Navin Fluorine International Limited (NAVINFLUOR) Q2 FY23 Earnings Concall Transcript

Navin Fluorine International Limited (NSE:NAVINFLUOR) Q2 FY23 Earnings Concall dated Oct. 20, 2022

Corporate Participants:

Radhesh R. Welling — Managing Director

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

Analysts:

Sudarshan Padmanabhan — JMPMS — Analyst

Abhijeet Akella — Kotak Securities — Analyst

Rajesh Kothari — AlfAccurate — Analyst

Ankur Periwal — Axis Capital — Analyst

Naushad Chaudhary — Aditya Birla AMC — Analyst

Ranjit Cirumalla — IIFL Securities — Analyst

Archit Joshi — B&K Securities — Analyst

Isha Agarwal — VT Capital — Analyst

Sanjesh Jain — ICICI Securities — Analyst

Rohan Gupta — Edelweiss — Analyst

Rajesh Joshi — Marcellus Investment Managers Private Limited — Analyst

Sabyasachi Mukerji — Centrum PMS — Analyst

Amar Maurya — AlfAccurate Advisors Private Limited — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen. Welcome to the Navin Fluorine International Limited Q2 FY23 Earnings Conference Call. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Rasika Sawant from Orient Capital. Thank you and, over to you ma’am.

Operator

Thank you and welcome to the Q2 and H1FY23 earning 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 risks and uncertainties that are difficult to predict. A detailed Safe-Harbor statement is given on page number two of investor presentation of the company, which has been uploaded on the stock exchange and company website as well.

With this, I’ll now hand over call to Mr. Radhesh Welling for his opening remarks. Over to you sir.

Radhesh R. Welling — Managing Director

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. You know, Partha joined Navin Fluorine as a CEO of our High Performance Products business. He has also been assisting me on the finance team in the interim as we interview candidates for the CFO position.

I hope all of you got an opportunity to go through our financial results and investor presentation, which have been uploaded on the stock exchange, as well as in company’s website. [Indecipherable] my comments on the business performance, I would like to brief you on a few key developments at Navin Fluorine. It gives me pleasure to inform you that the commercial production at the plant set up to manufacture and supply 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 [Indecipherable] under our wholly-owned subsidiary Navin Fluorine Advanced Sciences Limited in Dahej, Gujarat.

Also, two additional new plants in the Dahej are scheduled to start in Q3 FY23. Commercial production in MPP will start in phased manner while production dedicated 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 INR5 per equity share of the face value of INR2 for financial year 2023 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 [Indecipherable] and partnerships. All three verticals, crop science, pharma, and industry 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 INR177 crores for Q2 FY23. This business continues to see development of rich pipeline for differentiated business opportunities.

As mentioned earlier, we are focused on commercialization of two new projects in H2 of FY23. Our HPP business grew by 76% in Q2 FY23 to INR11 crores compared to the same period last year. This also includes revenue from NFSL, which come in the newly-commercialized plant at Dahej for manufacture and supply of HFO — new HFO molecule. Our legacy business also saw strong growth through combination 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 INR39 crores through FY23. As I indicated earlier, 2022 — calendar year 2022 looked soft, which is also reflected in our Q2 performance. But overall, we remain quite confident of our growth and more business. Work on the business plant for CGMP4 Is ongoing and we expect to take this to the core towards end-of-the current financial year.

This quarter, we successfully completed important client audits of two large pharma innovators. Also, we received a relatively large purchase order of $16 million, molecule for a late-stage clinical trial. Supply for this molecule is to happen over two quarters in calendar year 2023, and we are currently discussing with the 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 FY23, on a consolidated basis, the company has reported net revenue from the operations of INR817, with INR365 crores in H1 FY23 with a growth of 23%. Operating EBITDA stood at INR193 crore was against [Indecipherable] crore in H1 FY22, up by 19%.

Operating EBITDA margin stood at 23.6% as against 23% same period last year. As mentioned earlier, the commercialized new plant in Dahej in the last quarter which impacted the overall margins was operational in August of 2022. On a standalone basis, NFSL can deliver margin of around 25%. The operating PBT was up 16% and stood at INR159 crores for H1 in FY23 as against INR137 crores last year. Operating PBT margin was at 19.4% in FY23. Profit after tax stood at INR132.3 crores for H1 FY23 and PAT margin was at about 16.2%.

