Neogen Chemicals Ltd

NSE:NEOGEN

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to Neogen Chemicals Limited Q2 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, Mr. Solanki.

[Nishid Solanki]

Thank you. Good morning, everyone, and welcome to Neogen Chemicals Q2 FY '25 Earnings Call for Analysts and Investors. Today, we are joined by senior members of the management team, including Dr. Harin Kanani, Managing Director; Mr. Anurag Surana, Director; and Mr. Gopikrishnan Sarathy, 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 that the management will be addressing queries of the participants.

Before we comment, I would like to share a standard disclaimer. Certain statements also discussed on the conference call today may 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 '25 earnings presentation, which has been uploaded on the stock exchange website.

I would now like to invite Dr. Harin Kanani to share his perspective. Thank you, and over to you, sir.

[Harin Kanani, executive]

Thank you, Nishid. Thank you for joining us for our second quarter earnings call. Seasons greeting to everyone. Hope you had a -- Diwali with your family. Wishing everyone a very happy and prosperous New Year.

As you know, we have appointed Mr. Gopikrishnan Sarathy as the Chief Financial Officer of Neogen Chemicals. We welcome him in the new role, and wish him the best. I will be sharing my views on the performance and strategy, while Mr. Gopikrishnan will take you through the financial highlights.

Neogen Chemicals achieved a robust performance during the period under review, demonstrating resilience and strong execution. This came amidst a challenging market landscape characterized by weak demand oversupply situation, geopolitical tensions and inflation, which impacted industries pricing power as well as profitability.

The performance was driven by volume gains registered in the base business, with additional contributions from BuLi Chem and Neogen Ionics. This achievement is a reflection of our team's commitment to excellence, their ability to innovate and adapt to changing circumstances to deliver results.

I will now present a concise summary of the key financial figures for Q2 FY '25 on a consolidated basis. Our revenues grew by 20% year-on-year to INR 193 crore, while EBITDA came in at INR 35 crores, an increase of 33% year-on-year. This translated to EBITDA margins of 17.9%, an increase of 180 basis points. Profit after tax stood at INR 11 crores, representing an increase of 30% year-on-year.

As informed, Mr. Gopikrishnan will share more insights on the financial performance.

Now shifting your focus to the segment performance. In Q2 FY '25, organic revenues reported a growth of 34%, while inorganic revenues declined 24% mainly contributed by lower lithium prices. Both bromine and lithium raw material prices experienced a steep decline during the period under review as compared to the same period in the prior year. Existing for this fall, the organic revenue would have been higher to -- at about INR 186 crores in Q2 FY '25, while the inorganic revenues would have been higher at INR 55 crores during the same period.

I will now provide an update on our expansion activities. New capacity of 400 metric tons per annum for manufacturing lithium electrolyte salts and additives, so here, we already commissioned the first 200 metric tons per annum and initial approval of the material that we have shipped to the customers have already been received, and we will start -- the volumes in this area will start growing in Q3 and Q4.

For the remaining 200 metric tons per annum, trial production and optimization of the processes are currently ongoing. We've already had some customer site visits, which have approved the facility. But further, a more rigorous approval process is currently ongoing.

Plans for manufacturing the 2,000 metric ton of electrolyte at Dahej facility, we are implementing the phase commissioning strategy here. And in the first phase, 200 metric ton has already started with which we have now approved more than 4 customers at a commercial level. And in Q3 and Q4, as these -- our customers ramp up their sales production volumes, we expect our electrolyte volumes also to get ramped up. Both these will be fully utilized -- will be fully online and get approved before the end of current financial year.

By closely collaborating with our customers, we have jointly developed and exchange multiple recipes of electrolytes with different lithium salt combinations. In the process, we also gained valuable insights on the technological capabilities and market trends. We are committed to maintaining stringent quality standards and adhering to strict safety protocols.

The positive feedback from our customers validate our commitment to delivering high-quality and efficient products. Our business development team has been actively engaged with domestic and international customers, posting them for on-site inspection and approval visits.

About the greenfield battery material facility using a new IS technology. With the financial closure secured, we have already initiated construction, and the project is progressing as planned. We have started the civil construction at the site. And our partners, Mitsubishi, have started the plant construction at their end. So both are meeting the targeted deadlines.

We have a dedicated team in place to expedite the completion of the project. Several large battery manufacturers are expected to start operations soon, and we are progressing with long-term contract discussions. We are phasing the commissioning of this facility in FY '26 as per our original plan.

There's still a strong demand for the non-Chinese products coupled with ongoing discussions and MOUs, which we have, which basically secure the international salt business, which is expected from this site. We believe India's expanding EV industry presents a significant opportunity for the electrolyte market.

The work which Neogen has done both domestically as well as internationally. We are seeing a lot more interest coming both from local as well as international customers. And as the country, strives to achieve our ambitions of EV adoption goals. The demand for high-quality locally sourced electrolyte is expected to search.

With the work we have done in the last 2 years, we are in the right position to take care of this demand. Consequently, we are committed to making long-term investment to secure our future growth and success. Our growth strategy is focused on scaling up our organic and inorganic chemicals business.

Also, we are seeing good progress in our CSM business as well. Of course, we are waiting for improvement on the agro demand for the product for this business to develop further. Navigating the current global economic landscape, Neogen Chemical is demonstrating resilience and bringing innovation and seeing focus on delivering value to our stakeholders.

