioning of new CapExes. We continue to ensure a tight financial framework whilst driving growth. In Q1 FY '25, the business generated operating cash flow delivery of INR 107 crores, aided by a continuous effort in driving working capital down.

Our net debt-to-equity ratio at the end of June '24 stands at 0.38x reflecting the strength of our balance sheet. That's all from my side. We can now open the lines for Q&A.

[Operator]

[Operator Instructions] We have a first question from the line of Sudarshan Padmanabhan from JM Financials.

[Sudarshan Padmanabhan, analyst]

Sir, my question is to dwell a little deeper on your earlier commentaries on the agrochemical environment. So I mean, even if you are looking at the commentary by other players like [indiscernible], it looks like scenario continues to remain weak, especially the prices have been coming down. While it is heartening to see that we have been able to get products from Japanese customers and other products in place and going ahead with our Dahej CapEx.

From your investment and return on capital perspective, one is with the prices going to the -- probably the worst levels that we have seen in decade, is that impacting your ROCEs in terms of what you would have initially sought off versus what you are currently negotiating in terms of margins and ROCE and prices.

And with respect to this environment, one, how worst do you think it can further go or you think this is the bottom? And how are we tackling it in terms of our strategy? How are we looking at us doing relatively better in this environment?

[Anish Ganatra, executive]

All right. Thanks, Sudarshan. You've asked a couple of questions. So let me try and take them one by one.

I mean, the first thing on the agrochemical sector itself. Again, as you rightly pointed out, that the overall market is reflecting the industry scenario. And this is really a reflection of a couple of things happening here. Obviously, the higher-for-longer interest rates are affecting how much people hold as inventory. And everybody is trying to rationalize the inventory levels. Purchasing behaviors are also changing.

Having said all of that, the fundamentals that the agrochemical level remain very, very strong in the crop protection business. Every farmer and every end user is ultimately very keen to increase their yield per acre and protect their yield per acre. So we don't see any fundamental shift in the industry dynamics. We see this more as the market stabilizing as it finishes off the destocking levels, establishing new inventory levels and expect that the demand will start to gradually recover in the second half of the year.

So that's the first question. Your point about the investment and return on capital is actually linked to that. So while we see this near-term headwind and we see the absolute EBIT numbers or EBITDA numbers coming down, but obviously, we are trying to ensure and we have shown that our EBITDA percentage margin is improving quarter-on-quarter, even in this environment, and we will continue with that journey, with the intent that ultimately, the EBIT will start to reflect a better ROCE that we had originally envisaged.

And obviously, as the market recovers, you will start to see the ROCE pictures that we originally envisaged on these projects. Your question about -- you had one more question on worst bottom. Can you please repeat that for me?

[Sudarshan Padmanabhan, analyst]

Yes. So what I'm trying to understand is, today, when you are looking at the product and the question is the prices have come down so sharply that are we seeing a scenario where that the prices -- I mean, nobody is making money, are what is the largest people are making money most that when integrated. But it does not make sense to manufacture certain molecules and then the prices are likely to kind of reverse. I mean I'm just saying the figures whether this is a [indiscernible]

[Anish Ganatra, executive]

Yes. So see, I mean, again, you've got to appreciate our portfolio on the agrochem side. A large part of our portfolio is on the innovator side. And to some extent, therefore, we remain insulated from the onslaught of the generics, okay?

Now again within that context, one has to remember that we continuously work with our customers to look at new ways and new routes, new chemistries to produce the same outcome more efficiently, more effectively, and thereby help them remain competitive and also protect our EBIT margins. That's shows the dynamic nature of the business, and that will continue, frankly. The environment that we are in, it's obviously made it more imperative, and we continue to work with our customers on that front.

[Nitin Kulkarni, executive]

Nitin here. Just to add on what Anish just briefed you. Can you hear me?

[Sudarshan Padmanabhan, analyst]

Yes, I can hear you.

[Nitin Kulkarni, executive]

Yes, yes. So this is Nitin. So basically, just to add on what Anish just briefed you. If you really look at our customer base in agro space, then these are big top 5 global innovative companies and the Japanese organizations. And most of the business relationships, which we have with them is based on the long-term supply contracts where we bind each other with respect to the cost structure based on our understanding and mutual agreements.

And -- so what is happening, though the Chinese competition is really going very aggressive in the price reduction, but at the same time, these global majors want to keep the alternate supply chain on where they consider Navin in the fluorochemical as one of the partner. So the pricing structure, under which we have entered into understanding with them, it is not going to hit our bottom line and it will reflect the same numbers when it comes to EBITDA, which are happening currently at Q1 or the Q2 level, which we are projecting.

