Neogen Chemicals Ltd

NSE:NEOGEN

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Neogen Chemicals Q1 FY '24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, sir.

[Nishid Solanki]

Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals Q1 FY '24 earnings conference call for Analysts and Investors.Today, we are joined by senior members of the management team, including Dr. Harin Kanani, Managing Director; Mr. Anurag Surana, Director; and Mr. Ketan Vyas, Chief Financial Officer. We will commence the call with opening thoughts from the management team post which we shall open the forum for Q&A where the management will be addressing queries of the participants.Before we commence, I would like to share a standard disclaimer. Certain statements made or discussed on the conference call today may be forward-looking in nature. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals Q1 FY '24 earnings presentation, which has been shared earlier.I would now like to invite Dr. Harin Kanani to share his perspectives. Thank you, and over to you, sir.

[Harin Kanani, executive]

Thank you, Nishid. Good afternoon, everyone, and thank you for joining us on Neogen Chemicals Q1 FY '24 earnings conference call. We reported our first quarter financial results on Saturday, 5th August 2023, and subsequently circulated the result documents. I trust you had an opportunity to glance through them.I will begin by taking you through the performance highlights, expansion initiatives and key updates, following which our CFO, Mr. Ketan Vyas, will share the financial performance.I'm glad that we have continued the momentum and entered the new financial year on a promising note, especially on the backdrop of challenging global scenario aggravated by persistent inventory destocking, swift re-opening of China, continued pressure from Russia-Ukraine conflict, as well as slowdown in several developed markets. All this has led to softening of raw material costs and resulted in realization, thereby impacting the volume offtake for the industry. Given the resilience of our business model and quality of the product offering, we are partly insulated by this impact. The credit for this goes to our team who remained agile and traversed through these headwinds. Let me underline that the demand for our products continued to be robust and visibility going forward also remains positive.Now, let me share a quick summary of our consolidated financial performance for Q1 FY '24. Revenues grew by 11% to INR 165 crores while EBITDA came in at INR 28 crores, higher by 14%. Profit after tax stood at INR 10 crore. Increase in top line was in line with incremental capacities added in organic and inorganic chemicals through brownfield expansion. Growth in EBITDA was a combination of softening RM prices linked to lithium and favorable business mix.In Q1 FY '24, we registered strong gains of 35% in organic chemical revenue led by both volumes and better realization for select products over last year. Whereas inorganic chemicals reported a de-growth of 25%, largely on account of lower prices of lithium raw material as compared to Q1 FY '23, while volumes remained intact. In an important achievement, Neogen Ionics Limited, 100% wholly-owned subsidiary of Neogen Chemicals housing the battery chemicals business made its first commercial sale of trial quantities of electrolyte. This is just the beginning of our ambitious foray in Battery Chemicals segment. Separately, during the quarter under review, BuLi Chem commenced the commercial production and sales under Neogen Chemicals, while revenue was not very meaningful in Q1 FY '24, this is expected to significantly increase from Q2 FY '24 and in the second half due fully realization. Our agreement with MUIS is taking concrete shape and we expect the design work of the new plant to be concluded before the end of this year as planned.Moving your attention to several other updates during Q1 FY '24. Firstly on electrolyte, we are in active discussion with 3 to 4 Indian cell manufacturers where commercial terms, including discussions around a memorandum of understanding is being considered. We are hopeful for positive outcome from the ongoing discussions. Even for lithium electrolyte salt supplies, we are engaged with more than 10 International potential customers, thereby giving us the confidence and visibility for a short volume offtake. Based on demand projection and future visibility shared by our customers, we may consider setting up higher capacity of both electrolyte as well as lithium electrolyte salt which will be communicated in due course. Considering the above developments, enabling resolutions have been proposed for equity raise.Now a quick update on the expansion plan. Our CapEx initiatives are progressing well. Brownfield expansion of specialty organic chemicals by 29 meter cube will be commissioned by March 2024, while 31 meter cube has already commissioned by Q4 FY '23 and has started contributing. Expansion of inorganic chemicals capacity from 15 meter cube to 30 meter cube in existing Inorganic MPP was commissioned in March 2023. The possible positive contribution of which will be visible during the current year and will receive full utilization in next 2 years' time.For Battery Chemicals, new capacity of 400 MTPA for manufacturing lithium electrolyte salt and additive is expected to be commissioned before September 2023, while plant for manufacturing 1,000 metric tons of electrolyte at Dahej facility is expected to be ready before December 2023. This is in line with battery capacities coming up in the country. Once commissioned, we expect our growth trajectory to accelerate in both existing business and Battery Chemicals.Overall, we remain positive on the long-term prospect and maintain our revenue guidance of INR 900 crores to INR 1,050 crores by FY '25-'26 in existing business, and INR 1,000 crores to INR 1,200 crores by FY '27 in Battery Chemicals. Revenue projections for Battery Chemicals is being considered for revision post-MUIS agreement, as highlighted previously, and we will be in a better position to comment on this by end of the year.Let me conclude by saying that we are excited on the next phase of growth that lies ahead. Our CSM business, especially as we indicated in flavor and fragrance is also progressing well. And also the first trial productions of several agrochemical customers are also going as planned in the current quarter, which will allow us to build a pipeline for next quarter. We are now poised to garner a significant share in Battery Chemicals given our domain expertise. Various initiatives undertaken in the past will bolster our offerings, strengthen our market position and relationship with our valued customers. Neogen will continue to leverage its expertise in complex chemistries and R&D to deliver sustained performance and enhance value for all stakeholders.That ends my opening thoughts. I would now request our CFO, Mr. Ketan Vyas, to share financial highlights for the period under review.