That concludes my opening remarks. I would now request our CFO, Mr. Gopikrishnan Sarathy, to share the financial highlights for the period under review.

[Gopikrishnan Sarathy, executive]

Thank you, Dr. Harin. Good morning, everyone, and welcome to Q2 FY '25 earnings call. I'm delighted to be the part of Neogen Chemicals family and look forward to contributing to its future success.

As stated by Dr. Harin, I will take you through the financial highlights. Please note, these are all consolidated -- these are on a consolidated basis, and the comparison is on a year-on-year basis.

In Q2 FY '25, our revenue increased by 20% to INR 193 crores, driven by higher volumes in core business, along with the incremental contribution from BuLi Chemical and Neogen Ionics. Organic Chemicals witnessed 34% revenue growth year-on-year at INR 164 crores, while inorganic chemical revenue declined by 24% to 29% -- INR 29 crores. The revenue of both could have been higher, but for the decline in the raw material prices during the quarter.

EBITDA rose by 33% to INR 35 crores, led by higher planned throughput as well as better operational efficiencies. EBITDA margin remained healthy at 17.9% even in this weak pricing environment and startup-related costs at Neogen Ionics.

Profit after tax came at INR 11 crores, an increase of 28% year-on-year. This was in line with strong operational performance. The increased capital expenditure in Battery Chemicals segment is expected to result in higher depreciation and interest costs going forward.

The domestic and export mix during the quarter stood at 74% and 26%, respectively.

That concludes my initial remarks. I will now request the moderator to open the forum for Q&A session.

[Operator]

[Operator Instructions] The first question is from the line of Abhijit Akella from Kotak Securities.

[Abhijit Akella, analyst]

So first, with regard to the CapEx numbers for the first half, in the consolidated cash flow statement, I think we can see a number of about [ INR 150 crores odd. ] So how much of this would have been towards the battery chemicals segment? And what should we expect on a full year basis for CapEx for the overall console company? Is it tracking in line with the time line given that we have to spend INR 1,500 crores maybe in less than a year now to commission the Mitsubishi plant?

[Harin Kanani, executive]

Yes, the CapEx that you are seeing is mostly for the battery materials. And while INR 150 crores is in the first half of it, totally, I think we have spent around INR 350 crores to INR 400 crores over last -- in the battery material space out of INR 1,500 crores. Some of this was already sitting on Neogen's balance sheet, which was then transferred. So therefore, when you are looking at a consol number, that transfer you're not seeing. But in the battery materials space, overall, we have already invested around INR 350 crores to -- around INR 350-odd crore to INR 400 crore CapEx already has done.

We feel we should end the year somewhere around INR 700 crores, INR 750 crores CapEx of the total INR 1,500 crores, which we are targeting this year, and then the balance would come in next year. Some of it also the way we are constructing it. Mitsubishi is constructing the main plant. So that sits kind of as an advance. And they are already started construction on their end. And then the entire plant will be built there and then transferred together. So that's going to be a big chunk, which will come in the next financial year once that plant is ready. But from our side, the investment on that is already progress.

[Abhijit Akella, analyst]

Understood. Also on the subsidiary revenues breakdown for this quarter, would it be possible to just split it out between Neogen Ionics and BuLi Chem if possible?

[Harin Kanani, executive]

So broadly speaking, I would not like to give a specific number because these are one product kind of companies. But when it comes to what you are seeing, the total difference, I would say the Neogen Ionics is still in single-digit growth, and the balance is basically from BuLi Chem. But you've seen significant improvement in BuLi Chem, and quarter 1 and quarter 2 from a battery material point of view has been more or less similar single-digit crores.

[Abhijit Akella, analyst]

Understand. And just one question with regard to the environment in the U.S. now. I believe the Trump administration had kind of indicated plans to remove the Inflation Reduction Act if it came to power. How do you see the risk over there in this scenario?

[Harin Kanani, executive]

Sure. So what we have seen and what our experience has been when we've talked to the customer, of course, the discussions with the customers were before like the election results. But there was always this possibility and we had heard about it. The feedback which the customers have given is, look, even if like whether there is an IRA or no IRA, we still need this, especially in the electrolyte salt business because just to have a second backup, because 95% of it coming from China is something which we are not comfortable. So again, we continue to take that view that are you the best source outside China. This is one question.

Then the second question which we have seen is that, like I said, if they look at last 4 years, with the formula pricing which we have, they would still have been better off than buying at a spot market from China. So these are the 2 decisions which are there.

Separately, they've also commented that so much amount of investment also which has happened in case of -- like related to IRA, IRA-driven investment. And that too, in so many states where like there's a very strong support for Trump, that basically is going to be very difficult to completely unwind IRA. There might be a few like variations or changes around that. But mostly, they feel there will be some form of IRA with some modification still continuing.

This is a view from our customers. But as far as our investment was going there, they don't stop. We need more, and they are even encouraging us to think of some other molecules also, which doesn't require. So anything which doesn't require a presence in the U.S., they are telling, Neogen, please consider these options.

So their interest remains still very high. And recently also, we had visits from them. And during their visits also, they are satisfied with the progress we are making and given us more confidence to even challenge ourselves to do even more than what we have currently planned.

[Abhijit Akella, analyst]

Got it. And just one last thing, if I may, if you'll permit me before I get back in the queue. So from a second half perspective of this year, with the salt volumes ramping up and I'm not sure how the traction with regard to the commissioning of battery capacity is going from the large guys such as Amara Raja, Exide. But in the context of whatever you are seeing, do you still believe that INR 100 crores or INR 150 crores of battery chemical revenue is possible for this year itself, fiscal '25?

