Navin Fluorine International Ltd | Q4FY21 Earnings Conference call Highlights

Covid Overview

• Plant operations in Surat & Dewas & project activities are running smoothly despite covid related disruptions.
• Continuous contact with customers, vendors, suppliers to ensure that operations are running smoothly.
• Planning Onsite vaccination drives at all sites for employees & their family members.

Key Business Highlights for Q4FY21 & FY21

• Work on HPP & NPP projects in Dahej is continuing in full swing. HPP project might be delayed by a quarter due to 2^nd wave of Covid-19.
• Divested 49% stake in JV2 of Rs. 65.1 crores & gave up the rights on legal land at Dahej for Rs. 7.9 crores. – Gain of Rs. 31.39 crores
• Gave up the leasehold rights of the land at Dahej to the subsidiary ‘Navin Fluorine Advanced Science Ltd’ & gained Rs. 34.8 Crores.
• Consolidated basis – net cash position – Rs. 600 crores
• Prudent use of capital – improved operating return on capital to almost 31%
• Net operating cash flow from operating activities – Rs. 296 crores improved by Rs. 140 crores as compared to last year – strong improvement in operations

Financial performance highlights

• Delivered strong Q4FY21 results in which operating revenue was up by 22% to Rs. 324 crores as against Rs. 265 crores in Q4FY20.
• EBITDA was up by 25% to Rs. 84 crores (26% margin) for Q4FY21 as against 67 crores in Q4FY20.
• Operating PBT for Q4FY21 was up by 29% to 73 crores (23% margin) as against Rs. 57 crores in Q4FY20.
• This performance was primarily driven by a growth in Specialty & CRAMS segment.
• For FY21 standalone basis, operating revenue was at Rs. 1133 crores recording growth of 11% on YoY basis.
• Standalone Operating EBITDA of Rs. 311 crores for FY21 as against Rs. 261 crores in FY20 with growth of 19% YoY basis.
• Operating PBT of Rs. 269 crores with growth of 19% on YoY basis for FY21.
• All this performance was recorded in spite of all the covid restrictions in 1^st quarter of FY21.
• For FY21 standalone, Net revenue from operations of Rs. 1133 crores as against Rs. 1022 crores in FY20, growth of about 11%.
• Operating EBITDA (standalone basis) stood at Rs. 311 crores (27.4% margin) for FY21 as against Rs. 261 crores in FY20 with growth of 19% YoY basis.
• Increase in operating EBITDA is due to better performance in high value businesses & revival of legacy businesses towards 2^nd half of the year.
• Operating PBT (standalone basis) was up by 19% and stood at Rs. 269 (24% margin) crores for FY21 as against Rs. 225 crores in FY20.
• PAT (standalone basis) stood at Rs. 299 crores (26% margin) in FY21 as against Rs. 400 crores in FY20.
• Robust performance of the company further strengthened the balance sheet & cashflows.

Segment-wise highlights

• For Q4FY21, high value business grew by 31% & legacy business grew by 10%
• Specialty business registered growth of 26% whereas CRAMS business registered a growth of 40% for Q4FY21.
• Overall growth has been driven by high value businesses since good performance growth of 32% in high value businesses to Rs. 732 crores for FY21 YoY basis
• High Value business now contributes 65% of total revenue for FY21.
• Specialty business for FY21 stood at Rs. 453 crores witnessed a growth of 19% YoY.
• Business has shown strong growth driven by mix of new customers, new product & market share gain.
• Focus in on introducing new products by leveraging R&D capabilities & deep fluorination expertise & building new capacities for existing as well as new products.
• For FY21, CRAMS business has displayed strong sales with growth of 62% to Rs. 279 crores YoY. This strong performance is driven by new customer acquisition & repeat business from existing customers.
• Company is looking forward to good project flows for this business from new & existing innovators.
• Cost improvement measures are taken for repeat business in FY22 leading to better operating efficiencies.
• Legacy business of Refrigerant gas & inorganic fluorides has shown positive momentum due to new customer signups & demand recovery from the end user industry.
• For FY21, legacy business revenue was down by 14% YoY to 401 cores & for Q4 revenue grew by 10% to Rs. 117 crores YoY due to demand normalizing
• Inorganic Fluorides business was down by 7% on YoY basis for FY21 to Rs. 193 crores but for Q4 it recorded good YoY growth of 16% to Rs. 59 crores.
• Segment’s performance improved QoQ supported by capacity enhancement & recovery of end user industries like          stainless steel & glass.
• In this particular segment, growth will be driven by new customer additions in exports.
• Refrigerant business was down by 20% in FY21 on YoY basis to Rs. 208 crores & for Q4 it showed marginal growth of 4% to Rs. 58 crores.
• Trade & service sectors along with exports have registered strong demand in the quarter. Demand was also enhanced by addition of new customers in international market.
• On standalone basis, High value business registered a growth of 32% while legacy was lowered by 14% due to reduced demand in the 1^st half of the year.
• In legacy business, performance of inorganic fluorides improved substantially during 2^nd half of the year as business registered a marginal revenue de-growth of 7% to Rs. Rs. 193 crores. 
• Refrigerant business took more time to recover as its revenue showed a de-growth of 20% to Rs. 208 crores for FY21.
• Specialty business grew by 19% to Rs. 453 crores in FY 21 & CRAMS grew by 62% to Rs. 279 crores in FY21.

