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Neogen Chemicals Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '22 Earnings Conference Call of Neogen Chemicals Limited. [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 afternoon, everyone, and welcome to Neogen Chemicals' Q2 FY '22 Earnings Conference Call for Analysts and Investors.Joining us on the call today are 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 session for Q&A where the management will be addressing to any queries that you may have.Let me leave you with our standard disclaimer here. Certain statements made or discussed on the conference call today will be forward-looking statements. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals' Q2 FY '22 earnings presentation.I would now like to invite Dr. Harin Kanani to begin by sharing his perspectives on the performance and the progress that the company has made. Thank you, and over to you, sir.
Thank you, Nishid. Good afternoon, everyone, and welcome to our Q2 FY '22 Earnings Conference Call. I hope you had an opportunity to go through our results document that was shared earlier and uploaded on stock exchange's website. I will take you through my views on the overall performance and key strategic drivers. Then, our CFO, Mr. Ketan Vyas, will present you with financial overview during the period under review.During second quarter of this fiscal year, we demonstrated accelerated revenue performance, which were bolstered by high throughput levels at our plant with the contribution from our Phase 1 expansion fully commissioned in September. Volume expansion came in despite several operational headwinds witnessed during the period under review.Our persistent focus on product and process innovation as well as adherence to volume commitments made to our customers has been our [ code ], and we will continue to reinforce this to deliver superior performance. Now, let me quickly share some key financial data points. In Q2 FY '22, revenue growth stood at 38%, while EBITDA grew by 33% and profit after tax improved by robust 51%. Growth in organic chemicals was 35%, while inorganic chemicals revenue increased by 63%. As you may recall, lithium prices had corrected in Q2 of last year, resulting in lower base.Prices were back to normal levels in Q2 FY '22. Accordingly, we have estimated a positive impact of INR 4.79 crores from pricing in our inorganic chemicals revenue in Q2 FY '22. The rest has been driven mostly by volume growth.Moving on to some key developments. I'm delighted to share that we have fully commissioned our first phase of expansion in September 2021. This was also our first major expansion from ground up to a world-class state-of-the-art plant of specialty organic chemicals with focus on advanced intermediates, adhering to internationally-followed best practices of safety and engineering protocols. This will significantly enhance our position in the chosen chemistries and will allow us to manufacture high-margin, value-added products based on multiple processed stage chemistries. Also based on solid demand for our products, we advanced our Phase 2 project expansion time line and commissioned the same in October 2021. This was the earlier plan to come on stream towards the end of the year. Within this, we are fully capable and ready to achieve our stated revenue guidance for the next couple of years.Now, turning your attention to some exciting initiatives that we are undertaking in the lithium-ion battery materials and CSM space. The Board has approved an initial CapEx outlay of INR 35 crores to manufacture 250 metric tons per annum of electrolyte capacity for lithium-ion batteries, advanced chemistry cells and developing a pilot facility to speed up process development, scale up and commercialization of specialty chemicals. We see a number of projects with innovator customer increase with the commissioning of the Dahej plant as well as overall site development at Baroda facility, which will be the main site for development of the lithium-ion-related initiatives. The pilot electrolyte capacity for lithium-ion batteries is expected to be one of the first such plants in India and likely to be ready by end of Q3, Q4 FY '23. This will enhance our total revenue potential to INR 700 crores to INR 725 crores in FY '24 based on the contribution of initial sales of electrolytes and development molecules from the pilot plant based on the new CapEx. This will be our initial investment in this area, and we are working with our customers to decide further capacity being [indiscernible] and timing for the thing. This is in line with our focus of following into high potential segment of lithium-ion battery materials, on which we have been working with several customers over the last 2 years.As you may be aware, the government has announced 2 billion PLI scheme to support manufacturing and localization of advanced chemistry cell production units with focus on localization of supply chain, which is expected to benefit Neogen. Recently on 22nd October, the global tender was also released, and the time line for execution for the same has been more clearly defined. This supportive policy action by the government and recent global emphasis, initiatives on climate change control and positive response to EVs in India as well as across the world. We are seeing more and more of our potential customers crystalizing their investment plan in this area.As per industry estimates, the production of lithium sales in India is expected to touch around 160 gigawatt hour by 2030 from negligible levels currently. This is expected to translate into the electrolyte demand of 50,000 to 70,000 metric tons by 2030 as per our internal estimates arrived at with customer discussions.There's a quantum leap in demand over next one detail. Our existing inorganic manufacturing capacity can further be expanded or modified to make internally the lithium solvent an additive needed for the electrolyte giving us the benefit of backward integration. Using our expertise for 30 years in lithium chemistry, we are confident of leveraging this opportunity, which will also significantly expand our addressable market size.I will now conclude by underlining the opportunities in the Indian chemical industry are immense, and Neogen will continue to deliver profitable growth performance that is driven by our recognized strength in niche chemistries. The focus will be to create sustained value enhancement for all the stakeholders, while continuing to cement our leadership position.With that, I would request our CFO, Mr. Ketan Vyas, to share his views on the financial performance of Q2 FY '22. Ketan, over to you.