[Harin Kanani, executive]

No. So for battery chemicals, we had guided for this current year around INR 75 crores to INR 100 crores range. And what we still feel like, again, it depends a little bit on the electrolyte ramp-up which happens. But like what we are seeing is somewhere, let's say, between INR 50 crores to INR 75 crores.

I'll be honest, like the first 6 months, the approvals have taken a longer time for the new site, so especially for some of the salts. So based on that, today, what I'm looking is best for this particular year for battery would be somewhere around INR 50 crores, INR 75 crores. But next year, like or the year after, I don't see any change.

[Operator]

Next question is from the line of Nilesh Ghuge from HDFC Securities.

[Nilesh Ghuge, analyst]

Harin, you mentioned that volume growth was very robust in your core business. My estimate, sir, is that it is close to about 50% Y-o-Y basis. So can you tell me which category of products have shown such a high growth? Is it in Advanced Intermediate or lithium derivatives, bromine derivatives or in CSM?

[Harin Kanani, executive]

So for us, when you are comparing, we have seen good growth in lithium derivatives because if you see the corrected numbers, right, we have seen almost a 40%, 50% -- 30%, 40% increase on the lithium side. Of course, you're not seeing it just because the lithium prices are like 1/3 and like even our consequence for metric ton prices are less than half.

So as we have given on our Slide 20 of our presentation, where we have shared what the number would have been if the prices would remain the same. In case of organic, the main contributor is going to be the BuLi Chemicals because we had -- we are just starting with our BuLi Chemical plants at that time, and now we are almost running at a full capacity. So that have been the main drivers.

In terms of our organic production, in organic production, right now, the major improvement that we have seen is the non-agro CSM that, that has contributed. And also the bromine derivatives. In bromine derivatives, we have few bromine derivatives which were used in the molecule, which was getting approved by the innovators.

If you remember, when we did our site expansion, we said we had signed on long-term contract, a 5-year contract with a pharma customer where we are going to be supplying them bromine derivatives. But as the molecule gets more approvals, the demand will go up. So I think that business is improving quite a bit. So I think bromine derivatives is doing a good job.

Like in terms of non-agro CSM. So we had a target to reach around 20% CSM. But last 2 quarters, we are already at 15%, 18%. So we want to reach 20% by next year, but we are already at 15%, 18% in spite of a lower demand from agro. So the agro demand not being there. So the CSM that we have done for, let's say, semiconductor or we are doing for our flavors and fragrance and like some like specialty polymer and other specialty materials, fine chemicals, that has also done well. Lithium has also done well.

Advanced Intermediates, which we basically sell in the market, that is still the area, and agro is the other area where in Advanced Intermediate, the Chinese competition and slightly lower demand in bulk API, this is something which is like which we need to improve upon. And the agro CSM has not picked up in this year, although we are doing several projects, which we had done last year, and we are now -- the customers will start planning their 2025, which is the Japan customers, they start from October onwards, they are planning. So by January or so, we'll have a demand on Japanese agrochemical demand. So that will give us an idea how that CSM is going to work out. And so we'll get a clarity on that. And the Advanced Intermediate is another area where we still need to work upon.

[Nilesh Ghuge, analyst]

Okay. Okay. And as you mentioned that BuLi Chemical already reached its peak utilization. So the benefit out of that as we have the entire chain of bromine right from bromine derivatives -- sorry, lithium derivatives to extraction of lithium technology. So are we getting benefit out of that? I mean this solves regeneration of lithium and getting lithium back?

[Harin Kanani, executive]

Yes. So we have already started recycling the lithium which comes out, which was being given out externally. And that is helping us increase some of the lithium volumes also. Some of the businesses where we used to have the price pressure because we are able to do this recycle, we have been able to increase volume, even though like lithium prices are depressed and I think that benefit is coming. You're not seeing it fully, like I said, because of the depressed lithium prices, but otherwise, that's something which is already helping.

[Nilesh Ghuge, analyst]

Yes. And the second question is on the margin. So we can see that more than 200 bps improvement in EBITDA margin, if I compare that with the last year. So is it largely because of correction in product prices? Or is there an increase in the absolute level per kg EBITDA for the products?

[Harin Kanani, executive]

So I think largely driven by this price fluctuation. So last time was a bit lower, right, because lithium prices were like lithium prices were on a lower -- higher side. So on an absolute margin was okay, but per metric ton -- I mean the percentage EBITDA was looking a little bit lower.

Now lithium prices are also corrected. Last 1 or 2 quarters, even after lithium price correction, there was a lot of Chinese pressure and utilization levels are lower. So as you know now, last 2 quarters, BuLi has been making positive profits. So that's something which is basically helping us. And like overall, those were the drag.

Even now, battery is still not like broken even. We are just in a few single-digit crores, as I mentioned. And like the expenses are still there with the production and everything going on. So I think we will still see improvement in the margins as you see better utilization levels. But largely, it is just like the lithium price corrections, which are giving you percentage improvement in the margins.

[Operator]

Next question is from [indiscernible] from Avendus Park.

[Unknown Analyst]

Harin, first question is on the working capital performance during this first half. We have seen a moderate improvement in the working capital. Can you just indicate, is this the seasonal stuff? Or is this a [indiscernible] reduction? How [indiscernible] reduce over the next couple of quarters?