[Ketan Vyas, executive]

Thank you, Dr. Harin. Good afternoon, everyone, and welcome to Q1 FY '24 earnings call. I'll take you through the key financial highlights. Please note that these are on a consolidated basis and based on a year-on-year comparison.In Q1 FY '24, revenues grew by 11% year-on-year to INR 164.9 crore, in line with incremental capacities added recently. This came on the backdrop of significant global headwinds like inventory destocking, reopening of China and a slowdown in EU and other markets. Organic Chemicals saw revenue growth of 35% year-on-year at INR 121 crores, whereas Inorganic Chemicals noted a decline in revenue by 25% year-on-year at INR 44 crores. As highlighted by Dr. Harin, this captures the impact of lower prices of lithium raw material as compared to the same quarter in the previous year. The domestic and export mix stood at 65% and 35%, respectively. EBITDA increased by 14% year-on-year at INR 28.1 crore driven by a decline in raw material prices, especially of lithium and other input costs along with favorable business. PAT declined by 12% year-on-year at INR 9.8 crore. The moderation was on account of higher finance costs and depreciation from the ongoing expansion initiatives. This was also impacted by initial costs associated with the re-starting of BuLi Chemical facility and administrative-related expenditures related to Neogen Ionics Limited.That concludes the financial highlights. I will now request the moderator to open the forum for Q&A session.

[Operator]

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nilesh Ghuge from HDFC Securities.

[Nilesh Ghuge, analyst]

So my first question is on the end-user industry-wise. So can you give us the end-user industry-wise revenue mix for this particular quarter?

[Harin Kanani, executive]

So for this particular quarter, the pharma was between 50% to 60%, and agro and engineering was roughly between 15% to 20% and then around 4% to 5% were rest of the industry.

[Nilesh Ghuge, analyst]

Okay. And Harin, on the long-term contracts earlier, you always guide us that you have 2 long-term contracts, while will be -- one in CSM business and other into bromine derivatives.

[Harin Kanani, executive]

Yes.

[Nilesh Ghuge, analyst]

And you used to guide us that about INR 300 million to INR 400 million kind of revenue on a lower side and about INR 700 million to INR 800 million on a higher side. So can you just tell us how much is currently revenue we are getting on this long-term contract and where are we, at what stage?

[Harin Kanani, executive]

Yes. So like in these long-term contracts, I'll not be able to give you a specific number, but as we had said the bromine derivative customer was a pharma customer and they were expecting a launch. So we are seeing year-on-year, there were revenues increase. In the agro, till last year, the revenues were increasing. This year, we are still yet to receive a PO but we are expecting a bit slower because in there, we are seeing a more stronger Chinese competition. But together, they will contribute again around INR 40 crore, INR 50 crore plus, so INR 400 million, INR 500 million plus kind of a volume in this year based on whatever projections we have received so far. In fact, it might exceed a little bit more than that.

[Nilesh Ghuge, analyst]

Okay. And when you are guiding in your base business and you are saying that INR 950 crores to INR 1,000 crores kind of a revenue, so any another addition in the long-term contracts or it is just based on excluding long-term contract?

[Harin Kanani, executive]

So for the long-term contracts, as I mentioned earlier, we are currently in this year doing what we call as a first trial production for 4 to 5 agro customers in Japan and 1 or 2 flavor and fragrance companies. So these might lead to then long-term contracts. Again, it will depend because what we have seen is -- I mean they might get into a long-term arrangement, but if the value is not more they might still give us PO to PO, so they will still add to our CSM business but might not lead to a contract. But yeah, if the value is higher then we will get into a long-term contract with them. But from a CSM point of view, these 4, 5 customers currently this year we are doing 1 ton, 5 ton kind of a trial production. Then these will start contributing from next year onwards in a more meaningful way. But that will support our CSM business in addition to the existing contracts and the existing customers that we already have.

[Operator]

The next question is from the line of Anirudh Shetty from Solidarity Investment Managers.

[Anirudh Shetty, analyst]

I had a few questions. So my first question is, I see that the finance cost has gone up. So could you quantify what would our total debt be at this point in time and how much would be the term loans and how much would be working capital-related debt? And also, if you could give the working capital days as it is today?

[Harin Kanani, executive]

So yeah, maybe just on the debt side. So the increase is also being because so far the capitalization which we have done last year of all the CapEx which we have done, so that has now started contributing, which was earlier getting capitalized. So this is 1 of the criteria. And we'll not be able to give you the exact number of days, but more or less they are in line with the numbers we had last September to December. So they are a bit higher in terms of number of days as compared to March because the revenue is a little bit lower as compared to our last quarter, but in terms of absolute numbers, they are more or less in line with whatever was there in earlier quarters, slightly higher as compared to March, and in terms of days in terms of absolute numbers.