[Sudarshan Padmanabhan, analyst]

Sure, sir. One final question before I join the queue is, of course, we are going to see some traction from the Fermion contract in the next few quarters. But more interestingly, when I'm looking at the cGMP4 CapEx as well as our outlook on this business. I mean, I'm not necessarily looking at the next 2 to 3 quarters, but the next 2 to 3 years.

I'm looking at a fair amount of exciting the large molecules going off patent, especially in the diabetes and weight loss area. Is there any kind of molecules that we're working with, which we can also benefit in this case?

[Anish Ganatra, executive]

Sorry, your voice was a bit muffled. Can you please repeat the question on your molecule? What was the question really?

[Sudarshan Padmanabhan, analyst]

So we are seeing -- one is on the biotech side funding actually things have improved. And there are a fair amount of developments happening on the innovator side as well as on the patent side where the large diabetes drugs are going off patent and obesity drugs are going off patent. So on both sides, I mean, are we seeing any kind of opportunity with the innovators that we can participate in some of these large business.

[Anish Ganatra, executive]

So we are working with innovators and the molecules that we are working on, they are all late stage and commercial molecules. So they are not in the realm of going off patent or anything like that. I mean as we've said on the slides that effectively our work at the moment. And just to give some example here, some color here, right? That we're talking of how our efforts on securing more business is becoming more widespread.

The work and the contract we got with the U.K. major pharma, we have actually progressed that further, from development to scale up now orders being received. Similarly, on the Europe major, pre-validation has been completed. Usually, this takes about six months before you get into the next stage of development or the validation, which again, we expect to see ourselves securing that order.

Similarly, in the U.S. major pharma, example that we quoted there, we've completed the development work and a scale up orders have been received. I mean the idea of showing this is showing the pipeline, showing the breadth of our business development efforts that is going on and also, our eventual target would be to end up with having one more MSA or a couple more MSA over the years to start showing that growth.

But I agree with you that there is -- if you start looking at the next 2, 3 years, this appears -- this is a very exciting opportunity for us in terms of growth.

[Operator]

[Operator Instructions] We have our next question from the line of Keyur Pandya from ICICI Prudential Life Insurance.

[Keyur Pandya, analyst]

First question is on the overall industry and industry growth construct. So as of now, we are talking about destocking phenomenon, which is more of a supply side issue. Are we seeing any challenge on the end demand side, looking at sharp fall that we have seen in the global crop prices or inverse/adverse weather conditions? So that is first question.

[Anish Ganatra, executive]

Okay. So thanks, Keyur. I mean, see, fundamentally, we have to understand that what drives the demand in the Agchem sector. Ultimately, it is that we are catering to the crop protection business. Crop protection for an end user is directly proportional to their outcomes on yield per acre.

Agriculture demand is growing as everybody knows that. The crop protection need will continue to grow. So fundamentally, at a construct level, nothing is changing yet. This is a phenomena that we are going through. We are seeing how inventory levels were stopped up following COVID. Interest rates were high. So people are looking to bring the inventories down.

It is the same story playing out. And as things play out, the weather is playing its part in the game, with changing crop patterns, et cetera. So what's happening out there is farmers are now actually looking to stock up things closer to the time of application as opposed to buying it ahead of a season.

And all this starts playing its downstream effects, including deferred purchasing decisions, et cetera. So while it's a temporary thing, and as we already anticipated. If you refer to our discussions even in the last call, we had said that FY '26, '25 is going to be a story of 2 halves, first and second, right?

The first half, we've always said that Agchem delivery from our discussions with our customers, looks to start recovering in the second half and that too in a gradual fashion. So I think it's playing out as I anticipated, to be honest.

[Keyur Pandya, analyst]

Okay. Noted. Second question is on the INR 540 crore CapEx that we are commissioning in September '24. If you can just throw more light on the product? And is it catering to the -- end product is patented or if it is off-patented? And any of this new projects, are they impacted by, I mean, oversupply from China and thus more competitive prices being asked from your customers. So does the economic change for the new project?

[Anish Ganatra, executive]

So the way this is constructed, Keyur, is that when we get into these arrangements, we ensure that the commercial arrangement protects our minimum sort of offtake as also our economics, okay? And that is the fundamental way how these contracts are constructed.