[Harin Kanani, executive]

Yes. So we had already targeted that, let's say, by next financial year, we wanted to reach around 130, 140 days of net working capital on net sales basis. And we are -- like what we are doing right now, we are on -- like we, at least -- like we said, we had done maximum like kind of investment which was needed for working capital in terms of inventory, in terms of debtors, and we needed to work very hard to basically improve upon that.

So I think that trend has already started, and we'd like to maintain that. Again, every quarter, because we are still ramping up in a very variable kind of scenarios, we are seeing improvement in our demand, especially in the pharma side. And sometimes they are also coming very suddenly. So we have to continuously keep shifting and adapting ourselves.

But I think this will all stabilize, and we continue to maintain what we had said that by end of next financial year, when we have full utilization levels, we have INR 1,000 crores. Our working capital will also stabilize and go back to historical 120, 140. And beyond that INR 1,000 crores when we go is when you will start seeing improvement over that because then we'll have more mature molecules or CSM business would have stabilized. So we can expect working capital improvement beyond that, let's say, in FY '25, '26 -- sorry, FY '26, FY '27.

[Unknown Analyst]

Great. And this -- when we ramp up battery chemicals, should we expect a similar kind of market capital base from that segment so that means that will drag certain working capital on an overall basis?

[Harin Kanani, executive]

So right from the beginning, what we expect that battery business is a very different business, right, in the sense that we have fewer customers, we have fewer products. We have fewer raw materials. They are dedicated plants. So that's where we can basically engage in working capital very well.

The only variable there would be that some of the customers are very large, and they would want like longer payment terms. But what we are hoping that with such large customers, we should be able to get like factoring or like invoice discounting to some kind of a financial arrangement.

So again, this is going to be [indiscernible] expertise area that we are going to like depend upon. Wherein like even if our customers want a long credit, we can maintain our working capital cycle with a good financial arrangement. But at least from an inventory point of view, what we can say that we can contribute and we can control that like around 60 days -- let's say, 75 to 90 days.

So that -- and hopefully, it's a situation where debtors and creditors basically balance each other out. So our target is like a 90 days kind of working capital cycle against 120 to 140 Neogen's base business. We target like around 90 days for the battery business. That's our target. Again, this is -- we are just starting with this business, but this is what we feel we can achieve.

[Unknown Analyst]

Understood, sir. Secondly, on -- you said that BuLi is kind of already near full utilization. Any chance that we can -- the capacity is fungible with the other facilities that we have and we can make BuLi products given that it seems to be in demand? So can we utilize some of our other facilities and manufacture the BuLi-related products there? Or still you need to put out some kind of a brownfield expansion there?

[Harin Kanani, executive]

So BuLi is a very dedicated kind of a special plant because of the -- nature. It's very unique. So unfortunately, it's not fungible. The good news, however, is that like we increased capacity at that site. So we have a capacity to grow up to 5x. We already applied for environment clearance. So we have already received the center's approval on that. Now we are working on a state level approval. And fortunately, with a very small CapEx, to each increase, we can do because this site maintained the same capacity over a long period of time, and they've done some cycle time improvements and debottlenecking over time.

So around 50% to like 100% increase in capacity can happen. As soon as we get the environment clearance permissions and necessary permissions for the increase, so that can happen. And then we would have to do a brownfield to go from 2x to 5x. So that's still like a further view. But I think up to 2x what we are trying to secure that now that we've got the center approval, if we get the state approval in the next, let's say, 3 months period or so, if we are able to do that, then for the next year, we would have almost like a 2x capacity available.

[Unknown Analyst]

Understood. So this -- if you go up to this 2x kind of an approval, would you revise your guidance of INR 1,000 crore revenue potential for the base business? And if yes, what would be that indicative figure for that?

[Harin Kanani, executive]

So for BuLi, depending on the lithium price as we had indicated, the revenue will be somewhere between INR 50 crores to INR 100 crores on that ex capacity, right? So 2x would also be like INR 100 crores to INR 2,000 crores -- INR 100 crores to INR 200 crores kind of revenue potential, depending on the price of lithium.

With the way the price of lithium is it's going to be more closer to INR 100 crores, INR 125 crores even at that 2x capacity. So it's not going to change significantly. That INR 1,000 crores [indiscernible] would change INR 1,050 crores. But like with all the other things happening in the agro world, et cetera, I'd like to keep that INR 50 crores as my buffer just to maintain INR 1,000 crores. [indiscernible] also going online and most end of the current financial year, we expect BuLi to become part of Neogen because it's more similar to the base business, right? So that's why we wanted it to be part of Neogen. We would have this Neogen in only 2 entities. So most likely for the next financial year, it will be part of our stand-alone results. It will become part of our stand-alone results itself.

[Unknown Analyst]

Understood. Fair enough, sir. Finally, lastly, on the battery chemicals. You said in your opening remarks that a few of your customers are going to start the plant. This is in which geography? And also, what kind of battery capacity that the customer is putting up on an aggregate level? How many gigawatt are? That will be very helpful, sir.

[Harin Kanani, executive]

So basically, when I mentioned that, that -- what I meant is that the electrolyte business for India, which is basically all the battery plants which are coming up in India. So as we know, Ola has already started production, and they are ramping up as well as a few other smaller battery makers with 100-megawatt hour, 50-megawatt, 250, they are also starting and they are ramping up.