Now coming to the quarterly performance for Q2 FY23, company reported growth of 24% in net revenue from operation to INR419 crores against INR339 crores in Q2 FY22. The operating EBITDA grew by about 11% to INR94 crores as against INR84 crores in Q2 FY22. Margins stood at 22.4% for Q2 FY23. Operating [Indecipherable]17.2% at INR72 crores. PAT stood at INR57.8 crores for Q2FY23 as against INR63.2 crores in Q2 FY22.

I think I’ve covered most of the basic information around the business and financial information. We now open the floor for questions for Q&A Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. The first question is from the line of Sudarshan Padmanabhan from JMPMS. Please go-ahead.

Sudarshan Padmanabhan — JMPMS — Analyst

Yes, thank you for taking my question. Sir, my first, — I have three questions. My first question. Is on the HFO supplies to Honeywell. I look at the standalone minus consolidated, we are looking at around INR30 crores to INR35 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 four to six 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 shipment delay that could 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 three to four 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 costs on the new capacities or is there any one-off since? Thank you, sir.

Radhesh R. Welling — Managing Director

Yeah, good morning. So on HFO, we’re actually seeing relatively strong demand from the market. And so if you look at this quarter, we 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 to 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 suppliers — is actually the new plant and that project had got significantly delayed. That plant was 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. 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 materials 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 two or three issues. One, our ability to absorb the fixed-cost was impaired in this particular quarter. Second is [Indecipherable] was relatively higher because we had to actually operate the plant at sub-optimal level and as I mentioned to you because the 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 three factors, we actually saw a significant impact on our operating margin in NFSL, which is basically for this particular molecule, which is what dragged overall operating margin for the company down. So, that is on the HFO. On the CDMO, it’s primarily against a 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 $11 million of invoicing and Q4 as it is a seen right now, we expect to be very strong.

As indicated earlier, calendar year 2022 looked soft when we actually did the projecting for this. But calendar year 2023 onwards, looks pretty strength. We continue to see the same effect because which our Q1 and Q2 were relatively soft. Q3, we will again — we will be back to our $10 million plus. From Q4 onwards, which is when we move into the calendar year 2023, we are expecting a significant growth to this baseline number, which is also giving evidence 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.

Sudarshan Padmanabhan — JMPMS — Analyst

Sure sir, thanks a lot sir. That’s largely from my side.

Radhesh R. Welling — Managing Director

You had a question on the other costs.

Operator

Sorry to interrupt you sir, Your audio is breaking up.

Sudarshan Padmanabhan — JMPMS — Analyst

Yeah, on the other costs. yeah.

Radhesh R. Welling — Managing Director

Yeah, yeah, so the other costs higher in the — if you see the stand alone, we are not significantly up and they are up because of the energy — the higher energy cost on account of higher coal prices, etc., and 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, yeah. Thank you.

Sudarshan Padmanabhan — JMPMS — Analyst

Thanks a lot.

Operator

Thank you. The next question is from the line of Abhijeet Akella from Kotak Securities. Please go-ahead.

Abhijeet Akella — Kotak Securities — Analyst

Yeah, good morning and thank you for taking my questions. Couple from my side. One is, what will be R32 project that’s been announced at the investor presentation. I don’t believe we had received many details about this in the past in terms of the total capex or the capacity and commissioning timeline, etc. 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.

Radhesh R. Welling — Managing Director

So, the announcement about R32 was actually made in the last quarter. If you see, we had almost a capex of about INR80 crores. We actually didn’t specify there exactly, which product it was etc., and we didn’t really get any question on the capacity. etc. So, we did not have the opportunity to respond to that. But since you’re specifically asking this..

Operator

Sorry to interrupt Mr. Radhesh. Sir, your audio is breaking up.

Radhesh R. Welling — Managing Director

Hello, can you hear me now. Yes I’m able to hear you, but your audio is breaking up.

Operator

Oh, Okay. So, what I’ll do is I’ll just disconnect and reconnect you.

