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Navin Fluorine International Ltd
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Good morning, ladies and gentlemen, welcome to the Navin Fluorine International Limited Q2 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Rasika Sawant from Orient Capital. Thank you, and over to you, ma'am.
Thank you, and welcome to the Q2 and H1 FY '23 earnings conference call. Today on this call, we have Mr. Radhesh Welling, Managing Director of Navin Fluorine International Limited, along with senior management team.
This conference call may contain forward-looking statements about the company, which are based on beliefs, opinions and expectations as of today. Actual results may differ materially. These statements are not the guarantees of future performance and involve risk 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's website as well.
With this, I now hand over the call to Mr. Radhesh Welling for his opening remarks. Over to you, sir.
Hello. Good morning, and a warm welcome to all the participants. On this call today, I'm joined by Mr. Partha Roychowdhury, and our Investor Relations Partner, Orient Capital. Note, Partha joined Navin Fluorine, as the CEO of our High Performance Products business. He has also been assisting me and the finance team in the interim, as we interview candidates for the CFO position. I hope all of you've got an opportunity to go through our financial results and investor presentation, which have been uploaded on the stock exchange, as well as the company's website.
Before [ with my ] comment from the business performance, I would like to brief you on a few key -- few key developments at Navin Fluorine. It gives me pleasure to inform you that the commercial production at the plants set up to manufacture and supply new hydrofluoroolefins has started post successful supply of commercial trials to the customer. The customer has validated the product specifications for the requisite batch quantities on agreed parameters. This plant add up under our wholly-owned subsidiary, Navin Fluorine Advanced Sciences Limited in Dahej, Gujarat.
Also 2 additional new clients in Dahej are scheduled to start in Q3 FY '23. Commercial production in MPP will start in phased manner, while production in the [indiscernible] for agrochemical customer will start in the month of December. Debottlenecking project for our cGMP3 plant in Dewas is well underway and is scheduled to get completed, as per plan.
It gives us pleasure to inform you all that the Board of Directors has declared an interim dividend of INR 5 per equity share with a face value of INR 2 for financial year '23 at the meeting held yesterday.
Now, I would like to discuss operating performance of each business unit. Our specialty business continues to deliver strong performance driven by strong [ platform ] and partnerships. All 3 verticals, the crop science, pharma and industry have delivered good results. We achieved record quarterly revenue in this business unit for this quarter and reported revenue growth of 46% on Y-o-Y at INR 177 crore for Q2 FY '23. This business continues to see development of rich pipeline of differentiated business opportunities. As mentioned earlier, we are focused on commercialization of 2 new projects in H2 of FY '23.
Our HPP business grew by 76% in Q2 FY '23 to INR 11 crore compared to the same period last year. This also includes revenue from NFASL, which comes from the newly commissioned plant at Dahej for manufacture and supply of HFO, the new HFO molecule.
Our legacy business also saw strong growth through competition in growth, as well as price increases. International business contributed about 46%, whereas balance 54% is from our domestic operations.
Our CDMO business reported revenue of INR 39 crores through FY '23. As I had indicated earlier, our 2022 -- calendar year 2022 looked soft, which is also reflected in our Q2 performance. But overall, we remain quite confident of our growth in our CDMO business. Work on the business plan for cGMP4 is ongoing, and we expect to take this to the Board towards end of the current financial year.
This quarter, we successfully completed important plant audits of 2 large pharma innovators. Also, we received a relatively large purchase order of $16 million [ for ] molecule for a late-stage clinical trial. Supply for this molecule is to happen over 2 quarters in calendar year 2023, and we are currently discussing with the customer for specific dates for the delivery of this molecule.
Now I would like to share the highlights of our financial performance following which we will be happy to respond to your queries. For H1 FY '23, on a consolidated basis, the company has reported net revenue from the operations of INR 817 crore, as against INR 665 crore in H1 FY '23 with a growth of 23%. Operating EBITDA stood at INR 193 crore, as against INR 1 crore in H1 FY '22, up by 19%. Operating EBITDA margin stood at 23.6%, as against 23% same period last year.
As mentioned earlier, we commercialized new plant in Dahej in the last quarter, which impacted the overall margins, which was [ operational ] in August 2022. On a stand-alone basis, NFIL can deliver margin of around 25%.
The operating PBT was up 16% and stood at INR 159 crore for H1 FY '23, as against INR 137 crore last year. Operating PBT margin was at 19.4% in FY '23. Profit after tax stood at INR 132.3 crore for H1 FY '23 and PAT margin was at about 16.2%.
Now coming to the quarterly performance for Q2 FY '23. Company reported growth of 24% in net revenue from operation to [ INR 409 ] crore, against INR 339 crore in Q2 FY '22. The operating EBITDA grew by about 11% to INR 94 crores, as against INR 84 crore in Q2 FY '22. Margin stood at 22.4% for Q2 FY '23. Operating [indiscernible] 17.2% at INR 72 crore. PAT stood at INR 57.8 crore for Q2 FY '23, as against INR 63.2 crore in Q2 FY '22.