[Anirudh Shetty, analyst]

Okay. And could you quantify the gross debt right now?

[Harin Kanani, executive]

So as on June-end -- sorry, do you have the number? So the total gross debt was somewhere around INR 450 crore to INR 500 crore in that range as on June.

[Anirudh Shetty, analyst]

And you had mentioned that some assets got capitalized, which also explains why the depreciation went up. So which assets are we talking about?

[Harin Kanani, executive]

So in last year in March, our organic capacity, 50% of that has already came online, and also the 50% and also the lithium capacity already has also come online. So that was capitalized in the month of March. So both these are already contributing to the depreciation. As well as in BuLi Chem the land that we hold so that is also basically a leased land, but in that also in India the lease also has a depreciation component of that. So that gets added in the depreciation part.

[Anirudh Shetty, analyst]

So my next question is on Battery Chemicals business. In the last call, we had mentioned that we're looking at about 18% kind of EBITDA margin. And just wanted to understand the basis for this number because when I look at some of the global companies like Tinci from China, they seem to be making a higher EBITDA margin. So just wanted to understand the basis for the steady state margin that we're thinking about.

[Harin Kanani, executive]

Okay. So again, I don't know if Tinci actually also owns mines or they have something like that. They have their own mine or they are backward integrated and they do some other raw materials also. So what happens is in that case, your EBITDA is higher and your asset turns are lower, correct? So I think you should look at this EBITDA and asset turns both together. So as we have guided that we are doing lithium carbonate to, let's say, electrolyte, so lithium carbonate to first simple lithium salt, complex lithium salt, and complex lithium salt and then finally the conversion and formulation to electrolyte.So when we are looking at this piece of portion, we look at the investment, we look at a 20% kind of ROI. Then we are looking at EBITDA around 18% is what we are looking. Now again, as I said, this is first time this is happening in India. And electrolyte is something which is very fragmented. So if you look at the market in China, it's a different condition, in US, it's a different condition, in Japan, it's a different condition. So this is our assumption of what it will be in India and based on that we are guiding of this 18%-plus kind of an EBITDA. So we feel it is at least that much. I mean we'll try to always get better because we have to do a significant investment. So the more we can get we will be able to keep reinvesting in the battery materials business.

[Anirudh Shetty, analyst]

Got it. And just 1 final question. The salts capacity that we have is -- I think in the last call, you had mentioned it will be primarily for the export market. So does that approach still remain? And China is very large in the salt market but basis on discussions with customers from people from the industry, are there issues around the quality of the salts that come from China?

[Harin Kanani, executive]

No. So we've got some more clarity and we had, as we mentioned also, our interaction on the lithium salt in the international markets have also increased, and we've got a fair sense of where we are as against China. So a couple of things that we have understood is that we have PLI scheme, so similarly in US also there is some act called IRA Act. And as per that there is a requirement for some of these companies to decouple from China. So, in fact, if any OEM makers who are making who wants the government subsidy on the final EV vehicles, they have to make sure that their supply chain of the critical minerals is basically decoupled from China.So in this view, there's a lot of interest from these companies. Whatever numbers that we have seen, we feel that also in US there is a duty, on top of normal duty there is also some additional duty which is there, if you are importing this from China. So therefore, considering all of that, when we are looking at it, we are not very far off from the pricing point of view. So the main question which we had earlier that can we be competitive? So we are seeing we are there in the ballpark. But again, once we have the new plant starting of the salt that's when our customers will be able to then test it.So overall, the international testing period, I mean initial some sample would be 3 months kind of a period, but let's say for a longer test, it could be around a 6 month period, by which time then the customers can commit for a longer-term contracts and things like that. But we have seen a lot of interest internationally for the salt capacity and we are seeing also a lot of international customers are interacting with us. And yes, if that happens, then the salt capacity that we were planning, so as I have shared earlier, we have to put the salt capacity for the electrolyte as well as we have to put the salt capacity for selling anything outside. So by December, once we complete the design with MUIS and by that time we hopefully can also get a better clarity on the MOUs which we are discussing with our customer and get some volume commitments. So then based on that, once the capacity for electrolyte will get decided, based on that our capacity for the salt requirement in India will get decided, and in parallel, we will also get clarity on what is the international demand looking like. So with that, we will come up with our final CapEx plan.

[Anirudh Shetty, analyst]

Got it. But sir, my question was on quality of the salts that come from China. Would you say that, that purity-wise that it's at par with India? I just thought there are instances there the quality could be poorer from --

[Harin Kanani, executive]

Yeah. No. So honestly, what happens, look, 95% of today's batteries are being made from LiPF6 made from China. Of course, in China, there are many, many different grades. There are good manufacturers and there are cheap manufacturers. So, sometimes the guys who are making cheap, their quality is like sometimes a challenge, but there are good manufacturers who are currently part of the supply chain. And honestly, it's Neogen's turn to actually prove that our quality is at par with some of the best in China, Japan, and Korea. So this is what is a challenge for us. But in China, there are guys who are good. So the main reason why people are considering other than China options is mostly because of the regulatory scenario and derisking. So these are the 2 main challenges.