Now to answer your point, that particular molecule is actually a requirement for at least four large majors, not just one. And it goes into multiple products, some generics and some patented as well. So it's a combination of everything. Like I've said before, the pressure from Chinese generics means that we will have to work closer with our customers in giving them value, and that is an ongoing conversation, and that's an ongoing business as usual thing, to be honest.

No business can sit here and take a pricing call for the next seven years and hold that constant, right? You will have to constantly work with your partners and find different ways, different R&D, and that's what we bring on the table. So one of our thinking behind setting up our R&D center in Surat at a significant cost and setting it up as a world-class unit was also to ensure that; one, we continue to build up pipelines, which we are doing. As also work with these customers on different synthesis, different routes to deliver greater value while also delivering value to our bottom line.

[Keyur Pandya, analyst]

Just one last bookkeeping question. The interest cost that we have seen Q-on-Q has seen fall of INR 200 crores, INR 300 crores and INR 2 crores or INR 3 crores. I mean, just mathematically looking at increased gross borrowing interest cost probably should have gone up. So is there any abnormality or we should continue this kind of quarterly run rate of interest cost?

[Anish Ganatra, executive]

No so. So again, so you're right, the interest cost has come down Q-on-Q and year-on-year, certainly. I mean that's partly because of the various efforts we've taken. So just to give you an example, as our cash position improves with greater focus on working capital, we're also borrowing less on an average on the working capital. So that helps you drive some growth on the -- some savings on the interest cost.

Simultaneously, we also are working with our lenders to reduce the spread rate. So some of those also start featuring there because we are optimizing. As we continue to strengthen our balance sheet, we believe we can command better spread rates. And that's also playing out over there.

The third thing you see is that you've got to remember that over the years since last June, we've also funded a significant portion through intercompany borrowings, which do get interest paid, but then they get offset when you look at the consolidated numbers because it's from one entity to another entity.

And so there are several factors there. To answer your question on run rate. Obviously, as the new Agro chem -- Agro Fluoro Specialty plant comes on stream, the interest associated with those borrowings will start to see themselves feature in the P&L, yes? So you should factor those kind of things as we progress. But otherwise, on where we are today, this is the run rate really.

[Operator]

[Operator Instructions] The next question is from the line of Chetan Thacker from ASK Investment Managers.

[Chetan Thacker, analyst]

Sir, just one question on the spec chem business in particular. So last year, we had anyways witnessed fair degree of erosion on the base business, which was there in FY '23 and new products have contributed to FY '24 revenue. Going in that light for FY '25, what explains this dip in the first quarter? And how should we see that with the expectation was at some stage, the base business also comes back and new products also start to contribute. So how should we look at the spec chem business in FY '25, in particular, and '26?

[Anish Ganatra, executive]

So that's a good question, Chetan. I mean if you look at what we are doing, one, again, I'm going to bring back to the R&D and the molecules we are introducing. I mean if you look at the two molecules that we've talked about. One is already the agro molecules being added in Surat with the annual revenue potential of INR 40 crores or INR 50 crores that Nitin talked about, that's coming in Surat.

The CapEx of INR 30 crores to a development of new capability, again is coming in Surat, and that's going to be commissioned in this quarter itself, Q2 only. And again that will start to show incremental revenue from the following quarter onwards, right? So while we are seeing that Surat assets are the assets in the base business, we continue to look at new molecules to replenish that.

And obviously, between the hedge and Surat, we optimize our NPP to make sure that depending on where a molecule can be made more efficiently at the scale required given that Dahej is a new asset, that molecule that's delivered to Dahej. And what we also then do is make sure that our utilization in Surat is continued with some of the new molecules that we develop.

That's an ongoing journey. I mean we don't look at this as NFIL and NFASL just to clarify. It's a consolidated asset that we optimize across both locations.

[Chetan Thacker, analyst]

And just to get a sense, so we don't expect base business to come back in a meaningful manner in FY '25, that would be a fair assessment, given what you're hearing from your customers at this point of time?

[Anish Ganatra, executive]

So I think what you should see, and I'll probably say what I've said before is that we should start to see some uptick in demand at the end of Q2, which, again, we can probably give you an update at that point in time. But obviously, as that demand upticks, the update will go both in the base and our current -- and the new assets also being commissioned, but we are also, to answer your point over there, in a meaningful sense, we should start to see the base grow also more in the next year onwards.

[Operator]

We have our next question from the line of Sanjesh Jain from ICICI Securities.