Thank you, Dr. Harin. Good afternoon, everyone, and welcome on the call. I will share the key financial highlights for the second quarter of financial year 2021. Also [indiscernible] on a year-on-year basis and refer to stand-alone financial performance. In Q1 FY '22, our revenues increased by INR 113.2 crores, largely driven by incremental contribution from Phase 1 expansion. As you maybe aware, the export [ consecutive ] under [indiscernible] was excluded for chemical and pharma list-by government the notification issued in August 2021. Accordingly, our onetime charge or seen or reversal of benefit provisions in FY '21 and Q1 FY '22 against the scheme. And accordingly, revenues for Q2 FY '22 include an impact of 1.22.EBITDA improved by 33% to INR 20.5 crores compared to EBITDA margin of 18.1%. High utilization level set able plant aided to EBITDA performance, not withstanding several offers in a business during the quarter. Profit after tax stood at INR 11.2 crores, higher by 51%, driven by strong contribution from key product categories and expanding capacity. Reduction in effective tax rate due to higher revenues from SEZ facility and higher tax, significant tax utilization, tax depreciation linked to capitalization of Dahej mix positively [indiscernible] profit after tax. In Q2 FY '22, our domestic and export mix stood at 46% and 54%, respectively.That concludes my opening remarks, and I now request the moderator to open the floor for questions from participants.
[Operator Instructions] The first question is from the line of Rohit Nagraj from Emkay Global.
Congrats on the commissioning of Phase 1 and Phase 2, plus the development of the lithium-ion battery site. Sir, the first question is on the electrolyte capacity. So in terms of technology, if you could just let us know whether the technology is our own technology or it has taken from someone else? And in terms of potential, you have said that INR 700 crores, INR 725 crores, is this from the 250 metric tons capacity or something else?
Rohit, thank you for the questions. Just to clarify, the 700, 725 total capacity for Neogen, where this 250 metric ton is going to contribute? So if you may recall in our previous call, we had given a guidance that the existing capacity is sufficient enough to sell INR 650 crores to INR 675 crores. So with this INR 35 crores CapEx, this can be increased by more or less close to around INR 50 crores, which also includes the lithium because of the electrolyte business as well as the pilot facility will also generate some revenue. So together, that is going to increase to INR 700 crores to INR 725 crores.As regards to the technology, the technology that we are currently designed, so it's still under the final stages of optimization. And looking at the speed at which this is happening, many decisions will be running in parallel. So this is currently the technology, which we are planning is designed in-house and it's our own technology.
All right, sir. Got it. Sir, the second question is on the long-term contracts. So we had earlier indicated that we have revenue visibility based on the order book of about INR 60 crores to INR 80 crores for FY '22. We still stick to that and we'll be able to meet up for FY '22, right?
Yes. So the long-term contract will contribute in that range of INR 60 crores to INR 80 crores in the current FY '22 financial year.
The next question is from the line of Angel Vardia from Edelweiss Wealth Research.
Congratulations on the good set of numbers. I have a couple of questions on the electrolyte CapEx that the company is undergoing. So one of them was answered by the team [indiscernible] on the previous question that the INR 50 crores is a revenue opportunity, which will come in [ FY '24 ]. So it's safe to assume the INR 25 crores will come in FY '23, since the plant will be operational in the second half?
So this electrolyte is a developing story, where, finally, we depend, at least within India, our customers commissioning and simplifying their plants. So as I mentioned in my opening remarks, with the PLI scheme, which was first announced, people who were considering this have started dropping more in focus. Some of them have decided on the technology, some are still deciding the final technology of the cells, which they are going to use, which will define the electrolyte -- the specific electrolytes that they are needing and the conclusion of the same. So we are very confident that at least by FY '24 that contribution will come. Also, the INR 50 crores which you've added up, there is some contribution also coming in from -- the contribution also coming from our pilot facility as well, so that's the overall outcome of the INR 35 crores investment, which we are setting up.But I think for FY '23, overall, like since Dahej plant has just commissioned, some customers have already approved and more customer approvals are coming. We would like, as a management, to wait up to Q4, where we can give you a better clarity on the FY '23. And in that, we can also address how much contribution will come from electrolyte as we will have a better clarity. But for sure, by FY '23, this pilot facility will fully continue.
That's helpful. Sir, just one follow-up. First is to how you plan to fund this incremental INR 35 crores? And second, I'm just trying to understand if this opportunity of lithium battery is such a big opportunity, then why -- where these stand in comparison to other players? They would also be excited about this, and they would also start with the capacity building up. So any thoughts on the competitive advantage we have in falling into this particular business?