[Operator]

The next question is from the line of Saurabh Kapadia from Sundaram Mutual Fund.

[Saurabh Kapadia, analyst]

Yeah. So I was asking on the revenue. Your standalone revenue is higher than the consol revenue. So can you throw light on that?

[Harin Kanani, executive]

So basically in anticipation of this BuLi Chem happening before that handover happened to us, we had imported some of the raw materials for that partly, which were processed in Neogen and then transferred to BuLi Chem. But in BuLi Chem complete conversion had not happened. So this was just one-time thing to basically facilitate the transfer. So that's the reason why because of that inter-unit transfer the standalone revenues were a bit higher, but the consolidated was a bit lower.

[Saurabh Kapadia, analyst]

Okay. And what could be the quarterly fixed cost for the BuLi Chem going ahead?

[Harin Kanani, executive]

It's difficult for me to give you the fixed cost, but as I said, even there we will expect kind of 18%-plus kind of an EBITDA because again, we are seeing a very good demand. In last 3 months, we have received inquiries from Korea, Japan, Europe and even US. We were originally targeting pharma and agro but we even got some industries which we are not aware, demand from there. So we are looking at it positively. In fact, in the first few months, not only India customers are slowly restarting purchase because they have already some POs with others in pipeline, so now they have started shifting back to us. But we even got some international POs and have started working internationally, giving them the trial supplies for conversion. So hopefully, in Q3, Q4, we expect that with the India demand and with the international demand we should be seeing already a full utilization. And then depending on how this goes, we will take a call if we need to further increase capacity for next year.

[Saurabh Kapadia, analyst]

Okay. And sir, the last thing on the trial quantities of electrolyte which you have supplied. So is it through the [indiscernible] you are in talks with or this is through some other customer?

[Harin Kanani, executive]

Yeah. Like, it's a mix. So there are some customers who have not started the MOU discussion, but they wanted some initial quantity. It's few lakhs. It's not a very large number. But we already made a start so we had 1 international customer as well as 1 domestic customer to whom we have started now giving small quantities for their trial plant. And with 1 of them we are now also discussing a long-term MOU, and the other one is still having only their trial plant. Their bigger plant is still taking time. So we will start. But there are few others who have already made a progress. So there are few people who don't have a small facility they're directly building a large facility. So these guys have already started discussing with us for their requirements. And we hope if the requirements, which they are saying goes as per what we are expecting, with these 2 people as well as few others even in Q4 we will start seeing contributions coming both from our Neogen Ionics salt as well as our electrolyte.

[Operator]

The next question is from the line of Archit Joshi from B&K Securities.

[Archit Joshi, analyst]

Sir, if you can just add some supplementary things on this Battery Chemicals project. So from what I heard from previous participants was largely on the international markets, wherein you are seeing a very good traction. If you can share your learnings as to how we are seeing this progress in the domestic market, which is where we are largely going to plan the sales of electrolytes. So basically this is on the lines of what we had anticipated before the PLI benefits kick in, there'll be some amount of capacities for gigawatt facilities that you are targeting. So are these on stream or there are any delays here and there? And how would that basically change what we are looking in terms of revenues by FY '27 maybe FY '26, '27?

[Harin Kanani, executive]

Sure. So, as what I have seen earlier, we still reaffirm that. There is no change that there may be some people who may start in 2024, and most of the other people will start in 2025. And they will all start with about 1 gigawatt hour or 1 gigawatt hour to 3 gigawatt hour kind of initial capacity in 2024-2025. And then '25, so the guys who'll start in '24 will have a ramp up in '25. And the guys who'll start in '25 will have a ramp up in '26, so that first jump will happen in '25 or '26. So my expectation is by '26, all the people who are currently planning who have shown their investment intention would be operating, let's say, at least between 5 gigawatt to 10 gigawatt hour kind of capacities. And then '27 and '28, they will all basically double their capacities or even faster rate depending on.So based on whatever we have said or whatever we have seen that's the reason why we've maintained our guidance. In addition to that and this is again still considering electrolyte demands of India and based on whatever we had estimated earlier, if we get a higher market share as we start doing this contract then we will see. We are seeing some of the customers said that in the beginning, because of their technology partner's requirement in the beginning, they might get some quantities from, let's say, China or Japan, wherever the technology partner was. When they want to prove that the cells and the plant is working well, but they all said after initial quantity it is not sustainable and we have to localize and they have shown keen interest for localizing it and to work with Neogen. So based on that now we have started working on a more detailed contracts with these customers. Again MOU, they are happy to sign, but again, what sort of a minimum commitment they can give or these are the things which we are basically working on so that we have at least some better visibility on the demand.The main challenges for them also its happening new so therefore that commitment is a challenge. So what if the project gets delayed and stuff like that. So that's why we are working without how we can resolve it in a comfortable way and then basically proceed based on that. So we feel, again, in next 3, 4 months, we'll have a better clarity from these customers and that's why by the time we get the design from Mitsubishi, by the time we get from this, we will be able to decide exactly on our capacity. The 1,000 metric ton which we have said, our effort is that from 1,000 metric ton we can directly go to -- directly the Mitsubishi plant. So the first 1,000 metric ton which we are starting in December, we'll start with that and that should take care of the people who are starting in 2024. But for 2025, depending on the exact time, we might have to maybe increase this 1,000 metric ton a little bit, depends on the time lines of the plant which we are building with Mitsubishi's help. So this is something which we'll keep reviewing. And hopefully, around October-December, so let's say, either our September call is a good scenario or definitely, let's say, by our December call, which is in January, we should have a more concrete information on the capacity of this.