[Sanjesh Jain, analyst]

I got a first question on the NFASL side, which is consol minus stand-alone. The revenues there have declined 28% quarter-on-quarter while we have said that HFO production has optimized. What explains this sharp drop in sequential where HFO, which is the larger CapEx among the three performing well. And also request to share the capacity utilization in the MPP plant as well as dedicated agro plant. That's my first question.

[Anish Ganatra, executive]

See, NFASL, as you rightly said, we're seeing HFO at optimal performance. The decline you see is really the effects of the Agchem conditions that we talked about. Again, over there, one has to remember that both within the MPP, will have contracts which are take or pay and committed contracts.

And also in the dedicated plant, there is a take-or-pay contract. So some of those orders have come in this quarter. And to the extent, those contracts relate to a delivery in a calendar year. So some of those will be deferred in the next quarter. So that's the way I would look at it.

Utilization, again, to your point, I have mentioned this in the last sessions, Sanjesh. We should look at utilization more from a point of view of these revenues achieved over the whole year rather than one quarter to another quarter, because in this environment, purchasing decisions are getting deferred to the point of. As we said, the end user is talking of looking at deferring decisions closer to application, the entire channel inventory is also looking to defer decisions and minimize and optimize their inventory, yes.

So if we look at the full year position, I think we would still be at similar levels that we talked in the last call, which would be for MPP, I think this year, you would see something like 70% to 80% utilization. So this year we would see probably 80% utilization as well, as we talked last, based on what we have oversight of our projections and the order book, yes.

[Sanjesh Jain, analyst]

An associated question there again is a gross profit margin. Revenue, I can understand, as you said, there is a pushback. There is also a 400 basis points gross profit margin decline on a stand-alone minus consolidated, is that the change in the product mix is also having an impact on the margins?

[Anish Ganatra, executive]

So the gross margin, and you're saying stand-alone minus NFASL.

[Sanjesh Jain, analyst]

Consol minus NFASL.

[Anish Ganatra, executive]

So you are looking at NFIL is it?

[Sanjesh Jain, analyst]

Correct. Correct.

[Anish Ganatra, executive]

And you're comparing the drop versus what?

[Sanjesh Jain, analyst]

Last quarter.

[Anish Ganatra, executive]

Last quarter. Okay. So again, on the last quarter, when you look at this, on the gross profit level in the last quarter, I see some of the things we will find will be related to both. So if I look at the NFIL. Basically, how is your ref business and the Agchem business in the baseline, right, and CDMO business. CDMO revenues are lower.

So you will see some of that getting played out on a year-on-year basis. And also from a point of view of -- if you compare year-on-year, I think you will see the sharp differences because Q1 of last year obviously, had a huge amount of uptick from the gas price environment, right?

If you look on the consol level, you will find that compared to the last quarter, we are actually having a higher margin gross profit.

[Sanjesh Jain, analyst]

If it all because of the stand-alone, we had a higher contribution of, I think, domestic reference gast as well as the CDMO. But when I deduct it from console stand-alone, what I get is NFASL, which is Advanced Science, NFASL, there is a drop of 400 basis points in the margin. which is in our subsidiary...

[Anish Ganatra, executive]

There you will see because of the deferral of orders in the Agchem, right, because HFO is doing pretty well. So there's only two verticals over there. That pretty obvious, that mean to what you just said, Sanjesh, that the purchasing behavior are today what we see that customers are deferring purchasing to more closer to applications. So that we will see play out.

[Sanjesh Jain, analyst]

Got it. But we haven't changed any pricing, whether it is HFO or Agchem or in the MPP, we haven't made any changes to the pricing.

[Anish Ganatra, executive]

No. See in HFO, our gross profit is pretty much passed through, right? If we have a certain cost increase, it gets passed to. And in the Agchem again we haven't changed prices in that sense. So I don't see that as the reason.

[Sanjesh Jain, analyst]

That is not the reason. That's fairly clear, sir. Thanks for all the answers and best of luck for the coming quarters.

[Anish Ganatra, executive]

Thank you Sanjesh.

[Operator]

We have our next question from the line of Madhav from Fidelity.

[Madhav Marda, analyst]

First question on the Specialty Chemical business. The decline that we have seen, is it entirely attributable to inventory destocking? Or have you seen any wallet share loss with our customers given Chinese are more aggressive in the market? Or any price erosion in any of our key products in Specialty Chemical?