I think I've covered most of the basic information around the business and financial information. We now open the floor for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Sudarshan Padmanabhan from JM PMS.
Sir, my first -- I have 3 questions. My first question is on the HFO supplies to Honeywell. If I look at the stand-alone minus consol, we are looking at around INR 30 crores to INR 35 crores. I understand that you earlier said that the ramp-up would be slow. But if you can give some color on how one should expect the ramp-up to happen, say over the next 4 quarters to 6 quarters. That is one.
The second question is on the CDMO side. I mean, while I agree or understand that this is a little bit lumpy in the nature, and we have a fair amount of tailwinds that is there in terms of interest, as well as execution, is there any kind of a shipment delay that would have resulted in non-booking anything or certain contracts in this quarter and should be basically bunched up in the third quarter? Or how should one look at say the next 3 quarters to 4 quarters in terms of the build-up?
And finally on the cost side. I mean, the other cost seems to be on the higher side. Just to understand whether largely the other cost reflects the upfront cost on the new capacities or is there any one-offs [indiscernible]?
Yes. So on HFO, we actually came relatively strong demand from the market. And if you look at this quarter, we're talking about Q2, and again, going forward Q3, Q4, we believe that at least from the demand side, we should basically be running the plant close to optimum capacity. One of the challenges that we faced last month was in availability of one of the critical raw materials for which one of our supplier is actually [ for ] new plant and that project had got significantly delayed. That, that plant was ready -- supposed to be ready by December of last year. It just got ready. So because of which, we actually didn't get all the raw materials that we actually need to manufacture are -- so -- from the demand side, the demand continues to remain pretty strong.
Again from the manufacturing side, we believe that we are in a position to ramp up to almost close to full capacity. And from the quality side also, we've actually been able to get the product right the first time. We expect that by December -- from December onwards, we should be able to get all the raw material that we require, and hence we should be able to actually ramp up the production to close to full capacity fairly quickly from end of this quarter onwards. Because of our inability to actually run the plant to the full capacity, we actually had 2 or 3 issues. One, our costs, our ability to absorb the fixed cost was impaired in this particular quarter.
Second is our utilization was relatively higher because we had to actually operate the plant at suboptimal level. And as I mentioned to you because this supplier was not able to actually supply the molecule as per the agreement, we actually had to go out in the spot market and buy the raw material at a significantly higher cost. Because of these 3 factors, we actually saw a significant impact on our operating margin in NFASL, which is basically for this particular molecule, which is what dragged the overall operating margin for the company down. So that is on the HFO.
On the CDMO, it's primarily [ again ] bunching of lot of these orders. We see no issue on the execution side. Our execution, our demand fulfillment piece continues to remain very strong. We expect that in Q3, we should be able to do around [ $12 ] million of invoicing. And Q4, as it is seen right now, we expect to be very strong.
I don't know, as I had indicated earlier, our calendar year 2022 looked soft when we actually did the budgeting for this year, but calendar year 2023 onwards, look pretty strong and we continue to see the same effect because of which our Q1 and Q2 were relatively soft. Q3, we will again back -- we will be back to our $10 million plus [ number ]. Q4 onwards, which is when we move into the calendar year '23, we are expecting a significant growth to this baseline number, which is also giving us confidence to continue to work on this large cGMP4 business [ plan ], which we hope to take to the Board by end of this financial year or beginning of the next financial year.
[indiscernible].
On -- you had a question on the other costs so.
So I'm Partha Roychowdhury.
I'm sorry to interrupt, sir. Sir, your audio is breaking up.
Yes. On the other cost. Yes.
Yes. So the other costs are higher in the -- if you see the stand-alone, we are not significantly up, and they are up because of the energy -- higher energy cost on account of higher coal prices, et cetera, and the freight continues to remain high. And there has been some mismatch in terms of timing in the booking of the CSR related expenditures. So these are the primary [ things ] for the mismatch in the other costs. Yes.
The next question is from the line of Abhijit Akella from Kotak Securities.
Couple from my side. One is on the R32 project that's been announced in the investor presentation. I don't believe we had received many details about this in the past in terms of the total CapEx on the capacity and commissioning timeline et cetera. So if you could please just put some color around this? And also on -- any other plans for other HFCs that you might have now?
So the announcement about R32 was actually made in the last quarter. If you see, we had almost a CapEx of about INR 80 crore. We actually didn't specify there exactly, which product it was et cetera, and we didn't really get any question on the capacity et cetera, so we didn't have the opportunity to respond to that. But since you are specifically asking this happy to...