Radhesh R. Welling — Managing Director

Okay.

Operator

Thank you. [Operator Instructions]. Ladies and gentlemen, thank you for patiently holding. We have the line for the management reconnected. Over to you sir.

Radhesh R. Welling — Managing Director

Yeah, hi, are you able to hear me properly now?

Operator

Yes sir, we are able to hear you. Please proceed.

Radhesh R. Welling — Managing Director

Yeah, okay, so first of all, I’m really sorry for this issue. The question was around R32 as I know — this is a INR80 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 walk, 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’s the CEO of that business respond.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

So good morning, Abhijeet. So, we are essentially looking at revenue of about say INR200 crores plus minus, which we expect to ramp up in calendar 2024. So, as of now that the timeline, which we are running, I think we have enough confidence that we should, be able to adhere to this timeline. There’ll be some production and sales in calendar 2023 and the full ramp-up is going to be in 2024.

Radhesh R. Welling — Managing Director

Calendar year.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

Calendar.

Abhijeet Akella — Kotak Securities — Analyst

Yeah sorry. Partha, sir, I just lost the number you said. You said INR70 crore odd revenue, is it from this.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

No, INR200 crores.

Abhijeet Akella — Kotak Securities — Analyst

Oh, INR200 crores? Okay, sorry, some audio issue there. And the capacity if you could please just specify?

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

I would not want to specify that. We are in the project stage, Abhijeet, okay. So, as we progress, maybe we can discuss about this later, in the coming in calls in the future.

Abhijeet Akella — Kotak Securities — Analyst

And any other HFCs that you might have on your agenda and for the future?

Radhesh R. Welling — Managing Director

So while this is already done and the plant is going to be ready for production from April [Phonetic] 2023, we are already looking at some other opportunities, as well as opportunity to further expand capacity of R32. And once we are ready, we will take it to the Board for approval and also make [Indecipherable]. But, as you can see, for this particular project, from the announcement to actual production is even less than nine months. So, we believe that the newer projects that we are currently working on should also have similar kind of a timeline, about one year of plus minus. So, we should be able to do it fairly [Phonetic].

Abhijeet Akella — Kotak Securities — Analyst

Okay, great thank you. I appreciate that. And just one last thing from my side if you’ll permit. Just regarding the ESOP announcement that was made yesterday. This one 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 be treated in the financials? Thanks a lot.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

Yeah, so the second thing first Abhijeet. It is going to follow the classical accounting methodologies, which everybody follows. It will be charged to the P&L, but. I would like to remind you that this will actually not a cash, number-one. Number two, it has a tax break. Number three, eventually this charge goes and resides in the net worth of the company. I am sure you are aware of this, and how the mechanism we’ll be.

Radhesh R. Welling — Managing Director

And specifically on the ESOP plan, currently, this particular plan which has just been announced is primarily for four people, which is the Managing Director and the three CEOs.

Abhijeet Akella — Kotak Securities — Analyst

Understood. Thanks a lot for the clarifications and all the best for the future.

Radhesh R. Welling — Managing Director

Thank you.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

Thank you, Abhijeet.

Operator

The next question is from the line of Rajesh Kothari from AlfAccurate. Please go-ahead.

Rajesh Kothari — AlfAccurate — Analyst

Hi, Good afternoon sir. I have two questions. One is basically you said that you appointed three new CEOs and complete what I would say the new organization structure. May I request, can you please share details of that. The three business units, who are leading, the three CEOs with a little bit brief profile and how it’s going to be structured over a period of time. That is number one. And number two, your capex plan over next two to three years and how do you see the visibility from your customers?

Radhesh R. Welling — Managing Director

Yeah, 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 three business verticals. Each of them actually is headed by a CEO. So for example High Performance Product, which is a combination of the erstwhile inorganic fluoride business, refrigerant gas business, and the new-age 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, technology, etc., specifically for that function, their business reporting to Partha.

Similarly CDMO business is headed by the gentleman by the name of Mr. Ravi Venkataramanan. He has 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 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 two-and-half years. He joined in the [Indecipherable] role and then was moved into specialty and then was elevated to become the CEO of our specialty business. He’s worked in the agrochemicals business for quite a few years. And prior to that, his career was with Nocil and then worked in Europe with Unilever for a few years before moving to the agrochemical business.