[Anish Ganatra, executive]

So a large part of the impact in the spec chem is on volume side. Some amount, you will see that on the pricing side, while we have not sort of, as I've said, from us, when we look with the customer, we look more at our margins. And if we are able to protect our margins through different synthesis and routes, we do that. So some of that also is being played out.

[Madhav Marda, analyst]

And have you had any wallet share change with the any of these customers for our key products?

[Anish Ganatra, executive]

Sorry. You will have to talk a little bit slow. I mean, I missed the question. What are you saying?

[Madhav Marda, analyst]

I was asking that for key products, which we are supplying to our customers, has there been any change in wallet share? Like have they shifted sourcing to China because they are like sort of driving down the price. So have you seen any loss of wallet share?

[Anish Ganatra, executive]

No, not for the key customers, like I said, because our philosophy has largely been contracting and holding with firm arrangements, we don't see that shift. We see more deferral of bank decisions, from one quarter to the next.

[Madhav Marda, analyst]

And the second question was on the R32 capacity which came in the 5,000 tons. Was that running at peak utilization in Q1. So -- if I just give like a, which is not like 12, 50 tons is what we probably like sort of keep capacity mostly run it or it does differently basis the season?

[Anish Ganatra, executive]

No. R32 is more than the capacity. So we've had very solid and strong response in the market on R32 in terms of us having sort of -- I mean, it ramped up to what you can juiced out.

[Madhav Marda, analyst]

Got it. And when did you just start to remind me like when we start producing at the new [indiscernible].

[Anish Ganatra, executive]

This was in July last year. That's when we started. Of course, it took a couple of months to ramp up, but that's when we started.

[Operator]

We have our next question from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

Welcome to Mr. Kulkarni and all the best.

[Nitin Kulkarni, executive]

Thank you. Thanks a lot.

[Abhijit Akella, analyst]

Just two from my side. Anish bhai, just one on the INR 540 crore Agchem, which is about to get commissioned. So just sort of wondering what sort of capacity utilization we could expect maybe for fiscal '25 this current year? And then how much for next year from that plant?

And number two, what would be incremental depreciation and finance cost attributable to that plant B, which will -- I guess it will start hitting the financials from 2Q onwards? Or will it be 3Q onwards?

[Anish Ganatra, executive]

Okay. So on the first question about the INR 540 crore, the utilization for this year, et cetera. As we've said before Abhijit, the firm purchase order from customer for this year's capacity is already with us. So that will start in September and then slowly ramp up to the end of the year, right? That's what we are looking at.

And our endeavor is to meet the firm customer order that we already have in place for that. The strategy around that plant, as you know, half of it is dedicated and half of it was an own account. The one that is our approach this year was always to meet the customer demand and carry through some qualifying campaigns.

So that going into next year, we have those orders. Additionally, as I've also said before, that at the customers' cost, we are also upgrading the flexibility of that plant to cater to additional molecules.

Yes. On the second question around depreciation and interest. So obviously, when it starts in September, we will start taking both the depreciation charge and the interest into the P&L. Interest, I would roughly take us about 8%, which is what we would look at in terms of what would go into the P&L. And depreciation over 10 years roughly. Again, we look at the assets at the time when we capitalize, but that's the typical charge we will take on.

[Abhijit Akella, analyst]

Sorry, I missed it. You said 10 years, is it?

[Anish Ganatra, executive]

20, 20.

[Abhijit Akella, analyst]

20 years. Okay, sorry. And the 8% will be on the entire CapEx amount of INR 540 crores.

[Anish Ganatra, executive]

Yes, yes, yes. Finance cost will come in. And again, of course, it will come in only for a month or as long as the plant is commissioned during this period. And then on a quarterly basis, from the following quarter, the whole thing will hit the P&L.

[Abhijit Akella, analyst]

Right, right. And we have orders in hand for the 50% that is a dedicated portion. So that is what we should expect in full utilization this year.

[Sanjesh Jain, analyst]

Yes. Because if you look at it, if the plant comes in September then from September to March, the full plant is only available for 50% of the whole year, no? So it's actually the full capacity is what we actually have the orders for.

[Abhijit Akella, analyst]

Though entire 100% of the plant is sold out as of now. It's not like...

[Anish Ganatra, executive]

If you think of this year. So if you remember, half of that capacity was dedicated and half goes to our own account. Now given this molecule, we would always have to run qualification campaigns. So our original base case plan was that for the first year. We will run this plant to meet the dedicated capacity, which will exactly what will happen, which is half, right? So the plan can't divided. It's not like I will run only half a plant to meet the demand. The capacity is divided.