And then of course, Exide and Amara Raja would be targeted like at some sort of start and a ramp-up in the next financial year. So what I meant was our electrolyte ramp-up is basically like based upon Ola, Exide, Amara Raja and other battery makers who are planning how that capacity is coming online. So that is the mention.

The salt business that we have doing internationally, the capacities are existing there. The capacities are running together into hundreds of gigawatt hour kind of level. Only the question is, shifting from China to -- Chinese stores to a Neogen kind of a source. So that's the shift which needs to happen.

So as our capacities get approved, like I mentioned in my call, so some of the basic infrastructure, the quality system, these things are approved. But in battery, there's a more rigorous system where, once your process is completely optimized, that is when they will come and do an audit where it's like a parallel audit in front of them, you are doing all the production. So I think that rigorous audit is something which is pending for a few of the clients. And once that happens, then the volumes will start ramping on there.

[Unknown Analyst]

Right, sir. And post the rigorous order that you are talking about, after that, again, there will be a little few months it will take for us to get the first contract? Or is it like how does it -- this process ends?

[Harin Kanani, executive]

So many of these -- so the contracts are already in place with some of them. What is remaining is the PO. So the contracts are there, the pricing volume, everything is decided. Once you clear all those audits, then the POs start flowing, and that's when you start doing the shipment. So from the audits to shipping, shipping time will not be too long.

[Operator]

Next question is from the line of Ankur Periwal from Axis Capital.

[Ankur Periwal, analyst]

First, on the -- your comment on the plant inspection that we have been seeing. So one, is it for the electrolyte from the domestic players or largely from the salt manufacturers globally you were commenting on the extended -- the rigorous audit?

[Harin Kanani, executive]

So again, each company has its own, but we both have the same procedures.

[Ankur Periwal, analyst]

Okay. But from a, let's say, procedural or, let's say, a ramp-up perspective, are we more closer to seeing a ramp-up or let's say, product approvals on the salt side? And -- or how has been your status of discussion with the domestic players for electrolyte site in terms of plant approval and ramp-up?

[Harin Kanani, executive]

So I think electrolytes salt also with the 4 customers which we mentioned we work with, some of them have already taken trials. They have used our electrolyte in their cell manufacturing facility, and some have seen the satisfactory performance. And now they are ready to place like bigger volume orders.

They're the main bottleneck. I mean we have -- so there are the main bottlenecks like all the approvals, whatever they need from our side, we are more or less ready. There are some comments or improvements which the customers have requested, which we are basically overcome which we are doing the improvement, like we do in any pharma audit also. So it's a very similar, it's not something.

There's the main challenges that they are also increasing their cell manufacturing capacity, right, because all the smaller ones, the bigger ones, they are just right now in the trial production phase. So as their trial production becomes regular production, basically, our electrolyte volumes go higher.

[Ankur Periwal, analyst]

Sure. That's helpful. And you also commented on the new recipes and the new learnings that you had while working on these trials with the customers. What exactly you can substantiate that? Are these learnings more on the larger number of recipes that you could have done? Or it's a new salt or more efficiencies? Some of your thoughts.

[Harin Kanani, executive]

So basically, before we were focusing on how we make -- how we make electrolyte or the best quality, right, so the process of manufacturing. Now as we work with more and more customers with different kinds of cell designs, we are getting a more deeper understanding into that for a certain cell design, which electrolyte becomes better.

Again, here also, we have a collaboration with Mitsubishi where like when a customer wants, we can bring Mitsubishi also together. And then Mitsubishi Neogen and the customer together help design the electrolyte for the customer. So now some of the customers have already completed their first-generation cells, and now they are working on the second generation and the third generation cells.

So that is where we are now being a part right from the beginning to help them design what the electrolyte should look like, which will give them the best performance. Especially in India kind of a scenario where like India is going to be a high temperature region so some of the electrolyte designs have to be optimized for India. And we are -- like in the beginning, everybody is basically trying to make whatever their technology partners were, except for few who design their own.

But like in the next generation, now people want to design their own unique electrolyte. And we are basically right now partnering with them to basically help them develop those electrolytes. So that's the learning that we've had. If you have this kind of a cathode, you have this kind of a binder, which is additive which was better or design. If you want to improve charging, what kind of electrolyte additive can help you, but it will create other problem there.

So depending on what the customer wants, how we can optimize. And again, we also have a Mitsubishi help here where some of the customers we are working together and designing together these iteration.

[Ankur Periwal, analyst]

Sure. That's helpful. On CSM side, you did mention a target of 20% for next year, and we are already at probably 15%, 17%. Given that agrochemical is still sort of slightly subdued here and you mentioned you have got good traction from other sectors, can this growth be slightly more front-ended or maybe the ramp-up in this business could be sharper?

And secondly, from a capacity perspective, where are we in terms of ramping up this business to [indiscernible] [ 20 ] maybe even a higher number from a growth perspective?

[Harin Kanani, executive]

Sure. When [indiscernible] 17%, 18%, but that's like on, let's say, a run rate of around INR 100 crores, INR 200 crores, right? So when we are at INR 1,000, first of all, that becomes INR 250, and that itself is like 25% growth, right? So you still have to grow this business by 25%. And then also another like to catch up on that 2% to 5%, you would need still another 30%, 35% increase over what we are doing today just to meet our target next financial year, right?

