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Ladies and gentlemen, good day, and welcome to the Q4 and FY '22 Earnings Conference Call of Navin Fluorine International Limited. Today on this call, we have Mr. Radhesh Welling, Managing Director of Navin Fluorine International Limited, along with the senior management team. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. Actual results may differ materially. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Radhesh Welling, Managing Director of Navin Fluorine International Limited. Thank you. And over to you, sir.
Thank you. Good morning, everyone, and a warm welcome to all the participants. I'm joined by Mr. BK Bansal, the Chief Financial Officer of Navin Fluorine; and our Investor Relations partner, Orient Capital. I hope all of you have got an opportunity to go through our financial results and investor presentation, which has been uploaded on the stock exchange as well as company's website. Before I move on to discuss the quarterly performance, let me take you through the key developments in the company. Navin Fluorine Advanced Sciences Limited, our wholly-owned subsidiary, has announced a CapEx of INR 540 crore to manufacture and supply aluminum fluoro specialty molecule with a peak revenue potential of approximately INR 600 crore. The base load for the plant is secured through a multiyear supply agreement with a multinational company. The facility will be located at Dahej in the state of Gujarat and will be funded through a mix of internal accruals and debt. The plant will be ready by December 2023, and supplies are expected to commence immediately thereafter. This project has very important strategic value for the company. We will be selling part of the volume manufactured in this plant directly to our technology partner. Rest of the volume will be sold to other customers as well as used captively to make various downstream derivatives. This molecule is a critical chlorine building block for which consumption has been growing and will continue to grow in the coming years. This project positions us well to now develop a number of these new downstream products and build a new set of exciting new opportunities. I'm also pleased to inform you all, the Board of Directors last Saturday have declared a final dividend of INR 6 per share. We have paid an interim dividend of INR 5 in this year as well. The total dividend paid in the last year is INR 11 on sales value of INR 2 per share. Let me now take you through the operating performance for Q4 and FY '22, and then Mr. Bansal will update you on the financial performance. In the financial year 2022 on a stand-alone basis, our operating revenue stood at INR 1,404 crores, a growth of 24% on a year-on-year basis. Operating EBITDA stood at INR 355 crores, a growth of 14% on a year-on-year basis and operating profit before tax stood at INR 310 crores with a growth of 15% on a year-on-year basis. All our business units showed good traction in business in last year and we have achieved record revenues in high-value business with a pipeline of strong set of new growth opportunities. Moving on to discuss operating performances of each business unit. Our specialty business achieved record quarterly and annual revenue and reported sustainable revenue growth of 22% on a Y-o-Y basis to INR 159 crores for Q4 FY '22. For FY '22, we reported a growth of 25% on a Y-o-Y basis with a revenue of INR 566 crore in this segment. The growth of this unit is primarily driven by growth in some of the new products that were launched in the past few years and due to price hike, which was initiated to offset high unit cost, input costs. As I mentioned earlier, we saw a significant reduction in sales in this year of a product going into ARV segment. We managed to address this by immediately developing another opportunity in a fairly short period of time. This new product was unfortunately at a slightly lower gross margin than the one supplied into the ARV segment and this saw some impact on the gross margin. Our CRAMS business achieved record annual sales in FY '22. For Q4 FY '22, we reported a growth of 16% to INR 88 crore as compared to same quarter last year. And for FY '22, the business has grown by 6% to INR 297 crores. Our focus for this business continues to be on project pipeline expansion and acquisition of new customers. Our Ref Gas business grew by 38% in Q4 to INR 80 crores compared to the same period last year. For the full year FY '22, it showed a growth of 28% to INR 266 crores. The growth in profitability was driven by volume and price increase despite higher input costs. Our sales for non-emissive application continues to look robust. We witnessed a strong volume growth for domestic market, whereas export pace were impacted due to higher logistics cost. Our inorganic fluoride business achieved record annual sales driven by increase in pricing. In Q4 FY '22, we reported a growth of 19% to INR 71 crore compared to the same period last year. And for FY '22, it recorded growth of 42% to INR 274 crore. We have tried to drive margins by optimizing sales mix between domestic and international markets and have been successful in passing through cost increases in critical raw materials. All our projects such as HPP, MPP and the one related to the multiyear agreement that was done with agrochemical intermediate -- for the agrochemical intermediate are progressing well and are on schedule. All the pre-commissioning activities related to our HPP plant have been successfully completed. We have managed to secure all the key raw mails that will be required for plant startup and we expect manufacturing for our HPP to start later this month. Our Board has also approved debottlenecking of CGMP3 plant on the back of robust opportunity pipeline, and this CapEx is also moving on as per schedule. I'll now hand over the line to Mr. Bansal to give you a brief on the financial performance of the company. Thank you very much.