[Archit Joshi, analyst]

I have a couple more. 1 again, sir, on the international markets, especially in the supply chain that we're hearing of a lot of dumping that you also mentioned in the initial remarks. And given that, since you are seeing this localization trend within the Battery Chemicals division, so would it be fair to assume that because China, as you said, 95% of the batteries are using the LiPF6 or battery materials from China, would dumping also impact this particular chain that we are trying to target?

[Harin Kanani, executive]

Sorry, I didn't understand the question. Dumping where?

[Archit Joshi, analyst]

Dumping sir in LiPF6 globally. Are you seeing any effects of that? Or is it that because of a largely more B2B kind of a setup and the localization trends that you were talking about, most of it will be insulated and we may not have China to pose a very serious problem despite having very high production capacity?

[Harin Kanani, executive]

Sure. So actually, the way I said actually anti-dumping kind of duties not dumping by China. So in US, they have identified some countries of risk. And if you are importing the critical battery materials from there, you have to pay some additional 20%, 25% cost. So that is what I meant that while they have a volume but because they have the duties, so therefore, let's say, if you are supplying from India, our product becomes more comparable to the landed cost of the Chinese. Because if you are importing from India, you just have a normal custom duty, you don't have this higher duty. So that is what helps us compete against China in international market.When it comes to India, we don't plan to make the salt. We basically want to make the electrolyte. And almost all the companies have said that they want to ensure that the electrolyte is basically made is basically bought locally. Now within electrolyte, let's say, LiPF6, if they want the value addition, the people who want PLI or maybe there will be future PLIs, so for the future PLIs also if the value addition becomes critical or let's say in India also there are some custom duties the LiPF6 also has to be made in India because otherwise, we will not meet the value addition criteria.And also from a supply security point of view also, it makes sense that people -- we make directly from scratch from directly lithium carbonate to electrolyte. So this is something which is really appreciated by the customers. And what we've seen because LiPF6 is only 10% of the cost, so because it's only 10% of the cost and -- sorry 10% to 15% by volume, not cost, so therefore on a electrolyte level the impact gets reduced and the logistical advantage and the security of supply advantages that we have can be better managed at the electrolyte level when we are thinking of the India market.

[Archit Joshi, analyst]

Sir, 1 last bit on our potential capital structure. I can see that along with the enabling resolution for fund raise, we have also proposed to the Board that we might want to extend our borrowing limit to INR 1,000 crores. What would our capital structure be? What is the kind of debt to equity we are looking at, not in the interim, obviously, given that we are expanding capacities, but any broad outlook on the capital structure that will be helpful?

[Harin Kanani, executive]

Yeah. So we still standby that we would like to basically make sure that we remain debt equity below 1.25. So that's kind of our limit. And ideally, we like to be below 1. So that's been a one of -- so that's why along with the increase in the borrowing limits, we've also increased intention to basically raise equity. So again, both these are just enabling resolutions. So they are all on the higher side what we feel can be maximum required. So we'll keep checking on that. And based on that, we will take a call and balance so that debt-equity remains, let's say, below 1.25 as we plan our expansion. We are also discussing with some customers where they can part finance the plant and stuff like that, so not domestically but international customers where there is a interest rate arbitrage also and it further reduces risk on our side, but we'll see how those go.

[Operator]

The next question is from the line of Yash Shah from Investec.

[Yash Shah, analyst]

Sir, your first question was regarding developments which happened in China. They've launched first in the world lithium contract with global physical delivery. So would like to understand the impact on us. What are your views on that, sir?

[Harin Kanani, executive]

Sorry, can you repeat your question? First time they've done what?

[Yash Shah, analyst]

They've launched lithium contract with global physical delivery.

[Harin Kanani, executive]

Okay. So I think what you are basically meaning is like a forward contract kind of a structure in the lithium market, right?

[Yash Shah, analyst]

Yeah.

[Harin Kanani, executive]

So I think so far, I mean majority of the industry is still not yet caught on to that. And if at all it becomes, it just helps you hedge your risk better. However, what we have seen this that whenever we are talking of these large volumes, the lithium companies are anyways very happy to link it to a contract. So anyway, this is ultimately for us, it's always going to be back-to-back. So if my lithium mining guy says, hey, we can get into a 5-year contract with a minimum volume kind of a commitment and you have to basically change the price every quarterly, my LiPF6 customer or electrolyte customers is basically going to be able to do that. If my customer wants to do the hedging, then we will also do the hedging. So it just gives our increases the options that we have to control our prices.