So your first question was how are we going to fund this INR 35 crores? So it will be a mix of our internal accruals and debt. And while there will be some time going for planning, so there will be some expense of that in Q4, but most of the expense or the fixed asset addition should happen in next year, Q1 and Q2. So mostly, it will be for next year. This year, there will be a limited impact in terms of increase in gross loss because of this. So that's answering your first question. Second is the competitive advantages which Neogen has, so the advantage when it comes to making electrolyte. So there are 3 aspects. One is the lithium salt, which is part of the electrolyte. So Neogen has been making lithium compounds. So the major contributing factor in electrolyte is a lithium salt, which is inside. And that is also the heart of it and some of the additives, which also happened to be lithium additives.So Neogen has now almost 30 years of experience in making this lithium salt. And some people also see a challenge to be able to source lithium because the world is expecting lithium to be in a tight supply situation. So I think Neogen's 30 years of experience of having worked with the top 2, 3 companies in lithium, our experience to make very high purity lithium salts, where also we have to control PPM and PPB level of impurities. This will help us, first of all, make this better. Also, as compared to other companies, Neogen has been already working on this for the last 2, 2.5 years, working both with international customers as well as domestic customers, who are interested. So I think, we kind of have -- kind of a head start on that. Of course, there are global players, who are also present, who have been doing this. But there is also a very large demand globally, not just in India, but everywhere. So there could be some competition in the global players decide to come to India. But then over that, you would have the India advantage and being present here in India. And as compared to other domestic players, they could have their own advantages, but I think Neogen's advantage will be the lithium backward integration using lithium and making lithium for the last 30 years, and like having started 2, 2.5 years ago to understand intricacies of all the aspects of this.
That's helpful. So sir, we can expect there can be some dedicated client base plans coming up in the next 2, 3 years with this is [ cleared up ]?
Yes. So the idea is that we want to get started with this. So we at least have how like -- almost like a commercial kind of plant outside of laboratories, where it's a significant size, and then you can multiply this or you can scale that up.So for example, we make a plant for 250 metric ton. So we can see, we can make it 4x bigger [indiscernible] and then we can have 4 such lines or 3 such lines, whatever depending on the volume. But I think once we've done it at that scale, we have a more idea, more better idea on detailed aspects of this technology. So first idea is to do that. And second is also to demonstrate that we can do this. And then some of the customers do require -- have a requirement of this in FY -- in the next financial year for their initial quantities. So the idea is also to cater to them. So they also get a better understanding and experience of using news and materials. And then as other customers come on board and have a better idea on the volumes, we can plan our capacities in that way.
The next question is from the line of Manish Jain from Mani Life Advisory.
My first question is, can you expect a significant ramp-up in revenue in the next 2 quarters since Phase 1 and Phase 2 organic capacity has now come online?
So yes, I would say, there will be some increase in revenue. Again, there are some additional customer approvals that also required. So the final -- how much ramp-up will be there will depend upon how fast this customer approvals come. So sometimes we have to make some quantity, give it to customers and then customer [indiscernible]. So it will depend on some of these aspects.But we are now confident to achieve the INR 450 crores revenue target, which we had estimated for this year. Because roughly, it requires us to do at least INR 125 crores in next 2 quarters, which seem doable with Phase 4 capacity also available with some revenue contribution coming from there as well as Phase 1 being fully available. So I would still keep INR 450 crores at my target, and then let's see how the customers and how Q3 goes and then we'll have a better idea.
Secondly, in relation to the new CapEx, when do you expect the major consumer of these products like will be our EV guys continue commit for the renewable energy players?
So maybe for -- to better explain where we are in the value chain, let us say, there is a EV vehicle maker, right, who's making EV. Now this EV maker buy batteries from someone or some of the EV maker may choose to make their own battery. Now -- so that is happening even as of today. Now inside the battery, there are specific kind of multiple cells which are there. And these are what are called as advanced chemistry cells, or ACC, in short. So these advanced chemistry cells are right now not produced in a significant quality in India. They are imported from China, Taiwan, Korea, Japan, et cetera. So these will get -- start getting manufactured. Now again, some of the EV companies may decide because battery is supposed to be a significant cost of the machine, and they may make the cells also. And some like the independent cell and battery producers, who will basically make the cell.Now for the cells, there are 3 main components. And you've kind of given in our slide different components in a cell in which our focus is currently on electrolyte. So this is where lithium is present and to some extent, it is present in cathode. So these are the 2 areas that our focus in there is electrolyte. So the person who makes the cell will be our target.Now of course, the final batteries can be sold to renewables as well as to EV based on the current estimates, which are industry available, EV volume is going to be much higher as compared to renewable, but it will also depend on how much renewables kind of pick up and how the entire shift from nonrenewal to renewable happens. But overall, as a final industry, EV is likely to be higher consumer as compared to renewables as things stand or the projections that we have seen from the battery manufacturers part of it.
The next question is from the line of Saurabh from Asian Market Securities.
Based on this new CapEx, so have we already have some understanding with the end customer for the supply of the initiative [ 3 ] tons of production?
Yes. So there is -- at least part of the quantity has been -- we have a clarity that still detailed technical evaluations are going on. But still for part of it, we already have a clarity. Remaining, the customers are waiting from clarity from my side that when I can get ready so they can give me better clarity. So this is what once the Board has approved, we will freeze our time line and can have more meaningful discussion with our customers on their immediate requirement for the FY '23 requirements. But yes, there should be some revenue contribution of this in FY '23. And by FY '24, for sure, we will have this being used fully and any additional volumes, which may -- we may have to add to kind of support the customer demand at that time.
