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Earnings Call Analysis
Summary
Q1-2025
Neogen Chemicals began FY '25 on a high note with a 9% revenue increase to INR 180 crores and an 18% rise in profit after tax to INR 11.5 crores. Faced with weakened global agrochemical markets and supply chain issues, the company pivoted to non-agrochemical applications such as battery chemicals and semiconductor materials, resulting in a 17% growth in organic revenues. Despite a fall in lithium and bromine prices negatively impacting inorganic revenues by 14%, Neogen’s proactive strategies ensured steady growth. Expansion initiatives in lithium electrolyte salts are progressing, with commercial shipments beginning and positive feedback from customers charting a promising course for the company's future.
Ladies and gentlemen, good day, and welcome to the Neogen Chemicals Q1 FY '25 Earnings Conference Call. [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.
Thank you. Good evening, everyone, and welcome to Neogen Chemicals Q1 FY '25 Earnings Conference Call for analysts and investors. Today, we are joined by senior members of the management team, including Dr. Harin Kanani, Managing 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 our standard disclaimer. Certain statements made or discussed on the conference call today may be forward-looking in nature. The actual results could vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals' Q1 FY '25 Earnings Conference earnings presentation, which has been uploaded on stock exchange website.
I would now like to invite Dr. Kanani to share his perspective. Thank you, and over to you, sir.
Thank you for joining us on our first quarter earnings call for FY '25. As always, I begin by sharing my views on the performance and strategy, while Mr. Ketan our CFO, will take you through the financial highlights.
Neogen Chemicals has demonstrated a strong start to the new year with healthy improvement in both top line and profitability metrics. Despite easing pressure, the business landscape was still marked by challenges, including low China demand and price, economic uncertainties and supply chain disruptions. In response to weak global agrochemical markets, we strategically shifted our focus to non-agrochemical applications, which offered more stable demand. We overcome more logistics -- we overcame severe logistic hurdles through robust supply chain management, solidifying customer ties. Both BuLi Chem and Neogen Ionics have made positive contributions to the consolidated performance.
Let me quickly summarize the key financials for Q1 FY '25. Our consolidated revenue stood at INR 180 crores higher by 9% year-on-year, while EBITDA came in at INR 31 crores, an increase of 10%, translating to EBITDA margin of 17.1%. Profit after tax stood at INR 11.5 crores, representing an increase of 18%. Mr. Ketan Vyas will share more insights on the financial performance.
Turning your attention to the -- our segmental performance. In Q1 FY '25 organic revenue stood a growth of 17%, while inorganic revenues declined by 14% both bromine and lithium raw material prices significantly declined during the period. Adjusting for this fall in bromine prices, the organic revenues would have been higher by INR 14 crores in Q1 FY '25. Likewise, inorganic revenues would have been higher by INR 27 crores if not for the steep fall in lithium prices.
Moving on to our expansion initiatives. The initial capacities of both lithium electrolyte salts and electrolyte is up and running. Out of 400 metric tons per annum capacity of electrolyte salts and additives, we have commissioned 200 metric tonnes per annum and started shipping commercial quantities to international customers based on approvals received. Out of 2,000 metric ton electrolyte plant, 200 metric tonne per annum has been commissioned and trial quantities have been dispatched to 3 customers, their approval is underway. Customer feedback pertaining to product quality and efficiency has been favorable so far.
As a result, we are hosting many domestic and international clients to our facility for product inspection and approval processes. These capacities will cater to the immediate means of customer and also provide valuable market insight. With respect to our Greenfield battery chemicals facility using MUIS technology, I'm glad to share that we have achieved financial closure for bulk of the CapEx with favorable terms. Construction work has already commenced and will remain on track to strategically commission this facility in FY '26, aligning with upcoming battery capacities in India.
We anticipate two major battery manufacturers starting production this year and are engaging in long-term electrolyte supply contract discussions. Our strategic hiring in battery chemicals is nearly complete and close to 70, 80 employees are focused on the project execution alongside ongoing Phase 1 production. We continue to see strong demand for non-Chinese supply of lithium salts and electrolytes from derisking standpoint and have -- and accordingly initiated discussions through MOUs, pricing commitments with international customers.
In a boost to Indian battery manufacturers, custom duties on critical minerals such as lithium has been exempted. This is exempted to reduce production cost of batteries and consequently, the overall price of electrical vehicles and will also benefit make Neogen electrolyte more competitive. We remain positive on electrolyte opportunities in India as one of the first Indian companies who supply commercially produced meeting global standard electrolyte, we are pleased to contribute to India's vision of becoming a self-sufficient lithium-ion battery manufacturing hub.
Our future growth strategy centers are scaling up organic and inorganic chemical operations with high emphasis on CSM and Advanced Intermediates. Our R&D focus on innovation, coupled with strategic push into battery chemicals will be instrumental in achieving this. Neogen also folded into semiconductor material supply chain during last quarter, developing some specialty gas products as well as liquid products required for semiconductor applications. While navigating present macroeconomic challenges, we remain optimistic about the Indian chemical industry's long-term exponential growth prospect. We intend to harness this potential to create enduring value for our stakeholders.