Sorry to interrupt Mr. Radhesh. Sir, your audio is breaking up?
Hello, can you hear me now?
Yes, sir. I am able to hear you, but your audio is breaking up.
Oh, okay.
Okay. Sir what I will do is I'll just disconnect and reconnect you.
Okay.
[Technical difficulty]
Ladies and gentlemen, thank you for patiently holding. We have the lines of the management reconnected. Over to you, sir.
Yes. Hi. Are you able to hear me properly now?
Yes, sir. We are able to hear you. Please proceed.
Yes. Okay. So first of all, I am really sorry for this issue. The question was around R32. This is a INR 80 crore CapEx, which was announced in the last quarterly -- on the last quarterly call. So what we had done was initially we actually started working on this particular piece, where we convert one of our existing lines of R22 to R32. But when we did the detailed work, we realized that we can actually set up one line for R32 without impacting our existing capacity of R22. In terms of the specific capacity and the actual impact on the revenue, I'll let Partha, who is the CEO of that business to respond.
So we are essentially looking at a revenue of about say [ INR 12 ] crores plus/minus, which we expect to ramp up in calendar '24. So as of now that's the timeline, which we are running. I think we have enough confidence that we should be able to adhere to this timeline. There will be some production in -- and sales in calendar '23 and the full ramp up is going to be in '24.
Calendar year.
Calendar.
Yes. Sorry, Partha, sir, I just lost some number you said. You said INR 70-odd crore revenue, is it from this?
No, INR 200 crores.
INR 200 crores. Okay. Yes. Sorry, some audio issue there. And the capacity if you could please just specify.
I would not want to specify that. We are in the project stage, Abhijit. Okay. So as we progress, maybe we can discuss about this later in the coming in calls.
And any other HFCs that you might have on your agenda and for the future?
Yes. So while this is already done, and the plant is going to be ready for production from April '23, we are already looking at some other opportunities as well as opportunity to further expand capacity of R32. And once we are ready, we'll take it to the Board for approval and also make requisite [indiscernible]. But as you can see, for this particular project, from the announcement to actual production, it's even less than about 9 months. So we believe that newer projects -- the newer projects that we are currently working on should also have similar kind of a timeline about 1 year plus/minus. So we should be able to do it fairly.
And just one last thing from my side, if you'll permit just regarding the ESOP announcement that was made yesterday. This [ 155,000 ] ESOPs being announced to senior management. If you could please just share some details around, who all are eligible for this -- to participate in this ESOP plan?
And also just on the accounting side of this, will this be routed as an expense through the employee cost line? Or how will this treated in the financials?
Yes. So the second thing first, Abhijit, it is going to follow the classical accounting methodologies, which everybody else follows. It will be charged to the P&L. But I would like to remind you that this is actually not a [ cash ], number one. Number 2, it has a tax break. Number 3, eventually, this charge goes and reside in the networth of the company. I am sure you are aware of this, how the mechanism will be.
And specifically on the ESOP plan, currently, this particular plan, which has just been announced, is primarily for 4 people, which is the Managing Director and the 3 CEOs.
The next question is from the line of Rajesh Kothari from AlfAccurate.
I have 2 questions. One is basically, you said that you appointed 3 new CEOs and completed, what I would say, the new organization structure. May I request you to -- can you please share details of that, the 3 business units, who are leading the 3 CEOs, their little bit brief profile and how it's going to be structured over a period of time? That's number one.
And number 2, your CapEx plan over next 2 years to 3 years? And how do you see the visibility from your customers?
Yes. So as far as the restructuring is concerned, this was done sometime back. So this is not a new phenomena, and actually, I had given information related to this during my last call also. What we have done is our existing businesses, we have actually now divided them into 3 business verticals. Each of them actually is headed by a CEO. So for example, High Performance Products, which is a combination of the erstwhile inorganic fluoride business, refrigerant gas business, and the new HPP business has all been put together into the new HPP vertical, High Performance Product vertical. And that is led by Mr. Partha Roychowdhury, the CEO of that business vertical, all the functions, including manufacturing, R&D, technology, et cetera, specifically for that function were business reported into Partha.
Similarly, CDMO business is headed by the gentleman by the name of Mr. Ravi Venkataramanan. He's got 30-odd years of experience, pharma experience. He has worked both on the pharma side as well as on the CDMO side. Before joining Navin Fluorine, he was the CEO of the CDMO arm of Dr. Reddy's. He was working for a company called Aurigene. And prior to that, he worked for many years with Dr. Reddy's both in India as well as outside of India.
And the third vertical, which is a specialty business vertical is headed by Mr. Amrit Singh, who has been with the company now for 2.5 years. He joined in a different role and then was moved into the specialty and then was elevated to become the CEO of our specialty business. He has worked in the agrochemical business for quite a few years. And prior to that, he started here with Nocil, and then worked in Europe with Unilever for a few years before moving to the agri -- agrochemical business as well.