Okay. Anything in terms of the time line for the customer approval even after your standard commission, what is the time line for the customer approvals so that we can go ahead with further expansion?
So this is a new area for us as well as for majority of customers, at least in India. With some of the international customers, which I have talked, the time line -- the overall evaluation time line can be 3 months to 6 months, even 9 months, depending on how stringent is the customer. But not all of that will depend upon my plant getting ready, and some of the evaluations will also happen from the materials which I make in my R&D.So I would say 3 to 6 months post the plant becoming ready. It can be sooner. It can -- but that would be the normal expectation.
Okay. And the asset [ turnover ] will be similar to the inorganic segment?
So currently, we have just made investment into a relatively small sized plant or what we are currently planning. So I think, it's too early for us to define the asset funds. And I think, I would like to hold back answer on that until we have a better idea of a commercial plant capacity.
And one more, finally, on this CapEx. So you mentioned that you can also modify your existing inorganic plant. So going ahead, do we see the possibility that, with a limited CapEx, we can scale up the benefiting of the lithium salts in our existing plant?
So yes. So one is making the electrolyte will require a dedicated facility. But the salts, which are required for the electrolyte, we can modify our existing plants. And -- or suppose depending on the quantity required, we may have to set up additions. But -- at least in the beginning couple of years, our existing plants with modification can make the salt, which will allow us to get the salt -- the lithium salt required for the electrolytes up and running faster. In the meantime, get ready for the final electrolyte act.
Okay. And sir, this pilot facility, which we are setting up. So is it for the existing molecules, which are in the R&D stage on scale-ups? Still we are looking at the more -- new molecule battery come through because of the notice expansion with [indiscernible] completed?
Yes. So we already have a pilot facility. But let us say, there are 2, 3 reactors in my Karakhadi plant 2, 3 reactors in my Mahape plant, which are doing these trials. But what we want to do is because now with Dahej site coming in, as we have mentioned that there are many global international clients, who we were not -- whom we were not communicating very strongly till our Dahej plant was ready. So as we approach this, we expect the number of projects that we will be handling will be much higher. And at such point of time, having this dedicated facility will help us speed up the developmental cycle. So that, let's say, future CSM business or advanced intermediate business, we can shorten the developmental time. So that's basically the purpose behind the pilot facility. Of course, it will also be equipped to make some of the lithium compounds or the new lithium salts also. So, it will support both these initiatives with that pilot facility.
Okay. And sir, just last bit on the -- piece of what could be revenue guidance. So can you achieve what we earlier guided for FY '24 and FY '23?
Could you repeat the question? Sorry, I...
Yes. So talking about FY '23 revenue guidance. So can you achieve that INR 650 crores, INR 675 crores revenue in FY '23 itself given both the CapEx as commercializing this year?
So again, I just answered one of the previous callers that I would wait till end of Q4 to basically give you a guidance for FY '23, just because how long customers are taking to approve this site and there are many moving pieces. So once we have clarity on that, we can give FY '23 guidance. But like our total -- the total capacity that we have is usable, let's say -- can generate INR 650 crores to INR 675 crores, and this new CapEx can add another INR 25 crores to INR 50 crores in FY '24. So we are quite confident that at least by FY '24, we'll have a capacity to reach INR 700 crores to INR 725 crores. And if the market conditions remain the same, most likely by FY '24, we should have all the approvals in place to have a full utilization and generate that revenue. But for FY '23, I would like to hold till Q4.
The next question is from the line of Manish Gupta from Solidarity.
Dr. Harin, given the fact that -- this product, there is -- there could be a lot of demand for import substitution. This is something which we have a lot of experience in. What could be the gross margin thing for this new project vis-a-vis our existing business?
You mean for the electrolytes?
Yes.
Okay. So I think, when it comes to electrolyte, especially at a commercial scale, what is really first important for us to know is what is the final stable volumes, which we are going to make. So the first question, Mr. Manish, we have to answer is what is the volume? And at that volume, what is your manufacturing cost? And what is the price which the customer is willing to pay as compared to international? So I think, again, it's a bit too early for me to define gross margins at this point in time.One more aspect and this is also very high fluctuating lithium prices. So how that lithium prices will also like factor into the gross margin is a bit early for me to explain at this point of time. One more factor also is that how much we are able to go backwards. So for example, as I mentioned, whenever we will make, let's say, the salt ourselves, because we are starting from there like lithium output or lithium carbonate or lithium hydroxide, the gross margins will be higher. If I was looking only at the electrolyte, where I was buying salt from somewhere else, then, in that case, the gross margin would have been lower. So therefore, again, I apologize, but if you can give me some quarters to understand this. And as said before, we announced a plan for bulk commercial volume plant will have a much better answer for this. But at present, it's a bit difficult to predict.
Yes. Actually, Dr. Harin, I'm not looking for specifics. I'm just trying to understand that the stuff -- what we are doing on electrolyte from a complexity, from an innovation perspective. Is it more value-add vis-a-vis our existing business? So I'm just -- I'm trying to understand on first principles, are we doing more and more downstream stuff? Or is it same in terms of complexity vis-a-vis what we do at present?