That concludes my opening remarks. I would now request our CFO, Mr. Ketan was to share financial highlights for the period under review.
Thank you, Dr. Harin. Good evening, everyone, and welcome to the Q1 FY '25 earnings call. I will take you through the key financial highlights. Please note that these are on a consolidated basis and list on year-on-year comparison.
In Q1 FY '25, revenues increased by 9% to INR 180 crores. Despite challenging operating [indiscernible] this growth was volume driven primarily due to higher contribution from non-agrochemical products amid repricing. Organic chemicals saw 17% revenue growth, reaching INR 142 crores, while inorganic chemicals experienced a 14% decline in revenue, totaling to INR 38 crores. As explained by Dr. Harin, the revenues would have been higher but for decline in prices of both bromine and lithium raw materials, the revenue mix between domestic and export was 73% and 27%, respectively.
EBITDA rose by 10% to INR 30.8 crores. The increase occurred despite higher employee costs and other expenses, aligning with capacity expansion initiatives that we [indiscernible]. Margins were maintained at 17.1% supported by operational efficiency, even though there was continued pricing pressure across key products. Profit after tax came in at INR 11.5 crores and 18% increase, This strong operational performance was further enhanced by lower tax rate. Depreciation and interest expenses are expected to rise due to accelerated capital expenditure in battery chemicals.
That concludes my initial remarks. I will now request the moderator to open the floor of our Q&A session.
[Operator Instructions] Our first question is from the line of Abhijit Akella from Kotak Securities.
Dr. Harin to start with a couple on the battery chemicals business. One is what's our line of sight into the new battery capacities coming up in India over the next 12 to 18 months? So far, we've heard maybe announcements from maybe 3 major battery makers, Ola, Exite, Amara Raja, but I haven't heard much from the other [indiscernible] as I'm aware. So how do you see the capacity coming up in India? And do you sort of have the confidence that we'll be able to sell out our 30,000 tonnes by the scheduled time line of stay 2H FY '26? Or could there be a need to be delayed a little bit to match with the customers' plans?
So as you mentioned, for the electrolyte, you have already 3 battery, battery manufacturers like Ola, Exite and Amara Raja. And as you mentioned, they are likely to start in the current year and next financial year. On top of that, there was also Reliance, which was -- which is expected to start in the next financial year. And also, there will be Lucas TVS a little bit later down the line. For -- from the point of view of achieving 30 kta full utilization level, the main target was FY '28. So by FY '28, we also expect that there will be JSW as well as Tata who have also announced their intention to both get into battery manufacturing.
Both of this -- at least 1 of them or both would have started. And we also expect some smaller battery manufacturers who are making for electronic applications as well as home usage and some niche applications who also are planning to set up their shops. Even these would start -- some of them would start in the current financial year and some would start by, let's say, FY -- by 2025, '26 calendar years. So we feel confident that our target to reach by FY '28 or 29% full utilization level. That continues to remain, and we are on track to do that.
Like I still feel that our target that we will need more than 2,000 metric ton capacity in FY '26. So by second half of FY '26. we would need, let's say, at least 5 gigawatt, 10 giga kind of electrolyte support. That is my expectation. So we would -- at least for now what it looks like, we would be on track to bring the electrolyte capacities online in the second half of the financial year -- in the second half of next year's FY '26. So that would be still on track, and we don't see any reason to delay it so far.
Got it. No, that's great. And then on the pricing front, China electrolyte prices are somewhere in the ballpark of $3 a kilo. I believe at present. So how do we sort of negotiate the pricing with our customers? What sort of discussion do we have around the construct there?
So I would not like to discuss specific numbers because when you go to China also, there are range of electrolyte prices depending on the quality and the formulation that you are actually looking at. The second point is those price -- the China price would be in China. So you would also need to consider and factoring whether those electrolytes can be brought to India. And when they come to India, what would be the final delivered landed prices of these. And in some cases, it's almost -- like just from a logistics point of view, it's very complicated especially when your volume becomes like thousands of metric tonnes, it becomes very complicated to just manage the logistics.
So just from the criticality point of view, also, like, you would have to basically make sure that the electrolyte would have to be supplied from India. So I think when we are discussing with our customers, even our customers know that prices in China will fluctuate, we are more keen to understand that after accounting for all the raw material situation. The contribution which Neogen is bringing in, is that -- like, what is that? And is that competitive across what they see internationally? And so far, the answer to that has been, yes.
We've also done many simulations for our customers, where the Chinese price also goes through crazy low and crazy high. So overall, like when they look at like a 3-year, 4-year kind of point of view, having a more stable formula-driven price is much better than just spot buying of something as critical as electrolyte. And most of the customers have also acknowledged that, and they've seen that and that is basically driving the discussions.
That's really helpful. Just one last thing from my side before I get back in the queue. With regard to the salt sales into the international markets, any sort of feelers from your global customers regarding whether there will be any change in their plans in the event of a Trump presidency. Could there be some changes to the Inflation Reduction Act or just some changes to the battery demand outlook or something like that if the Trump administration came to power?