As far as the CapEx plan is concerned, you are aware of the CapEx plans, which are currently in the pipe. And one of the reasons why we have actually now divided the entire thing into 3 business verticals is that each of the CEOs now will be responsible for developing the overall business plan for the growth and [ have been ] working on the CapExes for their individual business. We are currently seeing pretty strong set of opportunities in each of these business verticals. They're all working that is Amrit, Partha, and Ravi are working on the specific set of opportunities.
For example, I talked to you about cGMP4 in see -- similarly, in specialty, there are quite a few molecules that we are working on. Also, we are working on some opportunities with respect to new MPP. Similarly on HPP, other than this R32, which has already been announced, there are few other opportunities that we are working on both in NFIL, as well as under NFASL.
Apart from these 3 verticals, we are also seeing opportunities on -- in new emerging segments, which I have also indicated earlier. So those are separate set of opportunities that we are actually working on. And as we are ready to convert those into CapEx plan and business plan, we'll take it to the Board and make the requisite announcements. But currently each of these business verticals and some other opportunities outside of these 3 business verticals, we are seeing strong set of opportunities.
The next question is from the line of Ankur Periwal from Axis Capital.
First question on the gross margin expansion that we saw in this quarter. If you can highlight few reasons for that given that you did mention that on the HFO side, the capacity for the plant was under utilized, as well as the higher spot prices for the RM that we bought?
Yes. So if you actually look at NFASL, the NFASL performance was actually impacted both at the gross margin level, as well as the operating margin level for the reasons that I explained earlier. But on NFASL, our performance on the gross margin was extremely strong, which is combination of product mix within the existing BUs, the price increases that we took specifically in some of the products in HPP, as well as in the -- on the specialty side. Of course, at the operating margin level, we're still at around 25% that is primarily because some of our fixed costs like employee cost, et cetera, it can be increased, which is primarily the investment that we are actually making in some of this growth related opportunities that we're seeing across the business.
Sure. So would it be fair to say that once we achieve ramp up in the HFO part, which is, let's say, maybe Q3 or Q4 onwards, there could be further sort of tailwind to the margin expansion overall?
So we believe -- and which will basically get reflected in your NFASL numbers, you're absolutely right. From now onwards, we should actually -- we should actually see significant improvement on the gross margin side.
Second question on the CDMO side. You did allude it towards the invoicing -- the revenue invoicing starting Q3. Just wanted to understand, any commentary from the global clients, especially the European one from a demand outlook perspective?
Yes. So the overall demand continues to remain very strong. And what had happened earlier was that almost for a period of 2 years, lot of large pharma innovators, who are either a) focusing on the lot of COVID related opportunities or who are not able to move as fast as they wanted on the trials -- clinical trials, et cetera, because of the lockdowns et cetera. And also lot of these newer pharma innovators were actually not able to come to our plant to audit the plant.
So on each of those 3 now we are actually seeing a lot of activities. We actually had 2 large pharma innovators, who we have been talking to for quite some time, but they were just not able -- we were not -- just not able to start the business with them because they are not able to travel to our client to actually conduct audits. Both those audits actually got completed successfully, and we have already started seeing some queries coming in from these pharma innovators. So we've -- on each of those 3 accounts, we are actually seeing positive movement.
Sir, if I may ask, on the specialty side, pretty strong growth there. So the earlier slowdown that we were witnessing in one of the quarters, one of the segments, has that been reversed and we are looking at a pretty broad based growth there?
No. So on the specialty side, we have over the last few quarters seen very good growth and that growth will continue to remain. I think what you're probably referring to is the slowdown in the sales, specifically to the pharma segment, primarily because of the sales into ARV segment, which was historically an important segment for us.
But what we have now managed to do as we saw consistent slowdown in that particular uptake, we've actually successfully managed to retrofit our assets for other applications and products. So we've kind of divorced our overall business performance with the ARV performance. So despite that we've actually shown good growth.
The next question is from the line of Naushad Chaudhary from Aditya Birla AMC.
Thanks for the opportunity. Just one clarification in our HFO business, sir. Can you explain your raw material pricing and procurement policy in HFO business and same for your finished product also? And also is there any obligation towards the suppliers of the raw material as well as the client has any obligation in terms of lifting the volume?
So as was indicated earlier, when we announced this particular signing of the multiyear material supply agreement, we have a clear understanding with the customer for a certain volume uptake over a period -- over the life of that [indiscernible], this which also talks about the certain minimum uptake on an annualized basis. Currently, from the demand side, we actually believe that their actual uptake will be significantly more than that minimum uptake that they have guaranteed through the agreement.