Okay. So in terms of complexity, let's say, I would like to compare with lithium bromide, which we have been making for last 30 years. So this is something which is used in engineering as we make lithium bromide. And then, there is a certain like when you say electrolyte, it's kind of a formulation, which you are making for lithium bromide, where we have to control impurity, we have to control some parameters, and we also have to -- have some additives to give the properties, which is required for performance. So that would be my closest point of comparison.As compared to that, this is quite complex. So yes, we have an experience of that, but the criticality or the degree of impurities required or control, which is required, is much higher in case of the electrolyte. So from that point of view, yes, I would expect, as compared to the lithium bromide Phase 2 and engineering company, the electrolyte sales should have a better margin overall.But your earlier question was on gross margin, so that's the part which -- and right now, I'm not ready to answer was, whether the gross margins would be better or EBITDA a little bit better or -- because of a higher value, let's say, what my expectation is that for our installed capacity or at an IRR level, it will be better. But yes, it will be more critical -- and just in engineering, once we tied up with the customer, we had those customers for 30 years. My hope is that if we can tie up with some such customers now, it will barely establish a very long-term relationship. Because like engineering, even in this case, the end users are not chemical companies. So they are actually looking for somebody to also bring in knowledge and experience from a capacity point of view. So I think that's the role, which with our experience against to play. And if we do it successfully, it can be a very long business for Neogen, just as lithium bromide started in 95 still there is for us.
The next question is from the line of Nilesh Ghuge from HDFC Securities.
Dr. Harin, my question is on this 250 metric ton [indiscernible] capacity. So can you just elaborate on the competitive -- for the competition landscape, from the domestic as well as the international players? And definitely, there must be some international players, who are currently ahead of Neogen Chemicals, right? And where do we stand in terms of the need to complete the global player as well as the domestic players?
So I think, to some extent, let's say, when we are talking about the international players, yes, I mean the international players have been making this and supplying this for many years, so they have a better experience. To the best of my understanding, majority of them, the lithium salt producer, is different and the electrolyte maker is different. So one thing which Neogen is doing different is, we are doing it all in one shop, right? So some of the things or some of the decisions, which we made in our lithium salt can help my final electrolyte formulation, and there's a better coordination. So I think this is one.Second is that right now, they have many, many opportunities. So we have opportunities in Europe. We have opportunities in U.S. with the speed at which the entire world is moving. So how much is their interest or how much resources they can give it to India, which also require us within a time because India also wants to grow. So that's also another question, that will they have the India focus? Or how attractive they would be for India? So that's the second. And the third is they would have to start from scratch to set up the facility. So whether they can meet the time lines of the customers because the customers wanted, let's say, by a certain date, whereas we have an existing facility. We have -- this backward integration into lithium. All of these will help us to kind of do this speed-up process and hopefully meet customer requires faster. Having said that, we believe, I mean, there will be some competition or some of it might be imported. How much will be in India? So I think all of these will develop over next 2 to 3 years, and we'll have a greater clarity. But this is the advantage, which I see over international sales. And over domestic, I guess, I would say, what I repeated earlier that just the fact that we are doing lithium for last 30 years. We've been working on this for the last 2, 2.5 years. And as I mentioned, also in my document, we already are in touch with some 8 to 9 customers. But this is too early to call. So I don't know what other domestic companies, who are thinking about this, doing. And how far ahead they are. So I can just guess that these are the things which gives Neogen at least some edge to basically have a play in this area.
Okay. Okay. And my second question is on our existing business. During our last interaction, you mentioned that you are negotiating with 8 to 10 clients, and the molecule size is close to INR 25 crores to INR 60 crores per annum. So with now Phase 2 -- Phase 1, 2 already commissioned, so at what stage currently negotiations are? And you likely to add -- what are the chances that you may announce the contract or any -- or anything in next couple of quarters?
So I would like to announce. The question is, so -- so I don't know. It happens when it happens. What I would say is that, yes, things are moving along. As I mentioned earlier, some of the ones, who have tried pilot has now given us a first commercial order for trials. Some of the ones which were in R&D have given us a pilot order. So things are moving along. But it's a little bit difficult for me to again FY '23. I would like to, again, do that by Q4 of this year regarding FY '23. But I still keep my guidance that FY '24, we will try to have at least 20% of the revenue kind of coming in from CSM. So that's a growth which I'm expecting. But when can I announce, when will it happen, who it will be, what would be the size, I mean these questions, I'm not clear enough right now to answer with certainty.
Okay. Okay. Fair enough. And my last question is on the current -- on the balance sheet. The short-term date has gone up. If I compare that with the end of FY '21 number, it has gone up to INR 1.3 billion from just INR 0.8 billion. Do you think the overall debt will increase further from the current level by end of this financial year?
So Ketan, would you like to answer this?
Yes. As we look at our projections for the next 6 months, and given the volumes that we will achieve in the next 6 months, and the term and the expense that we spoke on a little bit on lithium, I think we should be -- our total debt should be around less than INR 300 crores. And short-term debt, we look around at a similar level or marginally upwards to meet the growth of the revenue that we will take forward.