As far as the costs, I am having with the customers, at least most of the customers are looking at Neogen. Of course, as an IRA fulfilling act, but they are also looking as decoupling from China and having an alternate to China. So some of the agreements which we have signed with this customer while the volumes are not committed, but the prices, like again, formula-driven prices, using the same rationale that we have seen earlier. And most of -- even though they are currently much higher as compared to China, but they understand that India has its own dynamics and outside China, they still see Neogen as one of the cheapest source.
So they are more focused in that Neogen being the cheapest source outside China, they would like to engage and at least by a certain amount of their quantities from them. So we've not seen them reduce the numbers or the demand that you are talking of. We still see them interested to buy from Neogen as alternate. So I think the initial capacity which Neogen is setting up of like 5,500 metric tons of electrolyte and even in the beginning part of which we internally consumed. The question is not whether that capacity can get filled. The question is how fast we would have to increase depending on what percentage of volume we will get in the international market because as we've shown in our international -- in our presentation also, the demand in the international for the salt is very high.
So if we can maintain our position to be the cheaper source outside China and more and more customers see value in having Neogen as a completely China free supply chain, IRA compliant and in absence of even IRA, like basically as a backup source for their supply chain authority? How many customers see the value and how fast we would have to add more capacity beyond what we are currently planning is the question. But again, First, the first capacity has to come online. We need to give confidence to our customers that we can make at large scale, the quality and at the cost which we are currently estimating, and then the discussions can go forward from there.
The next question is from the line of Jason Soans from IDBI Capital.
Sir, basically, I know you have given some plans in terms of the funding for the battery chemicals business. But just now so that the funding, you've got the closure, I just wanted to understand, I believe we had INR 1,150 crores debt funding plan for the whole CapEx of the battery chemicals. So just wanted more final details on that. I mean, what could be the -- I believe the EMI will be -- start hitting from FY '27 after the moratorium ends. So just some more funding. I also believe that you've got around a [ INR 9 billion ] term loan from SBI as well. So some final details on that would be helpful.
Yes. So basically, we have -- like we received from SBI for especially our Pakhajan, the Greenfield side, where like -- the Greenfield side, we've already received the funding for that. And again, it has a 2-year moratorium and it has a 10-year repayment. The 10-year repayment -- sorry, in that also 2-year first, no interest, no premium, no installment. Then after that 1 year only interest payment. And then after year 3, you start paying the installment back, and that too, it is like graduated. So in a sense that it's not like 10% every year. In the beginning years, it would be around 4%, 5%, and then some of it will be back ended. So it will be kind of ballooning.
So I think, it will -- the repayment would start around the time where the electrolyte and salt plant would be close to running at full capacity. And again, until the time the project completes, there is a complete moratorium on all interest payments, et cetera.
Similarly, we have tied up with also one more banker, one more of our existing bankers which has also for our expansion activities ongoing in the Dahej, where also we have a 10-year kind of a period where the first year is like a moratorium because that facility will start producing faster. And then similar terms of SBI, where you start paying installment after the year and then the interest -- some of the installments are also back-ended and not uniform.
Sure, sir. So basically, what I understand is there's a SBI term of around [ INR 9 billion ] and the other one should be of [ INR 2 billion ], [ INR 2.5 billion ]. Is that right? the understanding is right?
So out of that [ INR 2.5 billion ], we already secured around -- so around [ INR 1 billion, ] another [ INR 1.5 billion ] is under discussion.
Okay. Okay. So 2 loans of [ INR 9 billion ] and [ INR 2.5 billion ] are there, right? Correct?
[ INR 9 billion and INR 1 billion ]. So INR 10 billion is there and INR 1.5 billion is under final set of discussions.
INR 1.5 billion is under filing settle. Okay, Sure. Sure, sure, sir. Okay. And sir, just wanted to understand also from, of course, battery chemicals is a very crucial it of growth for us. Now I just wanted to know, along with the discussions to whatever the initial discussions we are having. How far do you think we are from signing concrete long-term contract with these battery manufacturers, which will probably secure volumes from us secure a lot of volumes for us in the electrolyte business. So how far do you think we are from that point?
So as we discussed earlier, there are 2 or 3 customers who would be basically needing electrolyte, let's say, in current -- this and next financial year. At least I'm talking of the larger giga scale. As Mr. Abhijit mentioned, Ola, Exite, Amara Raja. All of them have a commitment that they want to localize. We have been like engaging with them strongly, especially in case of Ola, they also mentioned us in one of the news release. And we had also worked with them for last many years, developing different recipes to develop -- develop various recipes with them. So we worked very closely with them.
So of course, so we are still awaiting. So any giga scale production will go through first small 1,000 cells than 10,000 cell trials than maybe 1 trial run in the giga plant. And then based on the outcome of that, we can start discussing long-term contracts. So we are hoping that in the current and the next financial year, so in let's say, next 18 months, we should be able to convince like, let's say, 2 out of 3 or 3 out of 3 customers to basically sign up with Neogen and get into long-term agreement for electrolytes.
Sure, sir. And sir, just wanted to understand that you recently have incorporated a subsidiary in Japan. Just wanted to know what is the rationale behind that? What are you looking at from that subsidiary?