And what we have done is that in line with the material supply agreement that we have with our customers, we have actually signed similar agreement for the -- of critical raw materials with our supplier. One of the most important raw material for this is HF, which has basically manufactured by us. For other raw materials, there is a back-to-back supply agreement, which basically reflects a lot of terms and conditions, which we have with our customers.
In terms of price revision for the raw material, which we are outsourcing versus the finished product also, how often we can change the price? Is there any fixed price or fixed formula, which is helping us in terms of mitigating the volatility there in the raw materials?
Yes. So see, if you look at HF, so, see this is an agreement that we did. We finalized the terms and conditions with our customer in 2019. As [ we know ], the world was very different in 2019 than what it is today. The basis of the agreement was to pass through. And we had actually discussed that once a year, that is in the month of September, we will actually finalize the formula for the following year because for HF, it's an annualized outlook that we get because our raw material for HF is also locked in an annual contract.
Similarly for the other raw material, what we had seen earlier was that the price remains more or less stable across the years, not just in that particular year, but across the year. But of course, the world has now changed significantly. So now what we are actually discussing with the customer is the possibility of doing a quarterly revision or a 6-monthly revision. But the relationship that we have with the customer actually enables us to be very flexible on this particular point. And in the past -- so the agreement basically talked about a fixed price for year 1, which is basically year 2022. Because of the significant increase in the raw material price, et cetera, we went back to the customer and talked about this [ increase in this ] and the customer has been very, very supportive in the spirit of partnership.
So what we have seen is that the customer is pretty flexible, and we will finalize the mechanism closer to finalizing volume and the pricing for the next year, which we believe should happen in the month of November. It was supposed to happen in the month of September, but we have requested the customer that let us move the discussion to the month of November because that is when we will have better clarity on the -- all the raw material for the calendar year 2023.
So for now till next November, our raw material procurement prices are open, but finished product prices are fixed [indiscernible] till November next year, right?
No. Currently, our pricing is fixed till December of this year. For January onwards, we will actually relook at it in the month of November because we will get a better idea on the pricing for next year. But again within the next year -- within the calendar year, this agreement is on a calendar year basis. So again, within the calendar year, if there is a significant movement in the raw material pricing down, there will be an adjustment in the pricing, product pricing. Our emphasis will be to ensure that there is a certain margin expectation that we have and [ be insistent ] with that, which is the commitment we have made to the Board that irrespective of the movement of the raw material, we should be able to make over the life of that project a certain margin.
Just one on this on the -- from the time we have signed this contract till now, in terms of the pricing of the final product, how much increase we would have taken or has it remained same from the signing of contract till today or have you taken any revision in the price?
As I mentioned to you, the pricing discussion for January onwards will actually happen in the month of November. Okay. Currently, what we have done is basically this period of supply till December, as you know that, that particular quantity is relatively very low. So it's not really a significant impact. But I think the major discussion will be for the supply from January to -- of 2023. And we believe that the pricing will see an upward revision of probably at about 15% to 20%. But I think we will be able to actually -- and the 15% to 20% is what I'm giving you with respect to what we have done for this period. But in November, we will look at what the raw material pricing is looking like for the next year, and accordingly have the discussions with our customers.
[Operator Instructions] The next question is from the line of Ranjit from IIFL Securities.
Again coming back on this -- the new HPP...
Sorry to interrupt Mr. Ranjit. Sir, we are not able to hear you clearly.
Yes. Is this better?
Much better. Thank you.
Yes. On R32, I had one question. You have said that you would also be looking at a debottlenecking plant in the next year. So just wanted to get a sense on -- because earlier when we had talked about entering into this segment, you have said that HF the key raw material, that would be a constraint and we would have to set up a capacity in order to cater to the new refrigerant, HFC. This [ INR 50-odd ] crore...
Mr. Ranjit, we are not able to hear your question.
I will come back later.
[Technical Difficulty]
Sir, can you use the handset mode while speaking, and not the speaker phone. Your audio is not sounding clear. Ladies and gentlemen, the line for the current participant has dropped off. We'll move onto the next question, that is from the line of Archit Joshi from B&K Securities.
Sir, on the specialty chemicals bit, I had 2 questions. The first one is clarification. You have mentioned in the presentation that there will be 2 plants that we will be commissioning in the next quarter, the ensuing quarter. So are these 2 plants in the spec chem side or are these the ones that the -- one of them being the MPP and [ INR 225 ] crore CapEx plant or the project that we had announced last year. Are these 2 plants or am I missing something?
Yes. You are absolutely right. Those are the 2 plants.
Sure, sir. Sir, something more on spec chem. You have obviously delivered a very strong growth in spec chem in the last 2 years. We are growing in healthy double-digits. And we have in the past communicated that we keep on doing some bit of debottlenecking to get an incremental headroom with respect to volume growth. Sir, where are we with respect to our capacity utilization? And how much headroom do we have for growth in maybe the next couple of years in the spec chem bit?