Right? If the whole plant is running and I have orders for that capacity in 6 months, my intent and endeavor will be to meet that order fully. Additionally, I would also want to do a couple of metric tonnes, 100 metric tons or so to actually do qualification rounds. So that my order book for the following year gets secured.

[Abhijit Akella, analyst]

Understood. Very clear. Just one other thing was on the hydrogen chloride plant that's going to come up by end of the year, the AHS plant. Approximately, how much would we expect to consume captively versus sell in the merchant market?

[Anish Ganatra, executive]

So the AHS plant will double our current capacity in Surat, as you know. So combined, we will have -- I mean, again, I have to probably take you a little bit back here because when our sort of HFO plan started in Dahej and we started to utilize more HF capsid, we actually stood out of the captive market for some time because we were not -- we didn't have HF. Since then, not only HFO is there, but we've now got two R32 plants. With the result that today, we are actually waiting.

We are short of HF in some sense, right, because as soon as our R32 plant comes in, again, we are going to need more HF. So a lot of HF capacity that's coming on board, will start to get utilized internally. Originally, we would look at meeting the market demand to about -- so I'm just saying this because this is what our peak merchant sales were at one point in time, about 7,000, 8,000 metric tons.

So that's where we would go with the merchant sales. And then, of course, as Nitin has also alluded in his speech about the work that's ongoing for the semicon side and the Advanced Materials, more downstream applications of that HF will start coming through. But that will take some time, yes, to mature. So again, you do an HF plant in this business to stay in business.

[Operator]

We have our next question from the line of Ankur Periwal from Axis Capital.

[Ankur Periwal, analyst]

First question on the spec chem side. So the new projects that we have announced, Japan based customer, INR 20 crores, INR 30 crores is incremental. The INR 40 crores, INR 50 crore revenue that we were talking of on the agro side, is it also incremental? Or is it a part of the earlier MPP that we had commissioned.

[Anish Ganatra, executive]

No. It is incremental.

[Ankur Periwal, analyst]

Sure. Okay. So and how about the molecules that we were sort of commissioning on the Agchem side, if I recollect, there were four -- sorry, four agro and one pharma, are all of that -- all of them commissioned now? Or what is the status?

[Anish Ganatra, executive]

No. So these molecules, which you are referring to the pipeline, see our intent is always to do about 4 to 5 molecules each year. And roughly historically, we said it will be 3 to 4 in agro and 1 in pharma, but that doesn't mean that's how it plays out, right? As those molecules get done, those campaigns get delivered. Some of them -- and then again, it's a campaign nature. You might run a campaign this year and something may come tomorrow.

But the idea is to continuously provide the pipeline for your MPP plans to be utilized fully. And then it obviously goes beyond the MPP side, the conversation on dedicated start, yes?

[Nitin Kulkarni, executive]

So if you go through our presentation in the specialty chemical commentary, you will find the various initiatives and the incremental revenue, which we are going to get with these three molecules.

[Ankur Periwal, analyst]

Sir, my -- Anish bhai, my question was more specific to the MPP that we had done INR 235 crore CapEx, wherein we were doing 4 agro and 1 pharma, we had deferred one pharma earlier. So has that product come back now? Or is there any visibility on that?

[Anish Ganatra, executive]

You're are talking of the Dahej MPP plant. How does it commissioned?

[Abhijit Akella, analyst]

Dahej MPP, correct, yes. The INR 240 crores CapEx.

[Anish Ganatra, executive]

There is Dahej MPP, we are currently doing, I think, about 4 to 5 molecules over there. And with those molecules, some of them, like the one that we talk here, the Japanese market will actually be done from Dahej. So that INR 20 crores to INR 30 crores will come into Dahej. So those agro molecules will come there.

I don't think there is the pharma molecule there to be honest. I don't know where that has come up, but I don't think there is a pharma molecule there.

[Ankur Periwal, analyst]

Okay. Fair enough. And just lastly, on the HPP side, you did mention that R32 has been running probably ahead of capacity. Will it be fair to say that from a volume perspective, both HPP and R32 would have hit the peak give and take in this quarter, Q1?

[Anish Ganatra, executive]

I think from a capacity side true, from a pricing side, not yet. And I think what we are seeing, as we said, the pricing side, we are seeing signs of recovery. And one has to remember that R22 would be cut coming in is expected to continue to see price rises in the export market. So that's going to become better.