So mainly, so we are very fortunate that we are able to hire a very senior level person who has many years of experience leading Japanese agrochemical company in Japan as well as in India. So he is helping us with all our strategy and our business development activities. So we filed with the number of interactions, which we are having in Japan for battery materials, then also for our CSM business and some other initiatives like related to but lithium, some semiconductor-related projects. So we felt we needed a Japan -- dedicated Japan team.
So the main role is to basically develop under the leadership of the senior person, Japan team, which can then work more closely with the customers, where -- so for example, before some very senior level meetings would happen once in 3 months or once in 5 months, when either me or Mr. Surana is visiting Japan, now follow-up visits can be done by our Japan team almost on a monthly basis. So some of the things which would take 6 months, 9 months would now get like happen in 3 months, 6 months, and also the customers feel more confident having the Japan presence. So this is the main role of the Japan subsidiary.
Okay. Sure, sir. And sir, in terms of -- we're recently you're -- in volume sales in EVs, there's a slowdown happening, probably hybrids could -- sales for hybrids -- plug-in hybrids also probably are on the growth path. People are looking at charging [indiscernible] to be an issue, range anxiety, all these things are there. So just wanted to know from your perspective, how are you looking at it if there is some delay in these capacities coming online. So just could you throw some color, your perspective on this?
Strong basically, whatever discussions I've had so far, we have to look at it in two ways. One is the international business for salt and the local business for electrolyte in India. So when I'm thinking of the electrolyte salt business in the international market, what I am seeing is that already exists a market which is far bigger than the capacity that we are putting for our sold. So it's just a question of proving ourselves proving that we are the best backup to China that they can have. And then depending on that, what's that market share which you can get?
Like IRA is one of the driving factors. But in addition to just having a backup to China, which is having lesser difference or the lowest difference as compared to China is also of interest. So I think when I'm thinking of the international business, the existing capacity with [ Swiss ] what we are starting is just to prove that we can make the sale such scale at commercially competitive prices, which are attractive to the customers.
And then depending on how fast the EV market will develop, how much percentage of market share we can get in the international market will decide whether -- how fast this 3,000 becomes -- like how fast we grow beyond the existing 5,500 metric tonnes per annum capacity. So when I'm thinking of that, I'm thinking like the factors which you mentioned like range anxiety, plug-in hybrid versus pure EV I mean these are things which will play out, and that will determine how fast we will grow beyond the initial, let's say, 5,500 metric tons, all capacity, which we are installing.
Now when you think of India market, I personally feel that in India, like the energy storage, especially for renewable is also a very good opportunity. So of course, the EV is there, and we are seeing that 2-wheelers and 3-wheelers as very large and very fast penetration. That continues. And we still are at a very low like low contribution to the overall sales. So I think in, like, 2-wheelers, we are around 4%, 5%. And in 4-wheelers, we are at only about 2%, so I feel as more and more products come to the market, more and more customized products will come, I feel there is still a lot of room for like just the EVs to grow, and on top of that, we have the energy storage demand.
We have seen government also become more proactive, giving the grid level energy storage projects, they used to be around 100-megawatt hour, then they've asked for bidding of 500 mega and now there are some gig-level bids also which are happening. So more and more renewable solar energy will also require this battery storage. So we'll have to again watch that, okay, depending on like how well EV is accepted? Will it be 150,000 metric ton kind of electrolyte demand in 2030? Will it be 120,000 or will it be 250,000, and the jury is still out on that, and I think we'll have some idea on that in 1 year or 2 years' time. But again, for me, this is more a question of beyond FY '28, right, what is the demand which we are looking at. And like how soon we need to increase capacity, depending on how this plays out.
Sure, sir. And just lastly from my side, just wanted to know, sir, broad revenue numbers, revenue, EBITDA, PAT for BuLi Chem, if you can give for FY '24? And what is the outlook on that going ahead?
So BuLi Chem has mostly on product. So for confidentiality reason, I don't want to give exact EBITDA numbers there. But I would like to say that our beauty business has stabilized. In fact, Q1 was better as compared to before. And in Q2 also, we are seeing a very good order book where we feel we will be fully utilizing its full capacity. We also got in principle environmental clearance. So as we see 1 or 2 quarters more, with a very limited CapEx, we have an ability to increase capacity also at least 2x by just some debottlenecking.
So I think so far, the way BuLi has been progressing, we are very happy with the progress, not only in India, but we have already started shipping our products to Korea and Japan market, which was the first markets we had identified, and we are also seeing positive interest from Europe as well as U.S. Also, in addition to the traditional pharma and agro business, which BuLi India was doing before our acquisition. We've also been able to improve quality where it can now be used for semiconductor applications also. in Japan and Korea market.
So I think overall, it's moving positively. And we feel it will contribute well in the current financial year. So as we had given also target INR 50 crores to INR 100 crores at full utilization levels, we feel in current year, it will contribute in that range, at least INR 50 crores and more I would say, more closer to within INR 100 crores but more closer to INR 70 crores or higher by end of the year.
The next question is from the line of Archit Joshi from B&K Securities.
