Navin Fluorine International Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Mixed quarter with a clear H2 ramp promise: HPP grew 23% YoY, CDMO surged 41% YoY, but Specialty Chemicals fell 15% YoY. Management pointed to firm orders, not assumptions, to back a growth recovery starting Q3.
• CDMO is the growth engine, now with a European anchor: A 3-year supply agreement with a European major, plus 2 additional molecules, underpins the "very strong Q4" and "even stronger FY26" trajectory. Management stands by the \$100 mn FY27 target.
• Specialty Chemicals is the drag, but visibility is improving: A 15% YoY decline from cautious global demand and competitive pressure is expected to reverse in H2, with a 50-50 blend of new and traditional molecules filling the order book.
• Margins are on a deliberate, slow climb: Operating EBITDA margin at 20.7% was flat YoY but up from 19.2% in Q1. Management reiterated the journey from 15% to 20% to 25%, aiming to get there sustainably.
• What to watch next quarter: Whether the promised H2 Specialty Chemicals growth materializes from firm POs, the pace of the European CDMO commercial ramp, and any update on the "at least one" new project from the hopper to fuel growth beyond FY27.

CDMO: The Anchor of the Growth Story

• Revenue surge: CDMO revenue grew 41% YoY to INR68 cr, driven by a strategic focus on late-stage and commercial molecules, with higher levels of customer inquiries than previously.
• European major deal locked in: A 3-year supply agreement starting calendar year 2025, renewable automatically, covers an end-stage molecule for a drug patented in most geographies until 2035 and beyond. Two new molecules were added to the original three, and commercial supply has already started.
• Order book trajectory: Management expects at least a flattish Q3 YoY, followed by a very strong Q4, and even stronger performance in FY26. Customer projections for FY26 are strong.
• Late-stage pipeline progressing: Secured orders for 2 new late-stage intermediates for Q4 supply. A scale-up order from a US major client is due in Q3 FY25. Process performance qualification supplies were delivered for a late-stage study with an EU major client.
• cGMP4 expansion on track: Phase 1 capex of INR160 cr is progressing as planned, with commissioning targeted by the end of Q3 FY26. Peak revenue is expected at 2x the capex, building over time.
• \$100 mn target reaffirmed: Management stands by the FY27 CDMO revenue target of \$100 million, with growth coming from the base business, the European MSA, and new late-stage molecules.

Nitin Kulkarni: "So what we are talking over here is not any assumptions, but based on the firm"

Specialty Chemicals: The Drag, With a Firm H2 Rebound Claim

• Revenue decline: Specialty Chemicals revenue fell 15% YoY to INR158 cr, affected by cautious demand behavior amid continued competitive pressure globally.
• H2 growth visibility: Management expects year-on-year growth in H2 FY25 based on POs and firm orders in hand, not assumptions. The order book is a roughly 50-50 blend between new products launched in the last 6-8 months and traditional molecules.
• Surat project commissioned: The INR30 cr Surat capex is operational, with first deliveries starting in November 2024. A firm PO for the next year's complete output is already in hand. This is not a dedicated plant but adds extra capability.
• Dahej assets poised for higher utilization: The Dahej site, which includes the non-dedicated portion of the agro specialty plant and other assets, has strong order book visibility that will drive increased capacity utilization.
• Subsidiary degrowth addressed: The 15% degrowth in the subsidiary's specialty business reflected underutilized capacity in Q2. Corrective actions have been taken, giving line of sight into higher capacity utilization from Q3 onward.
• Honeywell project stable: The plant is running at 80% capacity with issues fully behind it. It has been tested to run at 100% or higher.

Anish Ganatra: "It's true for all seasons, right? I mean, no matter what the market is, ultimately, if you are the last man standing, then you are likely to remain profitable no matter what. So that's our intent, yes."

HPP: Steady Performer, Capacity Expanding

• Revenue growth driven by R32: HPP revenue grew 23% YoY to INR293 cr, mainly attributed to higher R32 sales and better realization for R22. All HPP assets operated at optimal levels during the quarter.
• R32 capacity expansion underway: A capex of INR84 cr is proceeding as scheduled, with completion expected by February 2025.
• AHF project on track: The INR450 cr AHF investment is on track, with commissioning anticipated by the end of FY25 or early FY26. This will start trickling into revenue and growth next year.
• HFO plant has headroom: The HFO plant is running at optimal capacity but still meeting only about 80% of demand. Options to debottleneck and get greater capacities are work in progress.

Margins: A Slow, Deliberate Climb

• Margin snapshot: Operating EBITDA margin at 20.7% was nearly flat YoY but improved sequentially from 19.2% in Q1 FY25, reflecting higher realizations in HPP and benefits from efficiencies secured within businesses.
• H1 margin contraction: For H1 FY25, EBITDA margin contracted from 22.1% to 19.9%, with operating EBITDA falling 2% to INR208 cr despite 8% revenue growth.
• The 25% journey: Management reiterated the stated journey from 15% to 20% to 25% margins, saying they are well on track and intend to get there in a sustainable manner, slowly and progressively.
• Non-dedicated asset competitiveness: Margins on the non-dedicated portion of the INR540 cr project will have to remain competitive to the market. The focus is on making the plant come up efficiently and reliably to ensure high reliability and competitiveness.

Anish Ganatra: "We had said that, if you remember when we had hit, I think it was Q3 of last year when we did 15% margin, we are talked of our journey from 15% to 20%, 20% to 25%. I think we are well on track on that journey, and it will slowly and progressively get to that target number. Our intent is to get there in a sustainable manner."

Project Execution & Capex Pipeline

• INR540 cr agro specialty plant: The dedicated portion is under commissioning jointly with customers, with commercial production starting November 2024. The non-dedicated portion has no market or PO problem; the delay is due to the complex, high-end technology with multiple touch points for optimization. The customer is partnering for technology support.
• Surat INR30 cr project: Commissioned, operations started, deliveries from next month. A firm PO for the next year's complete output is in hand.
• cGMP4 Phase 1: INR160 cr outlay progressing as planned, commissioning by end of Q3 FY26. Peak revenue expected at 2x capex.
• Future growth projects: Several projects are in the hopper. Management hopes to progress at least one option by the middle to late middle of next year, to fuel growth beyond FY27. Only Board-approved projects (R32, AHF, cGMP4) are currently in the capex plan for FY25 and FY26.
• Net debt comfortable: Net debt to equity remains below the guidance range of 0.5x. Net debt has not increased significantly from March levels.

Guidance & Commitments

Key Metrics