Thank you, Mr. Radhesh, and very Good morning to all the participants. I will share the highlights of our performance for the year-ended financial year '22 and for Q4 FY '22, post which we will be happy to take questions from all of you. For financial year '22, the company reported net revenue from operation of INR 1,404 crores as against INR 113 crore in FY '22 (sic) [ INR 1,113 crore in FY '21 ], delivering a growth of 24%. Operating EBITDA stood at INR 355 crore for FY '22 as against INR 311 crore in FY '21, showing a jump of 14%. Operating EBITDA margin stood at 25.3% as against 27.4% in the same period last year. Impact of operating EBITDA margin was due to higher employee cost, freight cost along with increase in other overheads, more particularly power costs. Operating PBT increased by 15% to INR 310 crore for FY '22 as against INR 269 crore in FY '22 (sic) [ FY '21 ]. Profit after tax stood at INR 266 crore for FY '22 and PAT margin was 19%. Now coming to BU's performance for the full year. Our High Value business growth -- registered a growth of 18% and legacy business showed a growth of 35%. In legacy business, performance of inorganic fluoride improved substantially during FY '22, as the business registered a revenue growth of 42% to INR 274 crore. Refrigerant Gas business showed a very good growth of 28% to INR 266 crore in FY '22. Specialty grew by 25% to INR 566 crore, crossing a milestone of INR 500 crores and CRAMS segment grew by 6% to INR 297 crores. Now, I will talk about Q4. In Q4, company reported a growth of 23% in net revenue from reductions of INR 390 crore as against INR 324 crore in same quarter last year. Operating EBITDA delivered a growth of 14% to INR 96 crore as against INR 84 crore in Q4 last year. Operating EBITDA margin stood at 24% in Q4 FY '22. Operating PBT grew by 15% to INR 84 crore for Q4 FY '22, as against INR 73 crore in Q4 FY '21. Profit after tax stood at INR 78.7 crore for Q4 and the profit margin stood at 19.8%. The profitability is not comparable to the last quarter as we had an exceptional gain reported in the Q4 of INR 66.3 crore on account of sales of shares held in Convergence Chemicals Private Limited, our joint venture company and another gain on account of giving up lease rights in land situated at Dahej to Navin Fluorine Advanced Sciences Limited. That's all from my side. Now, I open the floor for question and answer. Thank you.
[Operator Instructions] The first question is from the line of Karthi Keyan from Suyash Advisors.
A couple of questions. One is a series of contracts start operations shortly in a progressive way. Given the volatility that has been seen on the raw material front in terms of cost and availability, can you guide us on how you have tried to protect yourself from a contractual perspective? I also understand that there is an effective arithmetic challenge, which is the numerator versus denominator challenge, so that also skews your calculation with this. But having said that, can you give us some perspective on how -- to what extent we will be able to protect ourselves against volatility in input costs?
Yes. So, you want to ask all your questions and then I respond to all of them, or do you want me to respond to each of them?
The second one is the new project that you announced. So, the INR 600 crore revenues that you have highlighted, that would be only specific to the customer -- the partner who is providing you with the technology, right? I hope my understanding was correct of over there. And so can you split up the CapEx into what is for capacity and what is for maybe third-party sales or whatever way you can highlight that split?
Okay. So, let me take both these questions separately. So first, you talked about the impact on the volatility in the RM cost on the project financials, right?
Yes. On various projects that are being commissioned on processing basis now, [ is this starting this month or so ]?
Yes. So, if you actually look at the 4 projects that we have announced, including the one which was just recently announced, except 1 project, which is the MPP project, all the other are primarily on a cost pass-through basis. Now, the only problem there is that in some of these cases, the pass-through typically doesn't happen on a daily basis or a weekly basis or a monthly basis. So, the major -- the plan earlier was that we will actually calculate the estimated cost for the year and then assert in the price for the year because a lot of times, our customer also does a back to back for their downstream molecule on the basis of the price that we give. Now, we are actually in discussion with the customer to actually shorten that period from 1 year to maybe 6 months, quarter, et cetera. Not only we will be able to take into account the cost at that point in time, but also whatever the impact was there in the prior period where the actual minus estimate was higher, we will actually also load up that on to the future cost. So, on a net-net basis, it will be on a pass-through, it will be using the same kind of a pass-through mechanism, but you could see some impact in a quarter or so because the period could be different in different agreements.
So it may happen in the subsequent period?