I just have one question. And specifically, you mentioned about renewable power earlier, it also seems a prospect for electrolytes and saw is being used as a use case application. Sir, I think from what you've heard in the last few months, quarters that the scale of ambition of the government at least in renewable power seems to be far higher in terms of CapEx and even the private CapEx over here has been quite high. And that having a use case in renewable power also becomes a big enough area for electrolytes to be put in news.
What would be the scenario over there? I mean, the batteries in use in solar and wind maybe, are they fully imported why are not participated to that particular application areas. Given that the pace of CapEx over there is maybe much faster than what's happening on the EV battery side. So what would be your thoughts on that?
So Archit, yes, I mean, I agree with you and whatever I have also heard in trade conferences, we are seeing government being very active. And also they have realized that more renewable energy can come only with storage. So storage is a very critical component of that. In fact, some of the battery trade shows that we used to go to. Now we are seeing some of the solar people come here because they want to understand because battery is becoming a very critical component for renewable energy also to be successful.
However, having said that, this was always the plan, so even in the 160 gigawatt hours kind of what we have projected, which was estimated by industry bodies, around 40 gigawatt over was already planned to be for energy storage. So again, this was the estimate, which was done 2 years back. I don't think people have put a revised number that how much it will be by 2030. But I think once a lot of policy measures, which the government is discussing to support that, so once, I think the industry gets clarity on that, we'll be able to say whether the 40 gigawatt hour can further increase.
But to be -- I mean, to clarify, there's already a plan for that. So -- but again, whether it can exceed that, so that's something which we need to still see Also, I think even in case of Reliance also, they have shown that they wanted to use this because of their zero carbon kind of target. And again, their use case also was energy storage.
Now from our side, it's almost the same thing. In fact, most of the people will use LFP-based kind of cell because they are cheaper sales. There are some small variations on the cathode and anode side, but electrolyte remains -- in principle remains the same. Only the additives can be a little less complex or something. So basically, our salt can basically take care of the -- like renewable energy, energy storage demand of battery sales also.
Understood, sir. Sir, just a follow-up on the same thing. How is the supply chain working out to be over there because I'm sure that there's a lot of money being put in these projects already. They also must have had some plans with respect to storage and all. So how are they dealing with it right now given that there's no particular battery manufacturer in India?
So same way as whatever EVs are doing today, that they basically like import the cells and then the batteries are assembled here and there are like a couple of companies which are specialized in that. And there are some which are even specialized not only to assemble the battery but then put all these batteries together in a container, and that becomes kind of a module, which is then supplied to as an energy storage kind of model. So there are some companies which are also specialized there.
And again, the expectation is that as India sells manufacturing fixed up. And again, I'm not very sure of Ola because they have their own internal consumption and how much they are planning for energy storage. But clearly, for Exite and Amara Raja or Reliance, energy storage or even Lucas TVS, for all of them, energy storage is one of the markets which they would definitely look at.
The next question is from the line of Anirudh Shetty from Solidarity Investment Managers.
I have 2 questions. So my first question was a follow-up to the last question around hybrid vehicles. Just wanted to understand this more simply. So typically, between an EV and hybrid weighted, how does the consumption of electrolyte change I know it would be different depending on model, but just as a rule of thumb, how different is that.
So I know that the hybrids would battery per -- so, okay. So what we know at least some of these hybrids used on the anode carbon along with LTOs. So lithium titanate, and when they use that, the electrolyte consumption per gigawatt hour actually increases. So at least some of the models of these hybrids, in the past, we said that the NMC battery would require 500 metric ton per giga, LFP somewhere between 1,200 to 1,500 metric ton per giga. Hybrid battery, especially in some of the designs which are popular, who would use somewhere between 1,500 to 2,000 metric tonne per giga.
But having said that, this is based on my understanding and theoretical, we've not yet talked to anybody who's specifically making this type of cells within India. So you so far not seen activity to make a sell specifically for hybrid in India. So I have not been able to double check this number.
Okay. Sorry. And sir, my second question was more on the balance sheet side. If you could share some color around how our net working capital situation has evolved since the last quarter?
So it's been improving. So overall, we have been operating cash flow positive in the first quarter and as of now. Well, you will get to see more numbers in September, but we are on stable and improving track. It's not becoming...
The next question is from the line of Abhijit Akella from Kotak Securities.
So the custom duty cut, does that apply to imports of lithium carbonate and hydroxide as well? Or is it only for the pure [indiscernible]?
Actually, it's a reverse, it applies to lithium carbonate and lithium hydroxide.
Okay. Okay. So it's a trade saving in our raw material cost.
Yes, yes. So to that extent, our electrolyte -- so in the international market, it doesn't make so much of a difference because anyway, we would have an advanced license because ultimately, it's getting exported. But then we are selling it locally to that extent, our cost goes down.
Got it. Got it. And just the other thing was, Slide 20 of the presentation mentions that the organic revenue would have been INR 14 crores higher adjusted for the decline in the bromine price. So does that mean that instead of INR 142 crores, it would have been INR 156 crores for the quarter? Is that how we should interpret it?