Gross margin movement issues

Decrease was driven by 2 reasons:

1. Refrigerant gas – One of the customers of r22 had shut down for one month due to covid restrictions, hence demand in this segment fell which had high margin
2. Specialty Chemicals – because of product mix – one big product in industrial segment which the company exports – but demand fell due to supply chain issues in US – container was stuck in Suez Canal issue & on Agro side – increase in demand for product with lower margin.
3. Impact of raw material on industrial side – Specialty chemeicals – some solvent had up ticked but due to contracted price – increased cost could not be passed on – overall impact minimum on gross margin.

• These 3-4 issues responsible for dip in gross margin. Overall margin issue is a temporary issue & normalization is hoped to be seen with time.

About various segments:

CRAMS

• Consistent growth in % terms can’t be witnessed – but business trajectory is on positive side reason of which is acquiring new customers & delivering good business to existing ones.
• CRAMS have cGMP compliance for capacity building with expect decent utilization for over next 2 years.
• CRAMS business has got new clients with 25 around new projects.
• For specialty business & CRAMS business, there is no significant impact of raw material cost inflation on the company’s product, there is clear pass through of prices.
• Company is currently working on Total re-branding of CRAMS business & will be launched in FY21-22

Specialty Chemicals

• Great growth in specialty chemicals is expected in next year through de-bottlenecking projects.
• Not any large brownfield projects planned but de-bottlenecking projects are helping in cost savings & to increase capacities.

Refrigerant Business

• Refrigerant business was very high margin business in domestic market but due to shutdown restrictions, it saw a dip but is compensated by identification & development of newer opportunities in CRAMS & specialty chemicals.
• The reason for slight decline in revenues for Refrigerant business was that trade market was shut in Q1FY21. Hence no sale of R22 in trade market.

Inorganic Fluorides

• No Significant change in trajectory in next 4 quarters & incremental growth seen for this segment due to changes in end user industry.
• No significant investment planned for inorganic segment.
• The reason for slight decline in revenues for Inorganic Fluorides was that sale of Inorganic products in end user industries was very low in Q1FY21 & customers plants were closed.

Current Projects

• De-bottlenecking projects are continuously done by the company – 4 projects are currently going on in Surat. This is done to map new products or increase the volume of existing products.
• Company is planning to setup an innovation center abroad which will focus on developing new products as well as on developing new applications since number of new opportunities are available – company is of the view that some opportunities can be grabbed through partnerships.
• Capacity expansion project for HPP - Completely new greenfield investment in Dahej – plant will start functioning toward the end of FY22 or beginning of FY23 – Phase 1 is complete.

Company outlook

• Number of new products in pipeline- CRAMS & specialty chemicals.
• Good opportunities on HPP – company is currently working on them.
• Run-rate across various segments is slightly higher than the Previous year.
• Quality of projects have significantly improved – 1^st company in the eastern hemisphere that customers are working with on new molecules.
• Growth of the company was driven by both agro-chemicals as well as by pharmaceuticals. (strong momentum on both agro side & pharma side)
• Good opportunities are available currently for the company across different segments– operating team is working on them which will be taken up to the board later.
• Due to HPP Contract- Reinforcement of Trust, there is Technology arbitrage - Positive Momentum is expected in CRAMS, Specialty & HPP – customers are comfortable in approaching the company with more projects – complex as well as value-added projects.
• Even after the recent departures of CEO & CFO, company’s performance is not hit & is heading in right direct.
• Mostly investment will now happen in Dahej in next 5 to 6 years- greenfield project has to be set up.

Concluding remark by the company:

• Company is of the view that business will benefit a lot in coming years with a strong growth momentum. Addition of new customers & products will help to mitigate the risk & company’s expertise in fluorine chemicals will scale up the business sustainably in a profitable manner in next few years.