In the subsequent period that adjustment will happen. So, the adjustment of the cost at that point in time, plus also the impact seen in the prior period will also be added on to the cost. So, on a net-net basis, there will be a complete 100% pass-through. The second point, the other project, which is the MPP, that is a multi-product, this one. So, that is a project where on some of the molecules, we will also have -- the principle that is going to be followed there is very similar. But for some of the molecules for some of the sales, we also have an opportunity to take advantage of the price hike in the immediate time frame. So MPP could be slightly different. But overall, the mechanism for MPP also remains the same. On the second point -- second question that you asked, which is related to this new project that we have announced, so of the total volume that we will be manufacturing in the plant, half of it will be sold to the technology partner at a price, which is again on -- the price has been asserted on a pass-through basis. And that mechanism will be -- that is the mechanism that will be followed, as was described for the other project. The rest of it, we are still in the process of deciding if we should also lock those into the contract or we should try to play off on the spot basis because we believe that there could be an opportunity for us to actually gain significantly more realization than what would otherwise be on a cost plus basis. So, that is something that we are trying to assert in. But currently, what we see is that demand in the market for the rest of that volume is much higher than what we can supply. That is for the 50 -- rest of the 50% volume. Also, we will have need, an internal need to use some of that volume to do 2 of our downstream molecules, 2 of our new downstream molecules. One which is already mapped in MPP, another one which we will be actually working on. It's a new molecule that we currently are working on. The sales estimate that we have given of INR 600 crore is for the total volume, not just for 50%. It's for the total volume, but at a price at which we will assume that the entire 100% will be sold at a price at which that 50% has currently been locked at. We believe that the rest of the 50%, we could have significant upside potential given or what's going on in the market right now. But just to be conservative, we have actually done the financials, assuming that the price for the rest of the 50% will also be the same.
So, one question related to what you explained right now elaborately and fairly is, therefore, is your inventory policy now changed to hedging yourself for a fairly longest period of time and therefore should one estimate a longer holding period for inventory going ahead?
No, I'm not able to understand -- I'll come back to the philosophy that we are adopting. But before I get to that response, I just want to understand your question a little more. Can you just elaborate, please?
Yes. What I'm saying is that if the raw material cost has to be a pass-through and there is an elaborate calculation involved over multiple periods, even if it's struggling 2 financial years, maybe the customer will advise you to actually carry larger inventories. So therefore, there is visibility on cost upfront rather than having to do a back and forth?
Got it. Got it. Yes. So, let me explain to you. See, what happens is when you talk about inventory of the raw materials, you have a case in [ key starting ] material. Lot of times, we really don't get impacted by the movement in this key starting raw material. What we get impacted by are basically 2 things: a, there are a lot of commodity items that we buy. Some of these are solvents, some of -- where there is a significant spot movement and we cannot hold inventory of all these solvents and all these commodity raw materials. A lot of these are actually bought in the market on a spot basis. The second, for a lot of what we do, as you know, the starting raw material is hydrochloric acid and some of the raw materials required for hydrochloric acid are also -- have also shown significant movement, for example, sulfur, et cetera. Now it is not possible for us to hold large inventory of [ motion] sulfur for a long period of time. So, those by nature have to be bought on a spot basis. But for all the key raw materials -- key starting materials, including [ slow start ] for HF production, your assumption is absolutely right. We have actually moved on to holding larger inventories now.
Yes. 2 quick questions and then I'll get back in the queue. One is, are you willing to disclose the segment into which this new molecule will be supplied? Can you tell pharma or any other industry?
Going into multiple segments, but we have consciously decided not to further elaborate on that.
And what is the peak debt, please given all these projects which are coming on based on current assessment of numbers?
Sorry, what would be the peak debt?
Yes, please.
Yes. So currently, we have taken INR 500 crore for the project, which we announced during last year or year before that. And for this particular project, which entails capital outlay of INR 540 crores, we are planning to take that of additional INR 200 crores -- that’s from internal accruals.
The next question is from the line of Abhijit Akella from Kotak Securities.
Yes. I have 2. I'll ask them one after the other if that's okay. The first one was just with regard to the slight pressure on margins that we've seen in the fourth quarter. The EBITDA margins have come down to about 23% at the consol level. So, if you could please just help us understand reasons for that pressure? And what the outlook is, whether it will take another quarter or 2 in any of the business units to pass it through?
Yes. So on the margin, the primarily happening because of 2 or 3 factors. And obviously, there are more factors which are business specific. But if you look at a macro level for the company, what we have seen is that for inorganic and ref gas where most of the business happens on a -- either on a spot basis or where the agreements are for a shorter period of time, our ability to immediately increase the price is much higher than, let's say, in CRAMS or specialty. So there, we get impacted a little more, especially in the short term. Having said that, if you look at a company level, you will realize that our material cost as a percentage of sales has remained more or less same. So, we are able to successfully pass on all the material cost increase. What we have got impacted due to especially in Q4, is the energy cost because there is a sudden spike in the energy cost in Q4, and it's been really difficult because of the existing contracts, et cetera. And even our relationship with some of these key customers in each of the segments, it's been difficult for us to immediately go back and get out of the contracts and pass on those things, but we believe that we should be able to pass on in the coming months or so. The second reason why our EBITDA margin has come under a little pressure, it's also because of the higher employee cost. You will actually see and I've actually given the commentary to that before, also, there are a lot of new activities, new initiatives that we are currently working on, for which -- because of which we have actually hired a lot of new talent also in segments outside of these 4 or 5 deals for a lot of activities that we are doing currently in some of the new emerging segments, which haven't started converting into sales yet. Also, because of the overall issue with respect to talent availability, et cetera, we have actually had to pay higher variables, higher retentions, et cetera, our employee costs have gone up, and we expect that as far as the employee cost is concerned, at least for FY '23, we expect that employee cost as a percentage of sales will tend to be on a higher side. From FY '24, which is when all our -- these 3 new projects, which will actually get commissioned in this particular year, we will actually see annualized impact of all the 3 projects from FY '24 onwards. From there on, we will actually see a significant dip in employee cost as a percentage of the sales. As our sales basically pretty much grows more than the increase -- significantly more than the increase in the employee cost. So, as far as the margins are concerned, we believe that are we are seeing on the gross margin, we should be in a quarter or 2, to be able to pass that on successfully unless, again, there is some completely new surprise. On the employee cost piece, which basically is in the fixed cost category, we believe that FY '23, employee cost as a percentage will tend to be on a higher side. But FY '24 onwards, you will actually see that our employee cost as a percentage of sales is projected to actually be below even what it was last year, which is FY '21, I'm talking about.