Yes. So the values given there are that if the same selling price was applicable today, so I guess it's also bromine as well as market conditions. But if the sales prices were same rate, so if I was selling product at INR 120 before, and I'm just saying as an example, if I'm selling it to the INR 110. So that [ delta ] was basically transferred, then the revenue would have been INR 156 crores.
And similarly, in case of battery, battery is where -- I mean, the inorganic lithium is where you can see bigger. Where if the same lithium prices existed as what we sold in FY -- Q1 FY '24, it would have been INR 27 crores higher. So volume-wise, in terms of organic, the growth is bigger. And in case of inorganic also, there is a volume growth. But just because of the lower prices, either it's shown as a lower growth or decrease like on the revenue numbers.
Right, right. So the increase numbers would have been INR 156 crores in organic and INR 65 crores inorganic?
Correct. At the same rate as we had in Q1 were appreciable last year. So I think we were seeing already lithium prices decrease and then Q2, Q3 was where they bottomed out -- now they are stable. But -- so I think in 2, 3 quarters, you will have this impact then depends on what lithium does and what -- how the bromine and organic molecules...
Got it. And just final thing from my side. On the CSM business, if you could please give us some update about how things are looking there. I know there's been destocking and all of those things. but you've been in discussions with several customers. So how is that coming along? And by when could we see some traction in that business?
So yes, so I'm happy even in spite of all these challenges that we are seeing and some of the agro CSM customers not having a demand. We did a good job of contribution from CSM and contract manufacturing. So we are still able to maintain like upwards of 15% of revenue. Our target is to reach 20% of the revenue in CSM business.
What is [indiscernible], as I explained earlier, we have flavors and fragrance, and we also started diversifying. So we had some more pharma projects, some more flavors and fragrance projects. And we also started diversifying into some other applications, such as something which is used in engineering and something which is used as a starting material by other specialty chemical companies like to make a specialty polymer or something and also something in semiconductor.
So all of these together, these projects are exciting and helped us maintain the CSM at 15% level. So we hope that as more -- like as these projects develop further and also once the agro demand comes back, we will like hope to cross around 20% target that we have for sure by next financial year, if the agro business comes back well in the second half, then maybe even in the current financial year, we can get 20% contribution from CSM.
[Operator Instructions] The next question is from the line of Ayush Rathi from [ Aditya Birla Money ].
Hello, am I audible?
Yes.
Sir, you seem to be on track with a lot of battery business. plan, which is like a really positive thing. I actually just wanted to understand if you could give some insights on the pricing scenario, like do we see a plateau forming or prices are still forming or how volatile are the prices right now in the current scenario? If you could just give some color.
So if I look at our inorganic chemicals, which is mostly lithium-based compounds, we saw raw material prices kind of fit their bottom, and now they generally trade into a narrow band of around $10 to $12 or $13. So let's say, $11.5 plus minus $1.50 for last 1 or 2 quarters. So lithium that is a base material. And I think our customers also who are waiting for the prices kind of to bottom out, have now kind of realize that this is the bottom. And again, you've seen the demand again come back. So we've seen some like increase in our sales price, but more or less, it has stabilized now. And we feel from here as the lithium prices will increase, then the prices can go up higher.
My analysis also says at least based on my understanding that long term, the current price of lithium is unsustainable, because this is a price at which the old mining companies can make profit, but the newer mining companies cannot make profits. So if they stay at this level, you will see some of the new minor stock production, which would reduce the demand. And then you will, again, sorry, reduce the supply and then you will again see the prices go high. So that's my expectation. Now whether that happens within 1 year, whether in 2-year depends on many things, but this is my expectation on the lithium side.
In terms of organic chemicals, I think, of course, the input prices are also going down. So like bromine, solvent petrochemical compounds, so they were all reducing. So that was one part. But the bigger part also was that China where there was excess capacity, when the demand is less, they tend to dump some of the places we have seen like the delta between bromine and delta between raw material and the final almost disappear. So like almost they are selling at kind of price levels. But -- like what we've seen is the lowest has already happened about a quarter ago. Now they are stable or they are slightly increasing, not yet a rapid increase, but like seems to have seen the bottom pricing on the organic side.
All right. One question -- like a question I wanted to ask. Recently, government has reduced the custom on lithium. So by any chance, do we see any prices of our end product, which is electrolyte going down for that also? Like if you could just explain the unit economics, how does it affect our margins by any...
Yes. So see, basically, I use the lithium carbonate to make lithium LiPF6 or other electrolyte salts and then that electrolyte all gets into formulation, again, directly at a formulation level, in terms of weight, only 15% is electrolyte sold, right? And if you consider lithium carbonate, the contribution of that would be even lower. Because the electrolyte salt has lithium and something, right? So as a percentage, let's say, so a 7.5% decrease at the electrolyte level, like, gives me, let's say, a very small reduction, like a couple of percentage points. But like, again, when you are doing volumes like 30 kt is percentage matters. And this is something which is positive for us where we can import lithium carbonate without paying any duty. So that makes our LiPF6 more competitive and our electrolyte more competitive.
The next question is from the line of Yash Shah from Investec.