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 three business verticals is that each of the CEOs now will be responsible for developing the overall business plan for the growth and will be working on the capexes for their individual business. What we are currently seeing pretty strong set of opportunities in each of these business verticals. They are all working. That is Amrit, Partha, and Ravi are working on those specific set of opportunities. For example I talked to you about CGMP4 in [Indecipherable] 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 NFSL. Apart from these three verticals, we are also seeing opportunities 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 will take it to the Board and make that requisite announcements.

But currently, each of these business vertical and some other opportunities outside of these three business verticals, we are seeing strong set of opportunities.

Rajesh Kothari — AlfAccurate — Analyst

Super sir, Wish you all the best. Thank you.

Radhesh R. Welling — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ankur Periwal from Axis Capital. Please go-ahead.

Ankur Periwal — Axis Capital — Analyst

Yeah, hi, sir. Thanks for the opportunity. First question on the gross margin expansion that we saw in this quarter. You know –if you can highlight few reasons for that given that you did mention that on the HFO side, the capacity for the plant was underutilized, as well as the higher spot prices for the RM that we bought.

Radhesh R. Welling — Managing Director

Yeah, so if you actually look at NFSL, the NFSL 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 NFSL, our performance on the gross margin was extremely strong, which is combination of product mix within the existing BUs as — the price increases that we took specifically in some of the products in HPP, as well as in the in this on the specialty side. Of course, the operating margin level is still at around 25%. That is primarily because some of our fixed costs like employee cost, etc., is going to increase, which is primarily the investment that we are actually making in some of this growth related opportunities that we are seeing across the business.

Ankur Periwal — Axis Capital — Analyst

Sure. Sir, 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.

Radhesh R. Welling — Managing Director

So we believe and which will basically get reflected in your NFSL numbers. You’re absolutely right. From onwards, we should actually see significant improvement on the gross margin side.

Ankur Periwal — Axis Capital — Analyst

Sure sir. Second question on the CDMO side. You did allude towards the invoicing, the revenue invoicing starting Q. Just wanted to understand you know any commentary from the global clients, especially the European one from a demand outlook perspective.

Radhesh R. Welling — Managing Director

Yeah, so, the overall the demand continues to remain very strong and what had happened earlier was that almost for a period of two years, lot of large pharma companies were either a, focusing on the lot of COVID-related opportunities or were not able to move as fast as they wanted on the trials — clinical trials, etc., because of the lockdowns etc. 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 three now we are actually seeing a lot of activities. We actually had two large pharma innovators who we have been talking to for quite some time, but they were just not able — we were 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 they have already started seeing some queries coming in from these pharma innovators. So, we’ve — on each of those three accounts, we are actually seeing positive movement.

Ankur Periwal — Axis Capital — Analyst

Okay. Great, 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?

Radhesh R. Welling — Managing Director

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.

Ankur Periwal — Axis Capital — Analyst

Sure. That’s helpful and encouraging. Thank you, sir. Thanks, and all the best.

Operator

Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla AMC. Please go ahead.

Naushad Chaudhary — Aditya Birla AMC — Analyst

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?

Radhesh R. Welling — Managing Director

So, as was indicated earlier, when we announced this particular signing of the multi-year material supply agreement, we have a clear understanding with the customer for a certain volume uptake over a period — over the life of that, 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 critical raw materials with our supplier. One of the most important raw material for this is HF, which is 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.

Naushad Chaudhary — Aditya Birla AMC — Analyst

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?

Radhesh R. Welling — Managing Director

Yeah. 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. [Indecipherable] 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 six-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 — the agreement basically talked about a fixed price for year one, which is basically year 2022. Because of the significant increase in the raw material price, etc, 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 all the raw material for the calendar year 2023.

Naushad Chaudhary — Aditya Birla AMC — Analyst

So, for now till next November, our raw material procurement prices are open, but finished product prices are fixed till November next year, right?

Radhesh R. Welling — Managing Director

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 we are consistent [Phonetic] 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.

Naushad Chaudhary — Aditya Birla AMC — Analyst

All right. Just one on this only. 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?