So I think spec chem growth will happen in 2 manners. One is lot of these new projects that will come up in Dahej, for that we have already made 3 announcements, 2 of which will get -- 2 of these plants will get commissioned in this quarter and 1 will get towards end of next year, calendar year, so that will actually give boost to a significant growth in that business.
In Surat, which is under NFIL, we continue to do debottlenecking to get additional capacity, as well as we continue to look at the product mix, so that we actually move up the value curve. So that's an ongoing exercise. So I mean, if you look at what we have done in this business, you know, 4 years, 5 years back the commentary was that we don't have much capacity headroom in Surat facility. But despite that we've actually significantly grown the business and which primarily happened through the debottlenecking in Surat, and that is a thing that we continue to do right now.
Currently, for -- in our MPP, we are at about -- because most of the plants in Surat are MPP in nature. We have a capacity utilization of approximately about between 70% to 75%. But as I've said, we continue to do debottlenecking. And there is one dedicated plant, which we have for a product for industrial segment. There again the capacity utilization is about 70%.
Just one bit on the financials. So we have seen a reasonable increase in our consolidated long-term and short-term debt. We've added almost [ INR 280 crore, INR 290-odd ] crores of debt. I just want to understand when all the CapExes are into place, and we see gross block addition, how will the capital structure look like? That's it from my side.
Yes. So obviously, it will be high. And therefore -- but if you really look at it, the consolidated numbers, the debt equity, while the full CapEx is done in the current tranche, the debt equity should be of the order of [ 0.5 ], [ 0.6 ], not beyond that. Yes. The next question is from the line of Ranjit from IIFL Securities.
Yes. Hi, sir. Hope the line is better now?
Yes, it is.
Yes. So I was -- just had a query on the R32 capacity that we have announced last quarter, and you have also said that we would also consider debottlenecking of that particular capacity. We were always under the impression that Surat is running a bit tight and to that extent availability of HF would be a issue at the Surat plant? Now, we have gone into this HFC. So just wanted to get a clarity whether we also be debottlenecking the HF capacity at Surat?
So if you remember a few quarters back, we had actually made an announcement of a small debottlenecking project for HF. We are working on that and that should basically give us about 15% to 20% additional capacity in HF from Surat plant by next -- from next quarter onwards. Also, we are currently working on a completely separate for a large HF plant to be set up in Dahej. We believe that in this financial year, we should be able to take it to the Board and get an approval for that which will give us a significantly large capacity of new capacity of HF.
So that should again pave way for...
Yes, which will basically support not only [indiscernible] project, but all the other projects that we currently have in the pipeline, which we haven't yet taken to the Board or announced that because lot of projects that we currently have in the pipeline, all require HF because of which we have actually decided to look at a fresh [ 32,000 ] metric ton new capacity in Dahej. And before end of next -- current financial year, we should be -- we are planning to take it to the Board.
And second bit on the other raw materials for this, so we understand MDC is also one of the key raw material. How do you see the supply and the prices panning out in the near future and also probably over the next 2 years to 3 years?
Sorry. Are you specifically talking about HFO?
MDC.
Oh, you're talking about MDC for R32. Yes. So currently -- I mean, as you know, MDC has actually started going soft now because there are a lot of new chloromethane plants are coming up, will continue to come up. While that is the case, we are also looking at separately because, as I said to you, we have had some other ref gas opportunities, including additional capacity of R32 et cetera. So separately, we are also looking at a chloromethane investment.
But overall, for what we have done is the way we have actually run the scenarios for our R32, we've actually looked at -- keeping an assumption that the current high price for MDC will continue for the next, at least period of 2 years to 3 years.
And the last question...
[Technical Difficulty] it will -- later it will further benefit our project economics.
Yes. And the last one would be -- the R32 would be largely for domestic or we are also looking at exports?
Ranjit, I'm Partha Roychowdhury. It will have a similar behavior as all the other refrigerant gases. So we are not really focused on any one particular market.
The next question is from the line of Isha Agarwal from VT Capital.
Sir my question...
Sorry to interrupt, Ms. Agarwal, your audio is breaking up.
Yes. Can you hear me now?
Yes.
Yes. Sir, my question was regarding CRAMS. So basically, I wanted to understand, in CRAMS, what are we more focused on Phase 1, Phase 2, or Phase 3 or the commercialized molecule? If you can help me with the percentage mix, it would be really helpful, sir?
If you look at the CDMO business, the way it operates is most of the client engagement typically start at preclinical stage, then they continue as the molecule progresses to the possibility of our directly getting a commercial molecule, all our late-stage molecule, relatively slim. But as that typically starts at a preclinical or Phase 1 level, and then the relationship continues. So for example, the $16 million PO that I talked to you about, that relationship started a few years back when it was Phase 1, and as the molecules grows, our business with the customers grow.