So I think we have already a capacity of that. And I think you've shared earlier that we see with -- once we reach the full utilization level, with some debottlenecking, this site itself can -- like our existing capacities together can give us still like 15%, 20% more with a better utilization of all that. So we might have to do some debottlenecking CapEx kind of thing, but we feel FY '26, we can be at that INR 1,000 crores. And FY '27, the base business can be somewhere around INR 1,150 crores, INR 1,200 crores kind of revenue.

We'll give you a more exact number next year, but this is what we can target. And we'll see, right now, the way I am seeing it because until we see light like how the Advanced Intermediates in the generic space plays out, we want to just basically see, okay, our better CSM numbers is just a backup for Advanced Intermediates. Because from a chemistry point of view, that Advanced Intermediates because of multistage chemistry and the CSM, which is also a multistage chemistry, that basically like is kind of like fungible, like reactor capacities is what we are basically using that.

So we'll use it as a backup. But what I feel is that with like the slowness of the agro and like for us also to understand the semiconductor and utilize our capacities fully, we would also like if we are in a position where we have too much of capacity, like too much of demand and less capacity, we'd also like to optimize our product mix also slightly for better margin or better working capital cycle.

So up to FY '27, unless something dramatic comes, my view is that I want to focus more on stabilizing this business, making it more efficient from margins, working capital, product mix point of view. And then FY '28, '29 is where all the work which we have done in this will basically allow us to the kind of rapid growth we are seeing in battery.

I don't know at the same level, but like the long-term view of the CSM to have single customer who can give you significant hundreds of gross kind of revenue kind of business. So that's something I'm looking at a ramp-up happening from FY '28 onwards, right?

And by that time, we feel battery also would have stabilized, so from a bandwidth point of view, from a cash allocation point of view, we see the rapid growth in the battery in FY '25, '26, '27, and this is the time where we stabilize our base business like BuLi gets completely utilized even hopefully, the 2x capacity. The synergies of that start playing out.

And based on that with like the agro, pharma and other industries like semiconductors, Roma, CSM, we'll see where we are adding most value. And then we use that particular customer or that particular industry as a focus for further growth in the base business beyond FY [ '25. ]

[Ankur Periwal, analyst]

Just if you could remind us, FY '26, our target was 20% CSM share, What was the same number for '27?

[Harin Kanani, executive]

'27, we have not because like I said, we had so far said only INR 1,000 crores FY '26. So '27 is just debottlenecking to, let's say, becoming INR 1,100, INR 1,150 crores to INR 1,200 crores using the same capacity is what we are targeting.

Let's say, right now, let us keep 20% as a target, what we're keeping.

The main CSM push or significant move will happen when we set up specific plans for a specific molecule, right? So once your single molecule is like INR 150 crores, INR 200 crores, you can have a plant like 1 single plant, which is doing only 1 or 2 molecules kind of an NPV. Right now, our 1 single plant is doing like 30 products, 40 products. So we want to basically move on to like INR 100 crore plus kind of molecules beyond FY '27. So that's what will basically drive the CSM growth beyond that.

[Ankur Periwal, analyst]

Sure. Just 2 bookkeeping, if I may. One, on the pricing on lithium and bromine. Year-on-year front, obviously, there is a decline. Even on a Q-on-Q front, there is a further dip or large prices are largely stable now?

[Harin Kanani, executive]

Mostly stable. I think bromine, a little bit started firming up a bit. Lithium is like, I would say, within that $0.5, like 1 month, $0.5 less, $0.5, $1 less, $1.5, $1 more, like a little bit like -- just in that noise level, but no strategic shift or change in lithium.

But what we know is this is historically lower. A lot of lithium miners are consolidating or like deciding their strategies going forward. What we are seeing is overall gigawatt hour. Even after some of the slowdowns and some of the closures, the gigawatt hour worldwide are still like growing significantly. So I would say, again, you will see some lithium price correction in like next 2 financial years.

[Ankur Periwal, analyst]

Okay. And lastly, for this quarter, in our stand-alone financials, the other overheads have sort of dipped by 10-odd percent. We were largely stable in that range for the last 3 quarters. But this quarter, there is a dip. Anything specific to read in there?

[Harin Kanani, executive]

I'm sorry, I'm not very closely into there, but other than some product mix or like I don't -- I can't think of anything specific reason for that. Let me just look at a little bit more closely and maybe in like future calls, if there is a specific reason beyond like sometimes there are some provisions which you -- and those provisions are ingested or some reasons beyond that, right? If there is something, I'll let you know.

But otherwise, most likely, in my view, it is just some of the provisions which we had kept more on the high side which were corrected or some of the expenses between Neogen, Neogen Ionics and BuLi are now a little bit more accurately bifurcated because they have some common facilities. So other than that, there should not be any major reason.

[Operator]

Next question is from the line of Jason Soans from IDBI Capital.

[Jason Soans, analyst]

Yes. Sir, just wanted to understand, I mean, we just talked about the business, but clearly, what's been happening is the pricing side of it still remains weak. But considering that also, just wanted to understand -- I mean I understand that there has been some discussion, but we're still sticking to the base business guidance of around 9.5 billion to 10 billion by FY '26?

[Harin Kanani, executive]

Yes, INR 950 crores to INR 1,000 crores, yes, we are sticking to that.

[Jason Soans, analyst]

Sure, sir. And in terms of the realizations, we've spoken about the realization for salts to be around $28 to $35 and -- for KG and electrolytes around $8 to $9. So I understand that coming from a non-Chinese perspective, you always have negotiations going on compared to the Chinese pricing and so on.