[Yash Shah, analyst]

Sir, my second question was regarding our current capacity expansions. So as I noticed across all our 3 segments Organic, Inorganic and the new business which is the Battery Chemicals, our basically the completion time line has been increased by a quarter or two. So what is the primary reason there, sir? Is it because of the macro headwinds which we are facing or can you elaborate on that, sir?

[Harin Kanani, executive]

So for us, it's just a couple of months actually. So we had said our battery capacity was basically going to start sometime in June-July. Instead of that, it is basically the salt capacity is starting in August-September. So basically our Phase 1 is likely to start by August. And the Phase 2 of that, so there are 2 stages. Stage 1 will start in August and Stage 2 is expected to start by September for the salt. And for the electrolyte also earlier we had said September-October, against that we are now seeing November-December. So this is something which new we are doing and like just couple of months delay on that in this.As regards to specifically the Organic where you are seeing almost a 2-quarter jump, so there we were basically waiting for this project that we are currently executing to complete and then based on that take a call exactly which kind of reactors we want to offer. So the capacity which we have been adding last year and this year, it's not just adding more glass-line and stainless steel reactors. We are fine-tuning it to different chemistries we want to do. So let's say if you want to do more organolithium or if you want to do more chlorination or if you want to do more pressure reaction. So depending on how these projects, so that's the reason why we took a call that already the ones on which we had clarity we installed it. The ones which are remaining we wanted the current trial runs to get over, let's say, in this quarter and next quarter. And then based on the visibility that we get from the customer that which customer is interested in the larger volume, with those customers we will basically try to add capacity in Q3 and Q4. So that's why we have delayed that a little bit.

[Yash Shah, analyst]

Sir, my next question was regarding the bromine prices. If my understanding is correct, please correct me, sir. So on the contrary to the price erosion which has been happening in the industry, bromine prices have in fact increased this quarter. Do we expect to see any kind of benefit in absolute profitability say in the quarter going forward because of the bromine prices increasing?

[Harin Kanani, executive]

So actually, first of all, bromine is our raw material, right? And like I said, we always get into annual contracts. So this year from a bromine point of view has been bit of a challenge for us because with the international guys we basically get into contract in December and January, and with the local companies we get into contract in the month of usually April and May. So this time what has happened is in December, January, the prices were different and in April and May, the prices are like corrected very significantly. So yes, like this year is a little bit. So if we average it out, I would say most of the time this long-term bromine really help us, but this time it's going to be a bit of a challenge. But it's okay. I mean it just gives us the stability. And most likely, what we expect usually by around November-December, so by Q3, Q4, our average price will be almost similar to, let's say, whatever because again, as you rightly said the bromine prices hit their bottom and now slightly started kind of going up. But we feel on an average, when we look at the whole year, our average will be similar to what the market average has been. So we are not seeing any positive if the prices is increasing or we don't see a direct benefit of that immediately.

[Yash Shah, analyst]

One last small question, sir. Regarding tax rates, so this quarter we had a tax rate of around 29% and we had previously guided that we will have our tax rate of between 22% to 25% for the whole year. So do we maintain that guidance and the taxes will be lower for the rest of the 3 quarters then?

[Harin Kanani, executive]

Yeah. So our understanding I think it was around 27%, but we'll have to just check that 29%, maybe on the consol level and there might be some difference. But we feel again a little bit it was also because you've seen our exports are a bit reduced so from Dahej the export sales were a bit lower, but we feel for the whole year, we should be in that range between 22% to 25%.

[Operator]

The next question is from the line of Sabyasachi Mukerji from Bajaj Finserv Asset Management.

[Sabyasachi Mukerji, analyst]

So my first question is, you mentioned these 10 international potential customers that we are with in dialog, these are electrolyte makers or are these cell manufacturers? And which geographies are these customers if you can highlight?

[Harin Kanani, executive]

See broadly, they are Japan, Korea, and US and some in Europe, but mostly these 3 countries. And yeah, so they are a mix. They are electrolyte producers, cell producers who want to control their whole supply chain. So they have somebody who will make their electrolyte in the international, but they still want to discuss directly for who they will buy LiPF6 from.

[Sabyasachi Mukerji, analyst]

So are they procuring from their respective geographies and as well as a second source or a third source they are approaching us? Is it that way?

[Harin Kanani, executive]

So mostly many of them are dependent on China and some are a mix of China plus Japan or China plus Korea. So now they want to also add India so that -- because in Japan and Korea, the capacities are not increasing to the level which they need because it's very difficult and very costly to increase the capacities there. They are increasing but not to the levels which they want. There are more capacities also which are coming in US but that's going to take a longer period for them to come online, whereas we are coming online one of the first outside these 3 countries. And also cost-wise also, we seem to be competitive. So this is why there is interest from them to develop India.

[Sabyasachi Mukerji, analyst]

Got it. My second question is on the BuLi Chemicals revenue. I think last call you mentioned that we are probably looking at somewhere around INR 50 crores to INR 75 crores in this current fiscal. You want to change that number or is that looking upwards, some color on that?