So is it possible you can help me that presently the mix of [ all ] the molecules that are into, so at what levels are these molecules are into like, if you can have some percentage?
No. So we don't give out the exact percentages et cetera because that's just too much of information. But typically our focus -- and again quarter-on-quarter or year-over-year, it could be different. But our focus is to ensure that we have a balance between the early stage and the late stage. So we typically tend to keep that portfolio at about [ 50-50 ], so 50% Phase 1, Phase 2, 50%, let's say, Phase 3 and commercial. That would be ideal for us and that is constant focus to ensure that, that remains that way.
Sir, my next question...
Sorry to interrupt Ms. Agarwal, may we request that you return to the question queue. There are participants waiting for their turn. [Operator Instructions] The next question is from the line of Sanjesh Jain from ICICI Securities.
I got 2. Apologies, more than one. One on the ramp-up of CRAMS, now we guided that it will be [ 12 million ] next quarter, and probably we were guiding [ 10 million ], I think, debottlenecking is helping us to increase. So is it fair to assume that next year we will do [ 12 million ] into 4, [ 48 million ] and another [ 16 million ] that the contract we have got? So will it be fair to assume that next year CRAMS can achieve [ that 65 million ] kind of a run rate?
No, it will be difficult for us to give a specific guidance on this. We typically don't do that in any of our business. But I think it's fair to assume that the overall trajectory will continue to be up.
Second, on the HFC side, we talked about the INR 200 crores revenue from the R32. Can you help us understand this is based on the current realization, I think, so that's how...
Sorry. I'm Partha Roychowdhury. This is based on our view on the realization.
Sorry, I missed you, sir.
I am saying that this is based on our view on the realization, and you must also be mindful of the fact that we are saying, will come in '20 calendar year and '24 calendar year. Yes.
So the view is it will be a better than the CMP or will it be lower. I know it's too much of information, but just to get an idea, sir.
Yes, but we can't discuss the view on this forum. No.
Just one last question on the annual report.
Sorry to interrupt Mr. Jain. Sir, may we request that you to return to the question queue. The next question is from the line of Rohan Gupta from Edelweiss.
Just one question. Some clarifications and investment opportunity, which you see in ref gases. It sounds that you are pretty optimistic about the future of the ref gases and the way in R32 you are investing. What kind of investment you see that this business can require for next 2 years from your side?
See, there are more than one aspect to this. If I have to -- if we have to invest in purely the product investments are going to be of a certain dimension. And some minutes back, our Managing Director had mentioned that we are looking at an investment of hydrofluoric acid. There is a possibility at some point down the road, we cannot do investments -- upstream investments for certain other key starting materials. So the dimension of the overall investment will undergo some change here. And I think we shall come back to the community, the investing community in a modular manner. I think that should be our view at this point in time.
Yes. I think just to add to that, I think across the businesses, one of the things that we are always conscious about is that in any of the areas that we actually commit large CapEx, we don't want to be a second fiddler. We need to be very sure that we are actually doing -- we are bringing something at either a differentiated point of view or a platform or a partnership et cetera to the table. So as you know, in HFC and some of these other things, some of the other companies have clear head start.
So what we don't want to do is just blindly follow someone and just become a me-too player, where we will actually be a #2 or a #3 player. So yes, we will probably make smaller investments and continue to reap the benefit there. But we probably [ will let ] a large CapEx or a large portion of our overall CapEx, this one to an opportunity, where we believe we don't have a clear -- clearly differentiated play and hence a very clear sustainable, profitable, business proposition.
But, sir. Just to clarify that, we read that...
Sorry to interrupt Mr. Gupta.
Madam, it's just an extension of the previous question.
Just a second. Yes. Please go ahead. Please go ahead. Just let him complete the point.
Yes. So sir, I was saying that in ref gases, we already have a clear leader being there. Definitely, we may see some opportunities growing in domestic market consumption and also in export opportunities, whether we want to be a leading player in that where the leader is already very strong in the domestic market, I don't know how the future will pan out. But the ref gas investment is basically for the 2 purposes, one for our own capital purpose; and one for the outright sale in the open market. So I was looking from the second perspective that how much investment do you see that the company is in position to make for the outright sales in the domestic market or in export market for ref gases [Technical Difficulty].
You are talking about future investments right?
Right. Absolutely right, sir.
Yes. So future -- I mean, it's going to be a very, very difficult to actually because we don't have -- on the capital allocation, we don't have a set framework that this amount of capital will be allocated to one business or within that one business to one particular area. We will look at -- we have to look at it on a holistic basis and then look at how much we want to actually allocate to each of those BUs and within HPP, how much do you want to do it for ref gas et cetera. So it's very difficult for me to actually give you a number, et cetera, because we don't have -- either, we don't have a mandate from the Board that X amount of capital has to be allocated to a specific opportunity, nor does the operating team actually approaches that with a certain number in mind. [ Just ] difficult for me to comment on that question.