So just wanted to understand, I mean, of course, for lithium salts looking at the exports market electrolytes domestic. So how are the negotiations going on in terms of the benchmark for Chinese prices? I just wanted to understand that because clearly, that will move the needle a lot. So just wanted to understand how are those negotiations playing out?

[Harin Kanani, executive]

So like I said, both -- so first of all, the negotiations when we are having with the customers, we are basically saying, look, lithium prices are going to fluctuate, right? And that's something which we cannot control. The numbers you have said were like more closer to like stable lithium price, what we are expecting between $20 to $25. Right now, that price is like almost less than half of that, okay?

On top of that, you have other raw materials, which also contribute in electrolyte also, which are at their historical low. So the top line remains maybe that numbers would change. But both me and my customers are more concerned with what is Neogen's cost of production, our contribution, our ROC. So I'm basically protecting my ROC. And the customer is also more concerned with Neogen's overall operating costs. So negotiations are around that.

In fact, either the customer is working to it. They say, okay, if they are talking to 4 guys, they said, okay, this is a lease price, what would be your price, you tell me that. Or they say, okay, other than lithium, what is your [indiscernible]. And the feedback that you constantly receive is that outside China, like either, let's say, you are the lowest or you are the second lowest. So that's why all the customers keep talking to us and like even the contracts that we have already entered into.

So as I explained in some of my previous answers, we already have contracts in place. Once the approval starts based on that contract, the POs will start flowing, okay? So in this also, this basically margins have been optimized. And even like I said, some of the recent customer visits also I checked that, okay, this was something 6 months ago.

Is that still the case? So yes, still that's the case where they feel that for the sales where we entered into a contract, we are still the #1 or #2 lowest outside of China. So that's what basically they are focusing on.

With Indian customers, we have not yet entered into long-term contracts. But there -- okay, I mean like for a reference check, customer can tell us, okay, this is the price in China, but like electrolyte is something that everybody acknowledges that ideally you want to make it locally, right? There are a few companies in the world who have tried internationally for smaller volumes. But when you get into larger volumes, it's just too complicated.

So basically, we are looking -- and like we've been very fair that we don't want to take a very extraordinary margin just because they want local, et cetera, because ultimately, they also have to compete in the international market with the Chinese cell prices, right? So we've been very fair, and we are basically targeting to protect our 20% ROCE, which we feel something like the risk that we are taking is what we deserve.

So far, again, we've not entered into any long-term contracts with the smaller volume businesses like we are trying to close at this price. But again, we'll have a better answer on this once we enter into any long-term contracts for the electrolyte. So which is so far not there. But so what we've not received a very strong pushback on like when we've given our conversion price at a 20% ROCE [indiscernible]

[Jason Soans, analyst]

Okay. Okay. Sure, sir. But clearly, there will be probably a downside to those realization that is maintained, which I mentioned because of the falling [indiscernible]

[Harin Kanani, executive]

Yes. By the time the plant starts, the lithium is back, it could be higher also, it could be lower also, right? So the per ton price will defend the selling revenue will depend upon input costs. But the ROCE that we are targeting or the EBITDA -- absolute EBITDA that we are targeting, that remains unaffected.

[Jason Soans, analyst]

Sure, sure, sure, sir. And just wanted to also understand, you did mention that macro Neogen revenue for '25, you expect around INR 50 crores to INR 75 crores. And for '26, would you want to probably give any guidance as such for battery chemicals revenue?

[Harin Kanani, executive]

Yes. So we had shared in the past that the capacity is at the 400 [ tonne ] and 2,000 metric tons, which we feel will be fully be approved in the current financial year. So that itself can give us around INR 250 crores of revenue. So that was a bare minimum with which we will start.

On top of that, we are increasing our salt capacity from 400 to 2,500. So those capacities will come online. And in the second half, those capacity also will get approved. So we would have something additional coming from there.

And our Pakhajan unit also is expected to come in the second half of next financial year. So in FY '26, we said INR 250 crore is base, plus additional revenue from the increased capacity and plus Pakhajan maybe last quarter, once all the trials and depending on how long the trials and approvals happen.

So that's why we have said it could be somewhere around INR 400 crores, INR 500 crore number. More precise number we can give, but it will be at least that much is what we feel. And then once we have more visibility on these approvals of the additional certainty as well as more visibility on electrolyte ramp-up in India, right, is when we can give you more precise number, if it can be more. But my sense is at least INR 400 crores, INR 500 crores if -- and then maybe more.

[Jason Soans, analyst]

Sure, sir. And sir, just lastly, wanted to understand, last time you were -- of course, we're looking at the [ 15 ] million [indiscernible] CapEx and nothing was said for the debt component, you have tied up around, I think, 9 million of SBI. Now -- and the remaining 1.5 billion 2 billion was under discussion. So has it been tied up or we are still under discussion? Could you give an update on the on the debt status basically, the loan processing?

[Harin Kanani, executive]

So what we need for Pakhajan is fully tied up. And on top of that, what we need for the hedge where we are increasing the capacity -- so again, partially that has been already been tied up and remaining are in the final stages. So about, let's say, another 1 billion is already tied up, close to 1 billion is almost tied up, and remaining are in the final stages of discussion.

So we had to also undergo rating independently for Neogen Ionics. So that process is getting completed. And post that, in this quarter, we are expecting to close on that. But we are not stopping work on that. So we are putting also our own money to make sure that there's no delay there. So the work will continue there.