The second question I had was on the CapEx projects that are under implementation. And I'll just maybe split this up into 3 or 4 small subparts, if I may. First is on the latest announced project, that INR 600 crore project. How long before we expect to achieve that full [ execution ] of INR 600 crores. Will it happen in the very first year, let's say, fiscal '25 or will it take 2 or 3 years to get there? Second is after this project, are there any further CapEx announcement we can expect across any of your BUs? And in particular, regarding refrigerants, can we assume that the plan has been called off, now that you've decided to go ahead with something else? And the last one was on the HPP project. You mentioned that the plant getting commissioned this month. So, can we expect that it pretty much transfer to full potential within the next couple of quarters? Or is it going to likely to take longer than that?
Yes. So, as we have indicated for this new project, the plant will start by December 2023, and we expect that [ completed ] manufacturing and the supply will start immediately thereafter. So, the first year of the operation will basically be FY '25. And from the following year, which is FY '26, we believe we should be able to either meet this peak revenue potential or exceed that. So, in the year 2, we should be able to get to that number. Then on the -- any other following [ CapExes ], I know this is a question that has been asked to us consistently since we announced the HPP project, and our response remains the same. We continue to look at growth opportunities in each of the BUs separately as well as we continue to look at them outside of these 5 BUs as well. And once we are confident that we've got a project, which actually meets all our strategic as well as [ financial ] criteria, we will take it to the Board. So, it will be difficult for me to comment at this point in time. But because we have done this, I wouldn't say we wouldn't be taking any more project. We will take project once we are convinced on the strategic value and the financial value of those projects and initiatives. On your third point, it's very difficult because, as you know, this is the first time we will be actually running this particular molecule in HPP. We are trying our best to ensure that there is a smooth start-up. We also want to make sure that there is a completely safe start-up, so we will be starting up the plant in phases. We expect that the plant will actually start running from June, but as it always happens, especially on the -- in the chemical plant, we -- there could be some initial teething problems. We expect that in a quarter or 2, we should be able to achieve the full capacity. On the demand side, I'm happy to let you know that the demand for this molecule remains extremely robust.
On the refrigerant part, if you could just comment whether we should expect any further movement there or not anymore?
No. So, we are working on that opportunity. Again, as I said, it has to meet both these criteria. One is the strategic value and second is the financial. We've actually -- we've been working on this for some time. Currently, it is not meeting our internal filters. So, we're trying to currently qualify and [ guide ] with the multiple ways to see if we can actually make it work. But given our internal financial metrics, it's not meeting some of those critical important requirements.
The next question is from the line of Amar Maurya from AlfAccurate Advisors.
Majority of my questions have been answered. Only one clarification. Like in your Specialty Chemical business, largely from the domestic part, I mean, what would be the yearly performance of the Pharma and the Industrial Chemicals? And secondly, how should we look the domestic business of the Specialty Chemical going forward?
So, I think we should not look at domestic and international separately, first of all, because sometimes it can actually be a little misleading because, as you know, we supply intermediates and advance intermediates. So, sometimes customers would ask us to move that intermediate from India to, let's say, to France or Germany or something or the other way around. It's the same molecule, we are supplying to the same customers, but depending on the customer requirement, the supply could be made to a converter in India or a converter outside of India. The other split becomes actually more relevant for you, which is the pharma and this one. Our industrial business continues to be very robust. We are looking for opportunities to further increase that business. On the pharma side, this year, we actually saw a significant drop primarily because of that one molecule, which we were actually supplying into the ARV market. You must have seen the commentary from [ Laura ], et cetera, which they've said that they expect some of that demand to come back later this calendar year. This is what -- this is the feedback we have received from other players in the market as well. But we are -- internally, we are going with assumption that it might not come back soon. So, we have already developed a plan B, and we are focusing on making sure that, that -- those set of products that we have identified as plan B get to the right level of profitability. That is why we are actually seeing the drop in pharmaceutical and both other molecules are actually not for pharma. Some of those are actually for agro.
So secondly, sir, as you said that industrial now is looking very promising, and you also indicated in the last call that you had been talking to a couple of international customers, primarily 2 customers. So, should we see that the 20% piece of the industrial, which was there in the specialty should grow significantly? And can you attract some large MPP kind of a project into that as well?