Radhesh R. Welling — Managing Director

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 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 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.

Naushad Chaudhary — Aditya Birla AMC — Analyst

Understood. All the best, sir. Thank you so much.

Radhesh R. Welling — Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Ranjit from IIFL Securities. Please go ahead.

Ranjit Cirumalla — IIFL Securities — Analyst

Yeah. Hi, sir. Thanks for taking my question. Again coming back on this HPP…

Operator

Sorry to interrupt, Mr. Ranjit. Sir, we are not able to hear you clearly.

Ranjit Cirumalla — IIFL Securities — Analyst

Yeah. Is this better?

Operator

Much better. Thank you.

Ranjit Cirumalla — IIFL Securities — Analyst

Yeah. Thank you, sir, for taking my question. 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 INR50-odd crore…

Operator

Mr. Ranjit, we are not able to hear your question.

Ranjit Cirumalla — IIFL Securities — Analyst

I will come back later.

Operator

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. Please go ahead.

Archit Joshi — B&K Securities — Analyst

Thank you, sir, for the opportunity, and very good morning. Sir, on the specialty chemicals bit, I had two questions. The first one is clarification. You have mentioned in the presentation that there will be two plants that we will be commissioning in the next quarter, the ensuing quarter. So, these two plants in the spec chem side or are these the ones that the — one of them being the MPP and INR225 crore capex plant or the project that we had announced last year. Are these two plants or am I missing something?

Radhesh R. Welling — Managing Director

Yeah. You are absolutely right. Those are the two plants.

Archit Joshi — B&K Securities — Analyst

Sure, sir. Sir, something more on spec chem. You have obviously delivered a very strong growth in spec chem in the last two 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?

Radhesh R. Welling — Managing Director

So, I think, spec chem growth will happen in two manners. One is, a lot of these new projects that will come up in Dahej, for that we have already made three announcements, two of which will get — two of these plants will get commissioned in this quarter and one will get 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 our 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, four, five 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 the thing that we continue to do right now. Currently, 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%.

Archit Joshi — B&K Securities — Analyst

Understood, sir. Thanks for the clarification. Just one bit on the financials. So we have seen reasonable increase in our consolidated long-term and short-term debt. We’ve added almost INR280 crore, INR290-odd crores of debt. 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. Thank you.

Radhesh R. Welling — Managing Director

Yeah. 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, yeah.

Archit Joshi — B&K Securities — Analyst

Understood, sir. Thank you. Wishing you a Happy Diwali.

Radhesh R. Welling — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ranjit from IIFL Securities. Please go ahead.

Ranjit Cirumalla — IIFL Securities — Analyst

Yeah. Hi, sir. Hope the line is better now?

Radhesh R. Welling — Managing Director

Yes, it is.

Ranjit Cirumalla — IIFL Securities — Analyst

Yeah. 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.

Radhesh R. Welling — Managing Director

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 from next quarter onwards. Also, we are currently working on a completely separate for a large HF plant to be set up in the 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.

Ranjit Cirumalla — IIFL Securities — Analyst

So that should again pave way for…

Radhesh R. Welling — Managing Director

Yeah, which will basically support not only [Indecipherable] 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 a 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 3,200 [Phonetic] metric ton new capacity in Dahej. And before end of current financial year, we should be — we are planning to take it to the Board.

Ranjit Cirumalla — IIFL Securities — Analyst

Okay, sir. That’s helpful. 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 two to three years?

Radhesh R. Welling — Managing Director

Sorry. Are you specifically talking about HFO?

Ranjit Cirumalla — IIFL Securities — Analyst

MDC.

Radhesh R. Welling — Managing Director

Oh, you’re talking about MDC for R32. Yeah. 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, etc. 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 two years to three years.

Ranjit Cirumalla — IIFL Securities — Analyst

Okay. Thank you. And the last question…

Radhesh R. Welling — Managing Director

[Technical Issues] for our benefit or project economics.

Ranjit Cirumalla — IIFL Securities — Analyst

Yeah. And the last one would be — the R32 would be largely for domestic or we are also looking at exports? Thank you.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

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.

Ranjit Cirumalla — IIFL Securities — Analyst

Okay, sir. Thank you. Thank you very much.