[Operator Instructions] The next question is from the line of Gaurav Chopra from Union AMC.
So I just had one question again on this lithium opportunity. So in your presentation, you have sort of mentioned in one slide that -- what is the consolidation of the cost of battery in terms of cathode material, in terms of electrolyte? You also mentioned that what are you going to do in terms of sort -- basically, you mentioned the electrolyte, lithium salt, specialized cathode materials. Just wanted to understand from the opportunity perspective, what could be the opportunity size for Neogen in this total cost of battery?
Thanks for the question. So from -- as you see, currently, our forecast and the clarity that we have is on the electrolyte segment. So that electrolyte will generally contribute between 8% to 10% of the cost of the final sales. Now -- so that is what is basically we are clearly targeting. When it comes to cathode, there is one cathode material, which is very commonly used or most popular is a category called NLC. So far, we have not worked any on that. But there are some specialized cathode materials, which we are working on. But they are relatively in an earlier stage of development, and we don't have also clarity as a whole that -- how much of the material will be used for -- how much of the industry use will be for NMC and how much for the cathode materials that we are targeting. So I think if -- for now, when we are thinking of it in terms of the business volume, we are largely focusing on electrolytes. And this is where we currently have. I think like as we mentioned in our presentation and in my opening call, the total demand by 2030 is expected to be like in the range of 50,000 to 70,000 metric tons, if the 150 gigawatt hour capacity is put in place. Now again, based on lithium prices, the electrolyte prices also changed, and it's a bit early to kind of predict in terms of how much crores it is. But it will be a few thousands of crores by 2030. More important question from an immediate point of view, how it is going to ramp up? And will increase the 150 gigawatt hour, which has been projected? So I think those are the questions on which you will get a clarity in next 1 or 2 years.
Got it. Got it. Sir, just one question from my side again. So you mentioned that the majority of the CapEx will sort of follow in the FY '23. So is it safe to assume that if you do get a contract, if this capacity do sort of ramp up in the way it is being protected, it is easy for you to scale up the plants for the electrolyte?
Sorry, I didn't understand your question. Can you repeat it?
Yes. So basically, you said the majority of CapEx for this project is going to happen in 1H of FY '23. So basically the amount taken to sort of commercialize this plant is appearing slightly low. So my point is in case this capacity for lithium sort of scale of the way it is projected to -- from your side, you will be able to ramp up your capacities as well in a shorter spend?
Yes. So I think most of the investments that we are currently doing is for a relatively very small capacity, right? 250 metric tons per annum is relatively a very small size. Again, it's a chicken-and-egg situation that there was no, not complete clarity from the customers. But in spite of that, as I mentioned, to answer that is there are 1 or 2 customers who said, we are going to have some initial trial runs or a transplant on retime quantity. So based on that, we've at least gone ahead and taken the decision. Now based on my understanding and with the level that we are prepared, when my customers start making a plan for making this cell, even if I start at that time making a plant for the electrolyte, my time will be shorter than the plant, which is going to come up for manufacturing the cells. So as and when my customers basically makes the final investment decision and breaks his ground for setting up the plant, I will be faster than them, okay? So this is the -- so therefore, I don't expect much of a challenge. And we are in very close communication with many of these customers trying to understand their needs. They also understand Neogen's capabilities, appreciate Neogen so many years of experience. So yes, I think, we will have time to expand to meet the larger demand of our customers. I hope I answered -- that was -- I answered your question?
So just last question from my side. Sir, you also mentioned in your presentation that you're in discussion with some potential manufacturers, including overseas players. So the tide up capacity, which you have just talked about, are these domestic players still overseas players?
The capacity, what you mentioned, sorry, please repeat.
The capacity, which you said that is partly tied up for your customers' R&D initiatives?
There's a domestic player, and we are in more advanced session with one of the domestic -- international player as well for that.
[Operator Instructions] The next question is from the line of Ranjit Cirumalla from B&K Securities.
Congratulations on your foray into lithium. Again, circling back to the lithium. So I just wanted to understand how [indiscernible] be for the disruption that will likely to happen in this particular technology? So how should one view that irrespective of the disruption of the technology, probably the lithium salt would still be needed and to that extent Neogen would be secured?
So Ranjit, thanks for this question. And this has been a question which we have been also asking ourselves last 2 years. And one of the things, which we were waiting for is customer clarity. So with higher interaction with the customers with what we have thought, there seems to be quite a consensus that because of the property of lithium for having the highest charge to weight ratio. At least for a [ TV ], lithium will always be in the play. -- what form of lithium, liquid electrolyte, solid electrolyte, different things which are happening, which can happen, but the lithium will be required, lithium salt will be required. And at least for the next 4 to 5 years, people are thinking that the existing mix, which we are targeting, is going to remain. So for the next 4 to 5 years, the existing chemistry is likely to rule. There are some new things, which are happening. But -- by the time they are, first of all, tested that have a kind of smaller launch there then somebody internationally, who understand this technology will actually puts it for use. And then, for example, India starts to put it for use. That's going to be at least 4 to 5, 6 years period. So even if the chemistry changes, when the chemistry changes, we'll be able to kind of have enough time to adapt to that different chemistry, within lithium salt. I think the only other technology, which people talk about are flow cells and sodium-based batteries or like in the battery space.Again, they are mostly people are considering for renewables, where the weight is not -- I mean supporting the batteries for renewables, where rate is not such a big issue. But for EV still, I think large consensus is that it's going to be the lithium-based battery so far. So -- and anyway, but like this is also on our mind. So currently, the commitment of CapEx, which we are doing is very limited. And whenever we do broader, larger CapEx in future, we would also want some kind of customer assurances to minimize the risk on Neogen, if at all, the technology were to change very fast. I hope it answered your question?