Sir, my first question was regarding our inorganic segment. Adjusted for the price fall -- in the lithium prices fall, we would have had made a -- we would have had a volume growth of somewhere in 45% to 50% year-on-year in this quarter in the organic segment? And in the previous year, so we closed that 75% to 80% of utilization. Do we have enough capacity for the rest of the year, sir, in this segment? Is my first question.
Yes.
Okay. Right. Okay. And just another question, which I had was we mentioned a couple of times on the call that we are trying to position ourselves as China plus 1 be the next cheapest alternative side China. If you had to quantify in terms of the similar quality we supplied to China, what will be the price differential in some ways, if you can quantify that?
So yes, I mean, we do say we are the cheapest outside China. But we also say that if you take a 3-year or a 4-year view, we would also add more value as compared to China. And this is actually the fact. I mean, we've done some number calculations that if somebody entered into a formula based pricing with Neogen 4 years ago. And when lithium went very high, very low, they were using the same formula, which we are currently selling LiPF6 or the agreements which we have gotten into with international customers. as compared to the spot China market price, they would have made more money by paying us higher for some portion of the time. Because when they pay us high, it's like x, but when China increases price during shortage, it's crazy high. So therefore, overall, we still add more value to them.
So it's not just saying that, oh, we are the best cheaper stores outside China. Of course, if you wanted to do the hedging, that's what it helps because, let's say, other suppliers also have added value. That's why there's a supplier in Japan as well as Korea. But we can -- we could have added more value because our cost is lower as compared to them.
In terms of percentage, it's difficult to say because like I said, China has crazy low, crazy high, which one, I compare, like there are times where we are 30%, 40%, 50% more expensive on 60% more expensive. And there are times where we are like 1/3 the price of China, like if I just apply the formula price versus the Chinese spot prices.
The next question is from the line of Nilesh Ghuge from HDFC Securities.
My question is on the CapEx for our organic inorganic. As you mentioned in the -- while answering previous question, that you have sufficient capacity for organic, but any plan to put up an expansion in organic and inorganic capacity for, let's say, in FY '26, '27?
So on the organic side, we have capacity -- I mean still Neogen basically reaches around INR 1,000 crores, where I think, if I remember right, I mean, I'm saying Neogen stand-alone, which is about INR 1,000 crores, in which I think organic contribution would be somewhere around INR 700 crores to INR 750 crores. So we already have capacity in place for that. And still we hit that number of INR 175 crores, let's say, of organic production. And you can see we are still far away from that. Until that time, we have capacity.
We also feel that after we speak utilization level, at least in the current scenario, instead of immediately adding more capacity, we would like to basically stabilize the products, get better product mix. and use the same capacity, maybe with some small debottlenecking or small CapEx to basically contribute and more.
So I think, if we maintain our target that by FY '26, Neogen reaches its full utilization level, we reach INR 1,000 crores. And then FY '27, we debottleneck and get another 15-odd percent revenue growth. So I think till FY '27, most likely, unless there is some very large projects and you've never said never, but at least in our current plans, we would just like to continue with the existing capacity, use it to the fullest and optimize the product mix and the capacity utilization.
So most likely, FY '27 is where we would consider organic CapEx to take care of our growth in FY '28 and '29. But I think FY '25 and FY '26, most likely no significant organic CapEx. As I mentioned in one of my earlier answers, in July, we do see like scope for increasing the capacity because there our expectation is based on order book this year, we will start hitting full utilization of the capacity which we had estimated. And with the environmental approval, which has come in, we still have to do some more stages of processing of that.
But once we get the approval, maybe by second half, we may look at further increasing the BuLi capacity. But it's just an incremental debottlenecking type, so it will not require too much of CapEx from our side on the organic side. Inorganic side, like in our existing facility, just by debottlenecking without significantly making a new investment we will be able to add more capacity. So something which I'm not planning. But yes, once we start hitting like INR 150 crores, INR 200 crores, so like a quarterly number of INR 50 crore plus on like a stable lithium price kind of a basis, that's when we will start considering whether we need to lose slight increase in the lithium capacity.
Okay. And secondly, on our electrolyte business. So you do say that okay, you have already sent samples to our customers and customers will sign maybe probably in for a long-term contract or the supply of electrolyte. So just understand -- for my understanding, is it like that the customers are waiting for our commercial facility to commission and then get the product with the quality and the purity of the electrolyte and then they will sign a contract. Is it like that?
So first of all, clarification, I said in FY '25 or FY '26. So we can sign some contracts this year also. In my view, our facility is there especially if I'm thinking of the large Giga customers, our facility is there before they start. So we are ready for them. Is this that they need to use our electrolyte once in the plant get confidence. And then based on that, they can go ahead and find the contract.
Also, there are 2 kinds of contracts. One says I will supply to you, you will buy from me and the second says you will buy xyz quantity minimum, and I will supply maximum so much. So for the second type of contracts to happen, you need to have also a volume clarity on the size of the customer. So these giga factories as they ramp up their production, their production stabilizes, then they have a better view of -- then they have a better view of where [indiscernible].
The next question is from the line of Sabyasachi Mukerji from Finserv Asset Management Company.
First question is could you talk about this semiconductor opportunity that you mentioned in your remarks, what are these products exactly? Is it an export opportunity or domestic opportunity as well? How big could be this opportunity?