R32 is already seeing price rises even Q-on-Q, and we see that market firming up as well. Additionally, during the quarter itself, we've had a very strong response from even the U.S. and the Europe on our R32 demand. and those demands are coming in at a price equivalent of better realization than India. So despite what one talks about the dumping and all that.

[Operator]

We have our next question from the line of Surya Narayan from PhillipCapital India.

[Surya Patra, analyst]

Sir, my first question is on the CDMO business. In the recent quarters that we have seen even domestic supply is also is the kind of a key contributing revenue stream there? So what is the nature of this domestic CDMO business, sir?

[Anish Ganatra, executive]

Yes. thanks for the question. I mean, again, if you look at -- so the typical process of us getting registered with a large player takes time, right? And with the European CDMO, all our molecules under that MSA are likely to be registered. One has already been done. I think two more are expected later in the year.

So until those registrations are completed, we are actually supplying that molecule to a domestic customer at the behest of the global major despite of the supply agreement. But that is only till our registration is completed, and then it moves on direct to export. So it's a temporary thing that you see there.

[Surya Patra, analyst]

My second question was about this INR 540 crore project, which is going to be commissioned soon. Here you have indicated that you have firm orders, obviously. But given the kind of a situation, that was the understanding since some time, but the market is not progressing the way it was expected because of the -- on account of, let's say, inventory rationalization continued and the Chinese aggression and all that. So given that, are we sure about the uptake that we would be seeing for the firm order that is there, sir?

[Anish Ganatra, executive]

Yes, India will perform long-term cancelable orders on a global major. And again, it's a relationship we have -- we closely worked with Nitin talks to them regularly. So does Vishad bhai, and there is absolutely full movement behind that order.

[Nitin Kulkarni, executive]

See, this is not a single product relationship we have with this global ad player. And there is a basket of products, which is more than 4, 5 products we offer to them under certain agreement and the commitments. So already, this is a matured relationship and this particular project is part of this relationship to have the robust supply chain.

So all the understanding and the deliverables are intact, and there is no change in any, I will say, conditions or the deliverables than what we have already agreed to. So everything is well in place.

[Surya Patra, analyst]

Okay. Just last one, sir, one clarification. About the pricing trend for the, let's say, HFO. Whether there is any dent or any correction that you are witnessing? And the same would be the question about even your CDMO. Have you seen any kind of a price erosion kind of a trend for your existing products?

[Nitin Kulkarni, executive]

As far as HFO is concerned, we have the pass-through understanding with the customer.

[Sanjesh Jain, analyst]

Our margins are protected.

[Nitin Kulkarni, executive]

Protected completely.

[Anish Ganatra, executive]

There is no sort of price conversation over there. And on the CDMO front, again, if you look at these -- the scale of these molecules, when you work with late-stage, commercial and any of these molecules that are potentially blockbusters, the end product is more than billions of dollars, right? And the intermediate cost is a very small fraction of it.

It's a service industry rather than the cost industry. You've got to make sure that you take the product, run the chemistry and provide it in time, yes? That's the main part of the business.

So the quality and the on-time delivery that is the key rather than looking at some commercial benefits here and there.

[Operator]

[Operator Instructions] We have our next question from the line of Vivek Rajamani from Morgan Stanley.

[Vivek Rajamani, analyst]

I did have a question on the spec chem side, but I think you've answered that in a lot of detail. So just one question on CDMO. I know it's a bit tough to kind of give a number here, but given the extensive pipeline that you have, would it be possible to give any simplistic guide path in terms of how we should think about F '24 versus -- F '25 versus F '24 and maybe F '26 with F '25?

[Anish Ganatra, executive]

So F '25 will definitely be better than F '24. There is no sort of -- as the quarters go past and as the order book visibility improves, our confidence on that is increasing.

So there's no doubt about that. FY '26 rather than say that, I would probably give you an indication that if all of this plays out in the way we are thinking, FY '27 the 100 million aspiration should be with us. We should be there.

[Vivek Rajamani, analyst]

So FY '27 is where you think you'll hit your 100 million aspiration, would that be fair?

[Anish Ganatra, executive]

Correct. And there's logic, right, that the extra capacity that we are putting on is coming on stream at the end of calendar year '25. So that itself is coming in FY '26. So a year from there is what we are saying.

[Nitin Kulkarni, executive]

And that is a quite sizable capacity we are putting on the ground.

[Operator]

We have our next question from the line of Archit Joshi from B&K Securities.