[Harin Kanani, executive]

No. So at least for now, I will maintain that number that we are looking at that number for the year. If things go really well, then we might be able to do a little bit more, but at least that much we should be able to do. And it will also depend on what is the lithium price is. So current lithium price is, we are somewhere between INR 50 to INR 75. We are at about INR 60 odd crores or something like that. We'll see where it goes. And also, whatever we have lost in Q1, in Q2 we feel will be better and in Q3, Q4 will make up for that. So that for the full year, we achieve that revenue potential.

[Sabyasachi Mukerji, analyst]

Right. Lastly, on this 2-quarter delay in the balance capacity addition in the Organic Chemicals reactor, you clarified that you are just waiting for the current pilot project how it pans out and which probably which customer which chemistry you are waiting for. So my question is where do we see that we will be kind of running out of capacity in the Organic Chemicals post this expansion by March '24 and we'll have to kind of think of the next phase of CapEx in our Organic Chemicals and what would be that size, approximate?

[Harin Kanani, executive]

Sure. So our full capacity utilization, we were expecting somewhere by '25, '26. So let's say looking at current global scenario and other challenges, we assume FY '26 as a full utilization kind of condition. So sometime in end of FY '25 early FY '26 because next will be a brownfield expansion so sometime end of '25 early '26, we should be looking at further capacity addition. Now we'll have to see whether it's a incremental capacity or if we have some large projects then we have to go for a whole block. Now if the block is the same size as our existing, then roughly it's somewhere around INR 150 crore, INR 200 crore kind of investment, which basically gives us a revenue visibility of around INR 300 crore, INR 400 crores, so that will be additional one. But again, we have to see at that time what the pipeline looks like and take a decision. If required, if the situation remains the same or like by that time also, we can take a pause also. So we want to make sure that it should be optimized and we are fully utilizing our facilities. And only once we have a very clear visibility of full utilization, we'll do a major further capacity expansion in Organic.

[Sabyasachi Mukerji, analyst]

Got it, sir. Last question for Ketan sir. What would be the absolute inventory number at June end?

[Ketan Vyas, executive]

It is a similar level at what we had in March.

[Operator]

The next question is from the line of Rohit Nagraj from Centrum Broking.

[Rohit Nagraj, analyst]

So my first question is, you mentioned in the opening remarks that we will be ready with the designing part by end of this year. So is it the calendar year '23? And an aligned question to that, how much time will it take for us to put up the plant in terms of -- I understand there would be some technical people coming from Japan to -- during the erection phase? So what is the time line that we are looking out from the plant commissioning perspective?

[Harin Kanani, executive]

Sure. So, yes, so that is end of the calendar year this year. So as we had said, sometime between October to December. I think I was being more optimistic on October, we still keep pushing. But we feel, let's say, by November-December, we will be having the final design ready from our technology partner, MUIS side. In terms of execution, we are expecting from the time the design gets finalized it will be 15 months to 18 months by which the plant will be ready and we can start our trial production off that. So we expect sometime, let's say, I mean sometime in '25, so sometime basically in FY '26 the new capacity should come online.

[Rohit Nagraj, analyst]

Sure. Second question is from the R&D perspective. Now, given that we have already started the sampling exercise we probably will be getting the recipes from MUIS collaboration. How are you segregating the time in terms of or rather time and efforts in terms of -- from the R&D new product perspective on the legacy business and on the electrolyte and salts business? And what is the plan that we are looking at in terms of further product basket expansion?

[Harin Kanani, executive]

Sure. So in terms of our R&D, we have a dedicated separate team, which is basically taking care of the lithium-ion battery materials and a separate team which is basically taking care of the organic production. And basically, this entire battery materials team was added in last 2 years to 3 years. So there is no conflict that, okay, if this is more that is less. We are also expanding our R&D capabilities so the admin part is over and before the end of this year our, let's say, R&D capacity will also be 2.5 times to 3 times of what is our today's size. Again, the main increase in the capacity, the way we are planning to use is that we feel by this time we will start having some innovator CSM projects. So we will have some teams dedicated for the larger innovators. Sorry, I meant the larger innovators with whom we have started working. So maybe some will be additional CSM projects from this larger innovators. We are also going to increase our work in lithium and battery material space.And the third, which we will also planning to consider is to expand our capabilities around BuLi acquisition that we did. So in terms of main thing that we have there is our lithium-metal handling ability. So how we can use this in other molecules and other applications where lithium-metal gets used so that is going to be also something which we will keep working on so that going forward. But again, most of this, the additional activities will start in next financial year as our R&D team expands and R&D space expands and R&D team expands. So this is what we are looking going forward.

[Operator]

We have the next question from the line of Anirudh Shetty from Solidarity Investment Managers.

[Anirudh Shetty, analyst]

Sir, you had mentioned that the opportunity to derisk from China is there with IRA. And so you've done an interview with BloombergQuint where you had also mentioned that there are some challenges as India doesn't have FTA, but there was a critical metal treaty in USA. So I just wanted to get more color around this point as you mentioned.