I'll just -- so basically, there are 3 types. So the organo lithium compounds, which we are making in BuLi. So they find usage to make other chemicals which are then used in semiconductor. So let's say, we would be like a Tier 2 supplier in case of a semiconductor chip manufacturing facility where we would supply this organo lithium somebody would then make the chemical which would go into semiconductors. So this is one opportunity we have.
On top of that, in our organic synthesis, we have made like the specialty gas of a purity like 99.99% and higher, which then is used like for semiconductor manufacturing. So we have some projects which are under contract manufacturing model where we basically make these products for international markets.
And the third is there are some organic chemicals which we are making, which very high purity versions of that without the metal content will be used for making certain kind of chemicals for semiconductors. So again, that would be like a Tier 2 kind of a supply situation. So we feel like, again, like battery materials, we have an opportunity to be a Tier 2 supplier in the international market, learn from that.
And then hopefully, when semiconductor manufacturing comes in India, we can like use that partnership and try to see we can forward it great and be a Tier 1 supplier in India. So again, that's something which will take time. But we just made some start. We have these 3 engines. One is organic molecules -- One Is -- which are like organic molecules required for semiconductor manufacturing, organo lithium compound and the specialty gases of very high purity for semiconductor applicators.
Got it. I mean, still, it's early days, but we have kind of made a breakthrough year.
Yes. So it will be like -- in the current, it will be like a few crores -- getting into a few tens of crores in the current financial year. Let's see, like we just make starting with that, and then we'll see how we can ramp it up and make it more significant going forward.
Got it. Second question on the mention of INR 900 crores to INR 1,000 crores by FY '26. On the press release as well as in the management commentary in the presentation. This is for the stand-alone piece, right?
Yes. Standalone piece.
Okay. And if I were to kind of break it down to organic bully and inorganic, it would be somewhere close INR 700 crores to INR 750 crores organic and -- how does that stack up with the industry?
Yes. So around INR 750 -- I would say INR 700 crores, INR 750 crores for organic around INR 100-odd crores for BuLi and another about INR 150-odd crores for inorganic.
Okay. Okay. And on top of that, the battery chemicals should be contributing around INR 250 crores to INR 300 crores in FY '26, right?
So the capacity which are coming online in the Brownfield in the Dahej in this year itself can contribute around INR 200 crores, INR 250 crores. On top of that, the new capacity will contribute more. And on top of that, the greenfield side will come online on the second half. So like the existing capacity can contribute INR 200 crores to INR 250 crores. INR 250 crores is bare minimum plus the new capacities, which we are adding by end of the year, they will contribute. And plus the greenfield side will contribute in the second half. So it should be a number more than INR 200 crores, INR 250 crores. How much more, please give me some time to tell you maybe the end of the current year or so.
No, completely understood. Just a follow-up here. So once our electrolyte facility is up and running, the smaller one. And the greenfield one comes probably sometime in, let's say, September or by December of 2025. The sold capacity will be consumed internally. And by that time, we'll also have some more salt capacity coming up for the international guys. So what is the ballpark sort revenue and electrolyte revenue, any number you have in mind?
Like I said, give me some time to give you that number. I mean, what the total number would be. It will be 250 plus, like I said, additional sold from additional sold capacity as well as from the Greenfield side. Just to clarify, so for 30 kta, we would need around 3,000, 4,000 tonnes of salt. But we don't expect in the first year to use 30 kta, right? So the salt capacity will also be available in the beginning more for the international market. And we will see how we are progressing in the international market in the sales. And then as electrolyte gets fully utilized by FY '28, accordingly, we can either keep adding capacity or diverge more capacity for India users.
Got it. But 1 thing that does this INR 200 crores you are saying we can do in FY '25 itself, is coming from salt?
No. The capacity we have in place, like, which is currently undergoing stabilization, that on a full year basis can contribute to INR 200 crores in FY '26. This year, we are not getting full utilization because approvals, all that will take, but all of it will be approved. So the electrolyte and the salt capacity with the 2,000 MTA 400 ton, could give you somewhere close to around INR 200 crores, along with the increase in capacity to 1,000 what we are estimating.
And then additional thing which will come by end of the year, that will maybe take some time for approval. So that's why beyond [ INR 200 crores, INR 250 crores ], some contribution coming from the brownfield, some contribution coming from greenfield but too early to tell exactly how much.
Understood. Any initial readings on what could be the margins from Salt revenue, are too early?
Yes. So in the past also, we have said that we expect like a ROCE of 20%. And also we are targeting like maybe at an EBITDA level, depending on price of lithium, somewhere around 16%, 17% kind of like EBITDA margins, what we were targeting.
So far, whatever contracts we have signed, we seem to be on track to basically achieve that in the salt. So in salt we have more visibility because -- technically, all the contracts we have signed with all the customers take the full volume, our entire capacity can get fully utilized just for salt. So we have the visibility on the salt more clearer. On the electrolyte, as I explained, as Indian players start their electrolyte manufacturing activity, we will have a better clarity on margins we have.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.
Thank you, everyone, 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 again in the next quarter.
Thank you. On behalf of Neogen Chemicals Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.