Operator

Thank you. The next question is from the line of Isha Agarwal from VT Capital. Please go ahead.

Isha Agarwal — VT Capital — Analyst

Thanks for the opportunity. Sir, my question…

Operator

Sorry to interrupt. Ms. Agarwal, your audio is breaking up.

Isha Agarwal — VT Capital — Analyst

Yeah. Can you hear me now?

Operator

Yes.

Isha Agarwal — VT Capital — Analyst

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.

Radhesh R. Welling — Managing Director

If you look at the CDMO business, the way it operates is, most of the client engagement typically starts 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 are 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.

Isha Agarwal — VT Capital — Analyst

Okay. 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?

Radhesh R. Welling — Managing Director

No. So we don’t actually give out the exact percentages, etc, because that’s just too much of information. But typically our focus — 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.

Isha Agarwal — VT Capital — Analyst

Okay, okay. Sir, my next question…

Operator

Sorry to interrupt. Ms. Agarwal, may we request that you return to the question queue. There are participants waiting for their turn.

Isha Agarwal — VT Capital — Analyst

Okay, okay. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Sanjesh Jain — ICICI Securities — Analyst

Yeah, good morning. Thanks for taking my question. I got two. 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 12×4, 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?

Radhesh R. Welling — Managing Director

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.

Sanjesh Jain — ICICI Securities — Analyst

Second, on the HFC side, we talked about the INR200 crores revenue from the R32. Can you help us understand — this is based on the current realization, I think so, that’s how…

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

Sorry. I’m Partha Roychowdhury. This is based on view on the realization.

Sanjesh Jain — ICICI Securities — Analyst

Sorry, I missed you, sir.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

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, we will come in ’20 [Phonetic] calendar year and ’24 calendar year. Yeah?

Sanjesh Jain — ICICI Securities — Analyst

Okay. 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.

Radhesh R. Welling — Managing Director

Yes, but we can’t discuss the view on this forum, no?

Sanjesh Jain — ICICI Securities — Analyst

Fine, sir. Just one last question on the Annual Report.

Operator

Sorry to interrupt, Mr. Jain. Sir, may we request that you to return to the question queue.

Sanjesh Jain — ICICI Securities — Analyst

Thanks, sir. Okay, okay. Thank you. Thank you, sir. Thank you for all the answers.

Operator

Thank you. The next question is from the line of Rohan Gupta from Edelweiss. Please go ahead.

Rohan Gupta — Edelweiss — Analyst

Hi, sir. Good morning, and thanks for the opportunity. 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 two years from your side?

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

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.

Radhesh R. Welling — Managing Director

Yeah. 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, etc, 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 number two or a number three player.

So, yes, we will probably make smaller investments and 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 clearly differentiated play and hence a very clear sustainable, profitable business proposition.

Rohan Gupta — Edelweiss — Analyst

But, sir. Just to clarify that…

Operator

Sorry to interrupt, Mr. Gupta.

Rohan Gupta — Edelweiss — Analyst

Madam, it’s just an extension of the previous question.

Radhesh R. Welling — Managing Director

Just a second. Please go ahead. Just let him complete the point.

Rohan Gupta — Edelweiss — Analyst

Yeah. 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 two 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.

Radhesh R. Welling — Managing Director

You are talking about future investments, right?

Rohan Gupta — Edelweiss — Analyst

Right. Absolutely right, sir.

Radhesh R. Welling — Managing Director

So, future — I mean, it’s going to be 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, etc. So it’s very difficult for me to actually give you a number, etc, 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.

Rohan Gupta — Edelweiss — Analyst

Okay, sir.

Radhesh R. Welling — Managing Director

It’s difficult for me to comment on that question.

Rohan Gupta — Edelweiss — Analyst

Thank you, sir. Thanks a lot.

Operator

Thank you. The next question is from the line of Rajesh Joshi [Phonetic] from Marcellus Investment Managers Private Limited. Mr. Joshi, your line is unmuted. Please go ahead. Mr. Rajesh Joshi?

Rajesh Joshi — Marcellus Investment Managers Private Limited — Analyst

Hello. Am I audible?