So first of all, I don't think we are seeing a strong growth. I don't really qualify it as such. We are seeing relatively good growth. We have some capacity headroom available there. So, our effort is to basically make sure that we are able to identify and convert opportunities which can help us utilize that available capacity. But as you probably know, in Industrial segment, what we currently have is basically one molecule which goes into multiple sectors where we are basically a market leader. We are currently in the process of evaluating some other opportunities, primarily on the contract manufacturing side. Will it actually get converted into a large HPP kind of or an MPP kind of project, it's a little early to tell.
The next question is from the line of Sanjesh Jain from ICICI Securities.
Best of luck this large project. First, on this new project, new fluoro molecule, the INR 600 crores of revenue also includes the captive consumption, or this is purely external sales, which we are calling out? That's the first one, a clarification. Second, can you just tell us what are the end industry users, which we have for this molecule? I know we didn't call out the use for the technological provider, but can you give us a broad understanding on what are the use cases for this application overall you are looking at? And that's my first question.
If you look at the INR 600 crore guideline that we have given is on the assumption that, as you know, 50% of that volume is already locked at a certain price, which is basically following the cost-plus model. We have basically taken that price and multiplied by the entire volume. That is how we have arrived at that INR 600 crore calculation. Of course, there is a potential for us to get a higher upside, et cetera. Now as part of that volume, we were to use it for captive consumption, the product will be internally sold to that project at the market price. But the [ INR 6 core ] -- the guideline that we have given is based on the assumption that I just now described. So, that is your question. What was your other question?
What are the general use cases for this new product which we are developing. I know you don't want to call it of the technological provider use case. But in general, what are the use cases for this new fluoro molecule?
We will unfortunately not be able to announce the application segments because that is what the technology provider has specifically requested us to do. And also, there are some other confidentiality issues around this product as well as some of the critical applications. So, we will not be announcing the application segments for this. I'm sorry for that.
No, no, no, no problem. Just one follow-up on that. The asset turn looks lower, close to 1.1x in which that we will be also manufacturing certain intermediates for this particular product?
No. So as far as the asset turn is concerned, when we look at project economics, asset turn is probably the only -- it is one of the few parameters that we look at. It's not the only parameter we look at. And probably if you actually -- I were to actually stack all the criteria that we look at, it will probably be fifth to sixth criteria. So one, obviously, the strategic importance of the project, as I described earlier, then we look at the profitability of this particular molecule. Now, on the profitability of the projects that we have announced till now, this is probably going to be lot more profitable than all the other projects that we have announced earlier. As per our current estimate, the profitability will be slightly higher than the most profitable molecule that we have -- that we will be manufacturing in the earlier 3 this one. Because of which, the overall project IRR is on a much higher side than for the other 3 projects that we have actually made the announcement for.
Sorry to interrupt. May I request Mr. Jain, to please rejoin the queue. We have participants waiting for their turn. Thank you. [Operator Instructions] The next question is from the line of Tejas Sheth from Nippon India Asset Management.
I just have one question. What are now the thoughts on the HFC side. So, are we looking to add [ R-32 ] to the portfolio of products and participate in the time line, which is getting ended? Or now with such large CapEx announcement, that's a back burner?
No, I think I've just responded to that question a little earlier that we've been looking at the opportunities on the Ref Gas side, especially on the HFC piece. We have not been able to make the financial -- proper financial case for it. We are actually trying to see if it can slice and dice it -- slice and dice that opportunity to make it more financially attractive. But at this point in time, I really don't have much more to comment on.
But even if we think of adding, we can complete the project in the stipulated...
Yes. Yes, we will be able to. The reason we will be able to do is because we have already completed most of the basic engineering for that, which typically gets -- happens only out of the project is approved.
The next question is from the line of Madanagopal from Sundaram Alternates.
Sir, you referred to the new project, and you mentioned that when you are pricing it, 50% is locked at a price, which is cost plus and the remaining 50% you were seeing we've taken the current price. So in the future, depending upon the market price or because of the raw material inflation, this price will go up? How is it structured?
So as I said, for the 50% of that volume, we have signed a multiyear contract, which is on a cost plus basis. So, any cost increase or decrease or any cost increase/decrease, there will be a pass-through. And for the sake of the project economics -- calculation of project economics, we have assumed the same price for the rest of the 50% as well.
So, this remaining 50% of the repricing will happen depending upon the market price of the molecule at that point of time?
That's correct. Yes.
And is this a similar structure we have followed for the other large projects, which we have announced in the last 2 years?
No. So, if you see, there are 3 other projects that we have announced. Out of those 3 projects, 2 projects were for single molecule single customer. So, there was no question of having agreement only for 50% of the volume. Here, though the technology partner has actually given to us this proprietary technology, they have given us the freedom to operate wherein we have the ability to sell rest of the volume to other customers and other sectors.