Yes, sir, it does. A follow-on to that. You mentioned that you're working with the 8, 9 players or customers who have expressed interest in the advanced chemistry cell. So in the event we do go ahead would customers like only one supplier is we like free to kind of appropriate for Neogen is also supplying to its competitors? How the dynamics going to work in that place?
So if I look at international business, both things happen. Mostly, it's one-on-one relationships. But sometimes, some companies do have -- I mean, the cell producers do have multiple suppliers. So we'll see our growth in India.
Sure. Sir, one final question, if I want -- if I may. Now with the electrolyte and the EV also kind of gaining traction and we have the CSM side. So how is your time going to spend on these 2 new fast-growing activities?
So Ranjit, so far, my time was majorly behind majorly behind getting Dahej plant started, because that was my biggest worry because that's something Neogen's one of the biggest investments we've made. So ensuring that they are put to use productivity was my largest time. Both CSM and lithium will remain my focus -- will remain Neogen's focus. Even in terms of my R&D, still CSM better taking more resources. But from my time point of view, I think because we have a team in place, like our VP, R&D or our site manager or our VP Business Development, who already have a good understanding of CSM business already. there's enough expertise within Neogen for CSM.So, I think my time, hopefully, will be going more towards lithium-ion battery than for CSM. But we'll see. I mean, again, sometimes lithium-ion is future and CSM requires something today have to be flexible and we'll be flexible that.
The next question is from the line of Keshav from [indiscernible] Investors.
Sir, for the 2 innovator multiyear contracts we have, are these products scaling up at the innovator end? I mean, are these of the prelaunch phase and fully commercial?
Yes. So both of these are now commercial. So one of them, if you recall, is a U.S.-based pharma customer. So the pharma customer has already launched the product in U.S., and they are expecting also launch in Europe and Japan shortly. Similarly, the agro customers has -- so the agro customer also has made the final product out of that. I'm not fully aware whether it will hit the market this year or next year. They have not shared that information with me. But basically, both of these are commercial and have been used by the customers now and the volumes will ramp up.
Sir, you had mentioned in one of the previous calls of a shared offtake [indiscernible] you have with them and it's a multiyear contract. And so for the products that are yet to launch -- So is there a kind of risk that they might not end up doing as they have planned?
So I mean, yes, I mean, if they have -- in this particular case, both of them have launched the product, and there is always that risk, but very rarely, I mean to the best of my experience. Most of these companies have invested billions of dollars to reach to that state where they are at launch. So they don't give us, without clarity for 3 years or 5 years, at least. Maybe I can ask Mr. Surana, who has years of experience in this to answer this. So Surana, would you like to add?
Yes. Yes. So now Arin, as you rightly mentioned, all these investments, they are multibillion dollar investment spend by customers. And these investments are done in phases. They do investment in research, they do investment in data generation in pharma, they do investment in Phase I, Phase II, Phase III clinical trials. In agrochemicals, they spend money on regulatory approvals in each country. So all this money is never ever spent without having a very, very clear visibility about the efficacy or any adverse effect of the product or anything like that. So a product just dropping off the cliff is a very, very, very rare occurrence. I mean, theoretically, it can happen, but it's a very rare occurrence. And these companies are very careful about making these very large investments. So while an assured uptick actually means a take-out pace, right? So nobody gives a take-or-pay kind of contract. But you see a very, very remote possibility that they would just stop suddenly.
Yes. And sir, just to add to that, from our side, these reactors can be used for our own other molecules also. So worst-case scenario, okay, we may have some time to address, but we can make our own molecules. And whenever we had specific equipment, which are designed specifically for this product, you've kind of taken an assurance from the customers. I suppose, if they don't complete the contract, then they cannot pay us to the unutilized portion for this equipment. So to that way, some kind of a comfort has been taken from the customers.
Yes. But most of these plants are [ completed ]?
Yes.
Sir Recently, I came across the mention of an industry trend in the CDMO space, especially pharma, I'm not sure about agri, about innovators asking for multi-capability CDM to provide the entire basket of services. So sir, I wanted to have your view in it? Like if we go through the vertical chain now the product would move from different stages of intermediates onto the API -- so would you -- do you feel that despite of this ask from the innovators to consolidate the supply chain and intermediate manufacturer like us would rarely graduate to the API level and the API guy would not find as much value to completely backward integrate? And would there be sort of an equally bring somewhere in between?