The next question is from the line of [ Rajesh Joshi from Marcellus Investment Managers Private Limited ].
Hello?
Mr. Rajesh Joshi?
Hello, am I audible?
Sir, your audio is sounding very soft.
Yes. Sir, is this better?
Yes. So much better. Please proceed.
Yes. Just a small bookkeeping question, on your Annual Report for FY '22, there has been an increase in the balances with government authorities. So could you please shed some light on the same line item, please?
You are talking about the consolidated numbers, right?
Yes. That's correct, sir.
So this is an accumulation of the way the deposits that we have to make with the government authorities for the new facility like deposits to the Gujarat Electricity Board these, that and the other. And it all is an accumulation of some GST, which we have spent on the CapExes. It is part of the working [ capital ]. So it will get utilized, as we ramp up the capacities. Yes.
The next question is from the line of Sabyasachi Mukerji from Centrum PMS.
I have just one question on your CRAMS business. If I look at the long-term trajectory, so we have been doing this INR 280 crores, INR 290 crores, INR 300 crores on the similar ballpark range of numbers since FY '21 annual revenue, I'm talking about, FY '21, FY '22 and probably FY '23 also looks like will close in similar lines. If I go back earlier, FY '18, '19 and '20, we had a range of around INR 180 crores to INR 200 crores. So I mean, is this the nature of the business that probably every 3 years we see -- and you talk about good CY '23. So is this the nature of the business that every 3 years, we kind of get a good jump, and then it kind of saturates? What is the nature of the business? And what kind of growth opportunity probably you see in the next 2 years, 3 years?
Yes. So I think some of that is actually a nature of the business, but more importantly, it's also a nature of where we are as an organization in that business because we have 3 cGMP plants. We don't have a large cGMP plant like what's in specialty et cetera, which is why we are working on cGMP4. But to be very frank with you, our continued focus is to ensure that either through our base business or there are some other options that we are currently working on to ensure that it doesn't remain the way you have described where for almost period of 2 years to 3 years, it remains flat, and then suddenly we see a big jump, and then, again it gets like flat et cetera. Directionally, our focus is to ensure that by FY, let's say [ '21] -- and this is something that I have indicated before also, that by FY '25 or [Technical Difficulty] the year after, we should be able to touch $100 million revenue in CDMO. That's what we are currently looking at.
And we work with only pharma innovators?
So CDMO business is primarily pharma, not primarily only pharma innovators. No other segment and no pharma -- we don't do any business with Indian pharma companies in that business.
Ladies and gentlemen, we will be taking the last question, that is from the line of Amar Maurya from AlfAccurate Advisors Private Limited.
Radhesh, sir, a couple of questions. Number one, you said that this $16 million CDMO revenue -- I mean order, which we got, we are likely to supply in next 2 quarters, right?
No. The current indication that the customer has given us is over 2 quarters of '23 -- so calendar year '23. So they've talked about Q2 and Q3 of calendar year '23. So we are currently in discussion with them to see how to really spread it over, let's say, Q1, Q2, Q3, et cetera of calendar year '23, not financial year, calendar year '23.
And secondly when you're saying that 2 specialty projects likely to commission, so I'm assuming that one project, which was like INR 195 crore likely to commission in Q3, that is commissioning; and second that project of INR 125 crores CapEx that is also commissioning in Q3, right?
Yes. So that INR 125 crore, which is our dedicated facility for a single molecule will get commissioned in this Q3. And the other -- this one, which is a MPP, which is for multiple molecules, so there we've actually got different line. So we basically got 2 lines, one line for certain set of molecules; other line for separate set of molecules. So that we are actually doing it in a phased manner. The first one is already commissioned. We have just started the production -- the trial production et cetera. But that will happen in a phased manner.
So when you say 2 basically that Phase 1 of the INR 195 crore and INR 125 crore the single plant, correct?
That's correct. Yes.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Radhesh Welling for his closing comments.
Yes. So I would like to thank everyone for joining the call. I know that some of the participants actually had multiple questions that we were not able to get to because of the limitation that we had today, and probably lot more had questions. So what I would actually request our Investor Relations partner, Orient Capital is to coordinate with all of you and [indiscernible] follow-up call immediately after Diwali, so that we can get to all the questions that you have or you might have. So I just want to ensure that you all get opportunity to ask as many questions as possible. So please if any query that you have or confirmation of the date et cetera, you may please reach out to Orient Capital, schedule that post-Diwali.
So thank you very much for your time today and wish you all and your families, very Happy Deepavali. Thank you very much.
Thank you. Ladies and gentlemen, on behalf of Navin Fluorine International Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.