[Harin Kanani, executive]

Yeah. So basically, China has a problem because there are 2 challenges for China. 1 is the additional duties and the second is because of being countries of risk if you don't have that -- if you are buying a significant quantity from China, then you will not be able to get the benefits. So when you buy from India also, the negative part is not there, but there is no positive that you bought it but the duty still remains, the 25% duty still remains, right? So that's basically the understanding. But at least, India is not on the negative list, right? So that is one good thing. If you are on that negative list, you will have to pay 25% extra duty. So we don't have to pay that.

[Anirudh Shetty, analyst]

Got it. And is there any dumping duty on China in European countries as well or just USA right now?

[Harin Kanani, executive]

So far as I know, in US. In Europe, I am not aware yet if there is a provision like this in Europe because like again in Europe now there were no batteries being made. So Europe is like similar situation as India, they are also starting. Only they are maybe a year ahead because they could get capital and clarity and the government action was a bit faster. So as we said, they are starting in '24, '25 and majority people will start in '25. In Europe also a similar situation. The plants are starting '24, '25, but they are starting at a much larger capacity from the beginning. So Europe is a little bit ahead, but that's why the rules around that are not yet framed because there is no major electrolyte production anyways happening in Europe currently. But all of this will start in '24, '25. So this '24, '25, '26, the 3 years are going to be very critical world over in all the geographies where the entire reshaping is happening because from the time after COVID when the world decided, okay, EVs are good and we want to go to EV, so that thought started in '21, '22. And any implementation, project takes 2 to 3 years when you are starting from scratch. So that's why these '24, '25 years are critical. And I think by '26, we will have a major new kind of alignment per to say of the new supply chain all over the world. This is our estimate. So these 3 years are very critical if you want to do something in battery supply chain.

[Anirudh Shetty, analyst]

Got it. And sir, my final question is in the market is -- there could be an inflection point, wherein the electrolyte demand could only pick up in India. So if you all have to expand say from 1,000 metric tons to hypothetically 5,000 metric tons, how long does it take to set up new capacities? And the market opportunity is much bigger, you all can grow even larger than 5,000 metric tons over time. So how do you think about securing your lithium carbonate sourcing at a larger scale? Do you all have that kind of visibility right now or that will be something that you all will have to build as you go by?

[Harin Kanani, executive]

Sorry, I got your question, but how do you do sourcing of?

[Anirudh Shetty, analyst]

Your raw material, your lithium carbonate.

[Harin Kanani, executive]

Okay. Yeah. So for lithium carbonate, the capacities exist. We have given various projections including cathode material what India requires and we are fairly confident we'll not have a bottleneck on lithium because we have a very good relationship with the top 2, 3 producers. They have a lot of comfort in India. In fact, even the lithium companies want India to kind of develop because they are also currently very heavily dependent on China. And it's also very difficult and very painful sometimes for them because China sometimes plays many many games, which they have to unfortunately live with because today the majority of the demand is there.So even they are quite keen of this new alignment because then the world can do business in a more stable way. In China, you have extreme lows and extreme highs whereas rest of the world usually works on a more lesser kind of deviation. So as the supply chain gets distributed so the lithium that they are selling also gets distributed and their dependency to sell it in China the way Chinese like to do business also reduces. So they are very happy to support India or Neogen at least if I can say and they are keen to work with us. Of course, the only thing is if we want commitment from them, we have to give them commitment, so it's as simple as that. And my customers have to decide that do they want to remain open or do they want to secure. If they want to secure, we can get that security, but ultimately the customer will also have to give a commitment. So the customer ultimately makes a choice between security and -- like security versus commitment. And accordingly, once they make the choice, we can always source lithium for them. So that's not going to be a challenge.

[Anirudh Shetty, analyst]

Got it. And sir, on the ramp-up. So we'll have to ramp up from say, 1,000 metric tons. The gestation period to get the next phase, how long does that typically take?

[Harin Kanani, executive]

So usually, our expectation is, let's say, around 12 months to 15 months. But again, this is in the beginning. I think in the electrolyte it will be a bit faster. In electrolyte salts, it will be a bit lower -- I mean sorry, it will be a bit longer mainly reason being that the number of equipment involved. And when we prepare the site, we can always have some common infrastructure ready and then we have to do only equipment orders, something like that. So we'll take a view.So the first one is going to take a bit time, but luckily, we also have time because one, my Dahej can take care of the immediate requirements. I mean, for example, if somebody wants 2,000 metric tons or 4,000 metric tons more, in my Dahej site also I can increase -- I mean if it's international business then in Dahej site also I can increase capacity and take care of that in 12 months' to 15 months' time. But once we have the new greenfield, it will be planned in such a way that we can do faster increments in future.

[Operator]

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

[Harin Kanani, executive]

Thank you all the participants for joining the call. I hope we were able to address your queries. If you have any further questions, please feel free to reach out to our Investor Relations team and we will address them. Thank you once again and we look forward to connecting with you in the next quarter.

[Operator]

Thank you. On behalf of Neogen Chemicals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.