And only with us they have done this. So probably, you will be the only manufacturer of this molecule. Is it right to understand?
We would be the only manufacturer of this molecule using this particular technology because this technology is a far superior technology to some of the other technologies which are currently being used in the market. The technologies which are used currently in the market to manufacture this molecule is extremely environment unfriendly. And hence, some of those plants have been getting closure notices, et cetera. So, this is the only completely environment-friendly process to manufacture this particular molecule.
The next question is from the line of Ankur Periwal from Axis Capital.
So 2 questions. First, on the working capital side. You did mention some bit of inventory built up because of the new projects are in inflation and trying to be more share on the RM procurement side. Your comments on the receivable side because over the years, even that side is seeing some bit of uptick. Is it because of higher share of the new projects kicking in or your thoughts there?
Yes. So, as far as receivables are concerned, in generally, it is around 90 days, and it has been constantly maintained maybe 1 or 2 days here or there. As far as inventory is concerned, generally, we are maintaining inventory of 60 days. So again, a few days here and there. So, for this projects also, as Mr. Radhesh has already explained that there are many commodity items, et cetera, which we cannot store or buy and store for a longer period of time. So, we have to buy them on the spot basis. So similarly, working capital cycle would remain around the same level what it is currently.
And just a second one on the margin outlook side. Given that the newer projects or the larger group are incrementally coming from the specialty side or the new projects, which are again on the high value side, the business side. Will it be fair to say that there will be margin accretion incrementally from the base that we are setting today? Where I'm coming from is you mentioned there is RM inflation. Apart from RM inflations, there is power and fuel, manpower cost, the higher variables to retain the staff, et cetera. So, will it compensate or it will be net [ effective ]?
So, I think there are 3 pieces in this. One, if you look at in all of these projects, I would say, almost all of them, when they are conceived and even today, they actually are all at a higher gross margin than our base business. And that's the reason why we have gone for this, our projects. The second point is around the employee costs. Once these -- all the 3 -- once we start seeing annualized impact of all the 3 projects, which will happen from the next financial year onwards, even your employee cost as a percentage of sales, we see a significant drop. So, we expect -- I think FY '23 is actually going to be a little difficult year to predict given the fact that these plants are starting up. There's a significant cost that we're actually bringing on or ahead of these plant start-ups, et cetera. But from FY '24, we will actually start seeing a significant margin uptake because of these 2 factors.
The next question is from the line of Alok Ranjan from IIFL Asset Management.
Sir, just one question, on the new contract that we have announced, especially, you touched upon 3 things; product, partnerships and platforms. Could you elaborate more on the platform part? You mentioned that it's a novel technology that you have got. At the same time, there is huge demand in the spot side -- on the spot market for this product. So, just wanted to understand like how it can become a platform? Is it like INR 600 crore or the indirect impact can be much higher on the company? Or it can become a kind of molecule which will be required in many of the new products that we are looking at. So, the indirect and direct impact can be much higher in terms of the top line opportunity.
Yes. So first of all, as you rightly said, the direct and indirect impact, especially the indirect impact of this project is much bigger than just the INR 600 crore that we've talked about. And that is why I said in my opening commentary that this project actually has a very high strategic value for Navin Fluorine. Now looking at the specific 3 piece; product, as I mentioned, this is a critical of fluorine building block, which is basically going to be used in a number of value chains to manufacture a number of downstream derivatives. And hence, the first thing, which is product. The technology partner that we are working with is a critical and important partner for us. So, we've actually doing out some other important projects with this company. And we have excellent relationships in that company, right, going right up to the CEO level. And clearly, there is intent and opportunities identified to grow this relationship to $100 million plus and hence, partnership. Third, on the platform side, as I mentioned, this is a proprietary technology, and this technology will actually help us actually work on some other opportunities outside of the specific molecule of this specific project. And that is how I said that this basically addresses all the 3 Ps that we have been talking about.
So, another thing, sir, if it is a basic building block, can we say that it is one of the major basic building block capability that it has got over the last 3 years? Or there are a couple of other basic building block capabilities that we have?
So, we have others, but what do you mean by basic building blocks.
So you mentioned in your press release that this is one of maybe basic building blocks that we are trying to create and that we have got.
So, what happens is in Fluorine, anything that you do in Fluorine, the basic building block is hydrochloric acid. Everything is actually a derivative of hydrochloric acid and we have already been present in hydrochloric acid for more than 50-odd years. Now, basis the sector, business, et cetera, you have various value chains that you play in. And each of these value chains typically requires a starting raw material starting or starting fluorinated raw material. Now if you look at all these important value chains, when I say important value chains, I'm talking about value chains, which have significant future growth potential, you will actually see this particular molecule playing into a lot of these value chains. And hence, we are saying that this is an important fluorine building block, which play into number of these value chains. So, by being an important player in this particular analogy, actually positions us very well to actually play in each of those value chains as well. So, the customers who actually require the downstream products in any of those value chains will have to come to us because we control this particular building block.
The next question is from the line of [ Niket ], an individual investor.