Operator

Sir, your audio is sounding very soft.

Rajesh Joshi — Marcellus Investment Managers Private Limited — Analyst

Yeah. Good afternoon, sir. Is this better?

Operator

Yes, sir. Much better. Please proceed.

Rajesh Joshi — Marcellus Investment Managers Private Limited — Analyst

Yeah. 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?

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

You are talking about the consolidated numbers, right?

Rajesh Joshi — Marcellus Investment Managers Private Limited — Analyst

Yes. That’s correct, sir.

Partha Roychowdhury — Chief Executive Officer, HPP Business and Interim Chief Financial Officer

So, this is an accumulation of 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 alters 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. Yeah?

Rajesh Joshi — Marcellus Investment Managers Private Limited — Analyst

All right. Thanks a lot, sir.

Radhesh R. Welling — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sabyasachi Mukerji from Centrum PMS. Please go ahead.

Sabyasachi Mukerji — Centrum PMS — Analyst

Yeah, hi. Thanks for the opportunity. I have just one question on your CRAMS business. If I look at the long-term trajectory, so we have been doing this INR280 crores, INR290 crores, INR300 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 INR180 crores to INR200 crores. So, I mean, is this the nature of the business that probably every three years we see — and you talk about good CY ’23. So, is this the nature of the business that every three 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 two years, three years?

Radhesh R. Welling — Managing Director

Yeah. 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 three cGMP plants. We don’t have a large cGMP plant like what’s in specialty, etc, 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 two to three years, it remains flat, and then suddenly we see a big jump, and then again it gets like flat, etc. Directionally, our focus is to ensure that by FY, let’s say, ’25, and this is something that I have indicated before also, that by FY ’25 or the year after, we should be able to touch $100 million revenue in CDMO. That’s what we are currently looking at.

Sabyasachi Mukerji — Centrum PMS — Analyst

And we work with only pharma innovators?

Radhesh R. Welling — Managing Director

So, CDMO business is primarily pharma, not primarily only pharma innovators.

Sabyasachi Mukerji — Centrum PMS — Analyst

Okay. Thank you. Thanks a lot.

Radhesh R. Welling — Managing Director

No other segment and no pharma — we don’t do any business with Indian pharma companies in that business.

Sabyasachi Mukerji — Centrum PMS — Analyst

Thank you, sir. That’s all from my side.

Operator

Thank you. Ladies and gentlemen, we will be taking the last question, that is from the line of Amar Maurya from AlfAccurate Advisors Private Limited. Please go ahead.

Amar Maurya — AlfAccurate Advisors Private Limited — Analyst

Yeah. Thanks a lot for the opportunity. 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 two quarters, right?

Radhesh R. Welling — Managing Director

No. The current indication that the customer has given us is over two 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, etc, of calendar year ’23, not financial year, calendar year ’23.

Amar Maurya — AlfAccurate Advisors Private Limited — Analyst

Okay. And secondly, when you’re saying that two specialty projects likely to commission, so I’m assuming that one project, which was like INR195 crore likely to commission in Q3, that is commissioning. And second that project of INR125 crores capex, that is also commissioning in Q3, right?

Radhesh R. Welling — Managing Director

Yeah. So, that INR125 crore, which is dedicated facility for a single molecule, will get commissioned in this Q3. And other — this one, which is a MPP, which is for multiple molecules, so there we’ve actually got different line. So we basically got two 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, etc. But that will happen in a phased manner.

Amar Maurya — AlfAccurate Advisors Private Limited — Analyst

Okay. So when you say two basically that Phase 1 of the INR195 crore and INR125 crore the single plant, correct?

Radhesh R. Welling — Managing Director

That’s correct. Yes.

Amar Maurya — AlfAccurate Advisors Private Limited — Analyst

Okay. Perfect, sir. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Radhesh Welling for his closing comments.

Radhesh R. Welling — Managing Director

Yeah. 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 a lot more had questions. So what I would actually request our Investor Relations partner, Orient Capital, is to coordinate with all of you and for a [Phonetic] 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’ll all get opportunity to ask as many questions as possible. So, please, if any query that you have or confirmation of the date, etc, 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.

Operator

[Operator Closing Remarks]