[Archit Joshi, analyst]

Congrats on [indiscernible] One question on the INR 540 crore CapEx. We had a INR 600 crore sales guidance that we entered a few quarters ago, given the deterioration in prices that we have seen over the last few quarters, would that number still stay? And also, if you can give a margin guidance as to what we can expect that.

[Anish Ganatra, executive]

So the INR 540 crore CapEx will come onstream in September, which will be FY '25. And peak revenues are still being targeted in two years. So we're still holding the FY '27 for peak revenues. And I think we have said 1.1 or something like that on the peak revenues. That continues to be the case as we stand now.

Our intent and endeavor is always to make sure that the return, which is the EBITDA margin out of the project starts to deliver where we think it is. And in terms of guidance on that, I think, again, yes, I mean, one way to look at it is we've always been guiding an overall number that we see ourselves in at 24% to 25% EBITDA, right?

So that's what one would hold on. But remember, these are all snapshot numbers that I'm telling you. They're true, as I tell you, yes. I think most things will move. Yes, there is a business dynamic and a lot of all of this.

[Archit Joshi, analyst]

Sure So the price deterioration has not impacted that peak number that we were targeting. That was the only limited clarification I was taking.

[Anish Ganatra, executive]

No. Like I said, we are also adding in the flexibility for a different molecule. So it's a combination of everything. But the guide will be to get of paved revenue.

[Operator]

The next question is from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

Sir, first question is in terms of the CDMO for both -- I mean for pharma. And on the agrochemical side, under the Specialty chemicals basket. What would be the geography lead in terms of Europe and U.S.? And in the last couple of years, after the COVID-related restrictions have been over in China. Have we seen competition from Chinese people for these newer projects. Obviously, for the historical projects, they are already secured. But in terms of newer projects on both these segments.

[Anish Ganatra, executive]

So CDMO, pharma, I mean, frankly, has got a lot of tailwinds just from the BioSecure act. I mean if you look at what's happening, we are seeing increasing number of RFPs from global majors. Everybody is looking to derisk their portfolio and obviously, India stands to benefit out of that. So we're not seeing -- I mean, frankly, we are happy with the level of inquiries we are getting. Our aim is to convert more and more of those into orders and then from orders to large orders and then possibly some MSAs, yes. That's the way we look at it.

On the agro side, again, we have made some entry into the CDMO space there, too. And the idea, again, is that while we work and as we have our R&D center in Surat, the idea will be to work closely with large innovators early in the product development stage, so that we can help them not only develop the molecule but also test it at pilot and -- lab and pilot levels and then eventually scale it commercially for us. So Nitin want to add anything on that?

[Nitin Kulkarni, executive]

He was talking about the geography where we? So we are quite present in Europe, U.S. as well as we are talking of agro as well as pharma. So I think Japan, Europe and U.S., these are the three regions where we are actively involved when it comes to CDMO linked with agro as well as pharma.

And we haven't seen any decline in the demand for the products which we are supplying to them from last more than 3 to 4 years, except the deferment of the volumes when it comes to agro segment because of the current market conditions.

[Rohit Nagraj, analyst]

Sure. Just I can squeeze in terms of CapEx, so current CapEx will get over by FY '25 end. What is the next leg of CapEx that we will need for maybe growth beyond, say, FY '27? When we start working on that?

[Anish Ganatra, executive]

Yes. Its again, a good question. I mean, as we finish this FY '25, we will be sort of actual CapEx outflow, which will be in the range of about INR 600 crores to INR 650-odd crores. By the end of -- somewhere by the end of -- by the middle of calendar year 2025, we will start to formulate some views on where the next growth of CapEx is.

But what we are doing in the meantime is ensuring that our balance sheet strength, the conversion of EBITDA into cash flow, and our net debt to equity remains within the guidance that we've indicated such that those CapExes are then pushed out.

I mean some glimpse has already been given in conversation earlier where we shared about the work that is being done in the Performance Material area. So I can -- all I can say is watch that space.

[Operator]

Ladies and gentlemen, that would be the last question for today due to time constraint. And I would now like to hand the conference over to the management for closing comments.

[Anish Ganatra, executive]

All right. I just want to take the opportunity to thank you all for taking the time out and joining the call today. I hope that we've been able to answer your queries adequately. And thank you, and good evening all. Good night. Take care.

[Operator]

Thank you. On behalf of Navin Fluorine International Limited. That concludes this conference. Thank you for joining us.