So, a couple of years back we had consultants to [ repurchase effect of ] pharma space, wherein, specialty chemical, pharma, CRAMS and also how to [ base integrate in this company ]. So, this is that in the current analysis. What is your expectation on how the pharma space would move over the next 4, 5 years?
Yes. So, they were actually looking at a, the company holistically. And when we talk about pharma, they were primarily looking at the innovative pharma segment, which primarily sits under the CRAMS. We've identified the key accounts to actually further grow our business with. We've identified some specific molecules, et cetera, that we can grow with. If we look at -- so earlier, I think, about 2 years back or so, I had given a commentary that one of the first molecules from our pipeline just got commercialized. Now, we've actually got 3 more molecules, which are progressing extremely well. So, we have actually seen a pretty good growth trajectory in our CRAMS business. Unfortunately, what happens there is that the business tends to be extremely lumpy. So currently, for example, we are actually seeing extremely strong order book for calendar year 2023 because there are a lot of campaigns that are likely to happen in 2023. We have already got this feedback from our customers, et cetera, on the basis of which we have already started working on the plan for CGMP4. Now some of that molecule which will be required for this 2023 campaign, we will actually have to start manufacturing from the -- from Q3 FY '23, which is Q4 of the calendar year 2022 itself. But what we are trying to see is how much of that we can actually bring into H1 and how do you really build a stronger this one for our H1. But on a mid- to long-term basis, we are actually seeing extremely strong traction there for 2 reasons, I would say 3 reasons; a, we are actually seeing a lot of repeat business coming in from some of the strategic key accounts. 2, we've actually -- some of these molecules that we have been working on for some time now are actually seeing good growth in the market. And the third is we're really building a pretty good pipeline of new customers that we are currently acquiring. So, those -- the third piece will really help us in a long term because when typically these customers get acquired, they typically -- the acquisition happens at the front end of the product development cycle. And typically, that stage, the order is only at a gram or a kg level, but that basically positions us very strongly for the years to come.
So can we expect that FY '26 onwards this product would start scaling up on a broader level?
No, we are actually expecting it much sooner than FY '26.
One last question would be on the employee side. So, over the past few years, we have built up our P&D and R&D teams and significantly better addressed some of these new projects. So what steps are we taking to retain this employee, especially given that new competition is entering into Fluorine [ mixture ]?
Yes. So, that's the question we continue to ask ourself in terms of how do we really ensure that, especially some of the key talent is retained. So, we have various thesis to that. One obviously is to comp, including the retention piece. But what we have really seen excites some of this talent is the kind of opportunities that they work on. And some of these opportunities that we talk about, some of these have actually already got converted into some of these CapExes or some of the other things that we are working on. There are not many companies working currently on these kind of opportunities, either in India or outside of India. So, for the right talent, just this opportunity of getting to work on some of these exciting opportunities helps them continue to look forward to coming to the -- to work on a day-to-day basis. So, our aim is multifold. A, we actually continue to present to them these exciting opportunities. We continue to provide to them an ecosystem where they are challenged and where the growth happens for them and see it through compensation piece.
The next question is from the line of Dhruv Muchhal from HDFC Asset Management.
Sir, on the new project, on the new molecule, if I understand correctly, this is also a molecule which is currently available in the market. So, you would -- if you can probably share some sense on the current market size of this molecule? How has it grown in the last 3 -- the overall market has grown in the last 3, 5 years? And also, which are the other competitors here? I mean are they from Europe or is the market currently from China?
For competition reason, I don't think we will be able to give out all these information at this stage. We will be happy to share a lot of this information closer to the plant getting commissioned. We cannot give all this information at this stage where we have just started working on the project on the CapEx.
And sir, the second thing is on the CapEx for FY '23, the cash CapEx that you expect for FY '23 and '24?
Sorry?
The cash CapEx that we expect for FY '23 and '24, the cash outflow or CapEx?
Cash outflow, yes. So the cash outflow in FY '23 will be around INR 300 crore. That is including subsidiary.
Okay. Because we already have a decent -- because I was expecting a decent capitalization this year, that is because you already have a decent CWIP of about INR 740 crores.
Yes. So, only the CWIP is around INR 800 crores, and the total project, which we announced was around INR 1,100 crores, so that is how I said INR 300 crores, will go from the system in the current financial year. So, the capitalization will take place in the current financial year.
The next question is from the line of Nitin Agarwal from DAM Capital.
Sir, on -- in the last 3 to 6 months because of these various global uncertainties because of Russian-Ukraine war as well as the issues which have been happening in China, is there any qualitative change that you're seeing in your business development efforts across various verticals? I mean, are you getting more client traction in any particular verticals? Any color on that?