So I think, I'm not specifically aware of the specific trend or the discussion which we are referring to. But just looking at a business point of view, I think most of the times, if an innovator is making this ask, it's to do with the questions where they have seen supply chain disruptions -- and customer wants to make stability of supply. So certainly, a Chinese company [ stock ]. So because of that API producer is not able to meet it, then the customer emphasis that you should be able to make this on your own, if needed. So I think as long as we are a reliable supplier, the customer would still want to continue for us to working on this at an intermediate level or advanced intermediate level. And from whatever discussions I've had, I've seen like especially in Europe, more and more companies wanting to get advanced intermediates from China as far as I can tell. So I think at least from Neogen's perspective, there should not be a very big disruption. And the biggest difference between us and the final API producer would be a completely U.S. FDA approved site versus a side which have been following U.S. FDA norms, which have been audited by the customer. So I think there's a little bit of differential between the 2 sites also. So we suddenly can't from tomorrow starts making APIs, and API company when it has an option of making API which is already under demand. We would not want to make intermediates or KFM with a very short notice, unless it has supply security issues. So this is just my views on that, but I think that'll be our 2 years.
So one last thing. Are we being conservative when we forecast the INR 650 crores top line. So is it potentially the minimum or maximum. It's our expectation to reach this level and sort of gradually increase utilization? Because we already did INR 270 crores of revenues in organic in FY '21. And I can understand that newer capacities would be more for AI and CSM and more of dedicated facilities. But are we saying that INR 650 crores is the max we can do? Or more like we'll start from this, but potentially can scale more from the same capacities in the years to come?
From the same capacity, it will depend upon how the product mix that we ultimately land on the percentage of reactor capacity needed for a unit dollar for a metric ton is required for value of the final molecule is required. So yes, I mean, what we feel is that if my reactors are used. We should be able to get INR 650 crores to INR 675 crores. Based on the mix of molecules, which we have in target, okay? Like, for example, if I were to do only booming derivatives, it could be slightly higher in terms of revenue, but then margins may have some other impacts. So this is kind of a mix. So it's neither the minimum nor the maximum. Okay, with the existing capacity that what we can do. And again, as we stabilize more, we will have an idea on what is the maximum we can get out of the existing capacity.
Ladies and gentlemen, we will take the last question from the line of Dhavan Shah from ICICI Securities.
So I have one question, and that is related to the base business. So we have seen the price increase for the bromine from China by around 2x. So how is that affecting our base business? I mean is there any positive impact in terms of the international business inquiry for the advanced bromine intermediates? because I think the domestic bromine prices are almost at the same level, if I'm not wrong. So can you please share thoughts on that?
Yes. So we have seen, for example, not more interest from our international customers in last 1 month since at least a news article came that Chinese bromine prices have doubled or like have not doubled, but we have increased significantly.Now China sometimes go through the cycle. So we'll have to see, first of all, how much stable this is, whether it's short-term, whether it's long-term because unlike India and Europe, China tends to be a month-to-month, very high variable market. They don't have this annual contracts kind of a concept that we have or they fix the volume and do it. So sometimes the spot prices can be a bit misleading. So we'll have to watch that. But yes, the immediate effect of that is that several international customers, who were also relying on China and India have told us that, hey, you have new capacity. Can you give us some more quantities. And we are also trying to see because most of these customers will require full commitment for next year. So we also are talking to our suppliers to get a view of next year and see whether the customer would be interested with the new prices. The immediate outcome is, we are getting more inquiries about business, we'll get to know next quarter.
And sir, China, are they into advanced bromine intermediate also? Or they are mainly into the bulk business?
So actually, I call 3. One is bulk bromine derivative, which is the flame retardants, the water treatment, oil field, et cetera. So that is what I call a bulk that I call a specialty bromine derivatives, which are like, which basically don't have a demand of like more than 1,000, 2,000 tons per annum. And third, what I call is advanced intermediates, which we make.So when we talk of advanced intermediates, we talk of more molecules made which can be bromine or non-bromine using this specialty bromine derivatives. So I would say China is in all 3 spaces. Yes, they are present in bulk bromine also. They are there in specialty also. And to some extent, we are they are there in the advanced intermediates also.
And we are witnessing demands from which space because of this thing?
So we are not into bulk. So I wouldn't know the answer on that, but we are seeing inquiries on the specialty bromine space because -- That's a place where we have done -- like what is the immediate impact of bromine price. At the advanced level, the impact of bromine sometimes gets a bit limited because there are other factors which contribute more other than bromine.
Thank you. I now hand the conference over to the management for their closing comments. Over to you, sir.
Thank you all the participants for joining the call. I hope we are able to satisfactorily respond to your questions. If you have any more questions, please feel free to contact our Investor Relations team, CDR India, and we will address them. Wishing all the participants festival greetings. Happy Diwali. Stay safe. Thank you again, and we look forward to connecting with you in the next quarter.
Thank you. Ladies and gentlemen, on behalf of Neogen Chemicals Limited. That concludes this conference. Thank you all for joining us, and you may now disconnect your lines.