No. So, I think these are 2 slightly different pieces, right? One is the Ukraine and Russia piece, the other is China piece. I think the China piece, especially the impact of that on the demand is pretty well documented. And I don't think there's much that I can add to that. As I've mentioned before, the number of inquiries have gone up significantly, but our [ volume ] is not an inquiry led. So, we tend to focus on value chains, which are going to be of importance to us and then grow those value chains. Now the second part, which is the Ukraine-Russia, so there, I mean, at least for the business that we are in, we are not really seeing any -- not forecasting any significant impact on the demand side. But on the supply side, obviously, there is a significant impact on the energy cost, et cetera, because of which, some of these cost escalations we have seen from time to time. But on the demand side, we are not really anticipating any significant change on the -- either on the upside or downside to what we do today.
And sir, secondly, on -- in the past, you've talked about probably exploring some partnership optional routes to participate in some of the newer age opportunities on fluoropolymers and other categories. Has there been any progress? Any meaningful progress you've made on that account over the last few quarters?
No. So, I think it's too early to comment. Typically, these kind of opportunities we work on, we develop. There are a number of new product development activities that are currently going on inside the company. Some of them have actually moved on to the piloting stage. There are discussions going on with the customers, et cetera. But still they actually move to the CapEx stage or where the sales coming from these activities start becoming material, we hesitate to start talking about it or about these kind of initiatives.
The next question is from the line of Roshan Gupta from Edelweiss.
It's Rohan Gupta, this side. Sir, we have been a cash plus company from almost last 2 to 3 years. And now with the ongoing CapEx, we are probably going to be down in leverage one despite the solid cash flow generation. I hope that the company is still hoping for the new CapEx plan. Just wanted to understand the company's comfort level in terms of the leveraging of the balance sheet. How do you think that and how far you can stress the balance sheet in terms of debt equities or debt EBITDA number? If there is -- there are aggressive opportunities for CapEx, how much would be comfortable in leveraging the balance sheet?
Our thought process is very conservative. We have not gone very aggressively in terms of borrowing. If you see our debt equity ratio it is 1:1. And even for the new project, as I said, against INR 540 crores of CapEx, we will be raising only INR 200 crores of debt. So overall, it will be less than 1. And I think we don't see any challenge in maintaining that kind of debt level.
And going forward, if you actually talk about new opportunities, as we have indicated before as well, we continue to look at each of the opportunities first in isolation, try to understand the strategic value of those opportunities and then the financial returns and then holistically in terms of how they're fit into the overall company strategy. And once -- if the opportunities get done, then we look at how to finance these opportunities, et cetera. But currently, some opportunities that we are looking at, we don't see any issues with respect to our balance sheet, et cetera.
And just second question, just a clarification from the previous one on CapEx. Capitalization of -- you mentioned that it will be INR 300 crores in FY '23. While we have...
Not capitalization, I said cash payout in the FY '23 would be INR 300 crores. And then capitalization will be almost for entire INR 1,100 crore.
Close to all the CWIP of INR 800 crores, you are saying that will be capitalized.
INR 800 crore plus INR 300 crore, we will be paying out, that also will get capitalized in the current financial year. And on the debt equity side, the number which I said, that 1:1 ratio, that is at the subsidiary level, but at the consol level, it is less than 0.5%.
The next question is from the line of Ishmohit Arora from SOIC LLP.
Sir, congrats for the CapEx announcement and all the projects that we are seeing. Sir, one question was when do we plan the CGMP4?
CGMP4. Now, as I mentioned earlier, we are currently working on that project. And typically, when we work on these kind of projects, we don't typically have internal deadlines or et cetera. So, as we feel comfortable on the merit of the investment, we'll come back to you -- first, we will actually present it to the Board. And upon approval, we will have the announcement made.
And second question was given the increasing competitive intensity we are seeing in agrochemicals, how do we plan to diversify out of this business segment?
Yes. So, I think there are basically divided into 3 things. A, we continue to develop certain critical mass in the sector segments that we already are present in, including agrochemicals, using this principle of 3Ps, we strengthen our play in the value chain through partnerships, et cetera, and thereby we grow. Second, within these segments, there are multiple avenues of growth. Like, for example, we talked about pharma, what's happening on the innovative pharma side, et cetera. And the third, and that business, though lumpy in the short term, it tends to be extremely sticky. And that itself takes long time to develop and get to a critical mass. So, that is where we're putting in a lot of efforts. And the third completely new segment, which is a related question was asked earlier. So there, we continue to put in a lot of efforts and people on to initiatives in some of these emerging segments, which we believe, as I indicated before as well that from FY '25, we will actually start seeing hopefully, material contribution coming from these new segments.
And just the last question was from my side. Sir, the joint venture that we had -- the joint venture that we had with [ Piramal ], so are we expecting using that platform for any CapEx in the future, [ except loratadine ]?
Yes. We're currently evaluating one opportunity currently using that platform.
Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Radhesh Welling, sir, for closing comments.
I would like to thank everyone for joining us on the call. I hope we have been able to respond to your queries adequately. If you have any further queries, you may reach out to our Investor Relations partner, Orient Capital. Thank you very much. Have a great day and a great week ahead. Thank you. Bye-bye.
Thank you. On behalf of Navin Fluorine International Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.