[Operator]

Next question is from the line of Rohit Nagraj from Centrum Broking Limited.

[Rohit Nagraj, analyst]

Congrats on the numbers. Sir, first question, probably my question. In terms of these electrolyte recipes that we are giving to the battery manufacturers. So generally, the battery manufacturer will have a signal vendor for such recipes or will be multiple vendors? And if there is a multiple vendor, then would it be generally that the top vendor will get maximum share and it goes down, reducing for the second or third vendor?

[Harin Kanani, executive]

No. So generally, what happens is in case of battery, historically, what we have seen is many battery companies like to work with a single vendor. Some battery companies work with 2 vendors. But when they work with 2 vendors, what they do is that if they have 4 different cell types, let's say, 1 vendor is giving them 2 or 3 cell types and another vendor is giving them 1 cell type. So usually, they divide it on a cell type basis.

Normally, it's very rare that for the same cell like -- so like I'm just saying hypothetically that if there is a -- maker, which is making GM car models like and Ford 3. So they're totally making electrolyte for -- or batteries for them. So he's making 6 different kinds of batteries. And in that different kind of battery, let's say, in 3-odd, 4 batteries, he's using one particular electrolyte maker and for the another 2, he might use another. So when they try to work with multiples, they generally try to work that for 1 single model design. They would basically work with 1 electrolyte maker, then maybe they have a second-generation cell or third generation or a different applications cell, they might use a second one. But normally, for 1 specific, they don't usually do multiple vendors.

[Rohit Nagraj, analyst]

So just a live question to that, so when we are approaching the backer manufacturers domestically or internationally, so they are probably giving us the opportunity for the newly developed batteries or the existing ones? I mean, particularly in case of, let's say, international markets where they already have the manufacturing in place.

[Harin Kanani, executive]

So electrolyte is only domestic market, right? So Neogen focus for electrolyte is only domestic, whereas electrolyte salt is international. So the recipes come into play only for the electrolyte which we are offering in the Indian market. And as you know, in Indian market, almost everybody has their own new design, either their own design cells or some technology collaboration through which they will be getting. So that's basically the India space. So it's broadly for the new cell production, which they are starting.

[Rohit Nagraj, analyst]

Right. That's clear. And second, again, coming back to the lithium prices and bromine prices, bromine prices. So given that the pricing remains at the same level and even if there is a fluctuation, you mentioned from the battery perspective or for KG margins or the ROCE threshold will not change. Will it be a same situation even for the base business? Because we've seen that in certain times when the price fluctuations are up or down, there is an impact on absolute EBITDA on the EBITDA margins.

[Harin Kanani, executive]

No. So historically, when lithium prices went crazy high and then crazy low, our absolute EBITDA was more or less predicted. I think except for 1 or 2 quarters, so the percentage sometimes looks lower when the lithium prices were very high. But from an absolute EBITDA point of view, I don't think we had an issue.

Sometimes, we had an issue when there was a very strong price corrections and like some leads, especially in case of lithium, there was 1 quarter where there was a very strong price reduction. And customers were holding back and then ultimately, especially when we had taken over BuLi, and we had imported expecting a very high demand with a new business and then it's sharply corrected.

So that's why we had to take our inventory hit. But otherwise, in lithium, we are very mindful that we are controlling kind of have a back-to-back PO so that we can maintain absolute margin. So historically, what we have seen other than BuLi, we've not seen like an inventory hit which we had to take, and we were able to protect absolute EBITDA.

Of course, what's a little bit what we have pressure on absolute EBITDA is like in our Advanced Intermediates and bromine derivatives with Chinese competition, they are giving very low price. So in the international also business, sometimes we have to correct these prices to match where we have a Chinese competition. And in domestic, also Advanced Intermediates, we have to match that.

And that's what we are basically over long term looking how it plays out. Otherwise, as we said, once we reach 1,000 crores full utilization, when we are increasing capacity, we can also try to optimize the product mix and the business which have more stable margins or more predictable margins and better working capital cycle.

[Rohit Nagraj, analyst]

Just last one clarification on the guidance. So FY '26 base business guidance INR 950 crores to INR 1,000 crores for the battery materials, INR 400 crores to INR 500 crores. Does it include BuLi as well? And if you can just spell out for FY '27 also, what could be the guidance for these as well as battery materials?

[Harin Kanani, executive]

So INR 950 crores to INR 1,000 crores includes BuLi chemicals. Battery chemicals, as I said, INR 400 crores to INR 500 crores is a possibility. I would not call it a guidance. Give me -- give us some more time for that to happen. But we see a very strong possibility of at least doing that and better.

And FY '27, yes, what our target would be to look at if we can achieve a revenue of around INR 1,150 crores to INR 1,200 crores in the base. And like when I say base business, BuLi will include it. Like I said, it is going to merge as part of Neogen. And as a business, I see it similar to the organic business that we have in Neogen. So it will be that. And yes, so that would be for FY '27.

And again, battery, with the variability that you have, it's too early to tell you or like your guidance for something by FY '27. But it should be like thousands of crores. I mean it should be about INR 1,000 crores. But how much above is something you'll have to figure out depending on how the electrolyte business is developing and how the salt market is playing out. So this is just a view, but more clearer guidance we can give you only in the next financial year.

[Operator]

Ladies and gentlemen, we'll take the last question from the line of [indiscernible] from Samantha Capital.

[Unknown Analyst]

In your earlier remarks, you alluded to the Indian players being competitive globally and the cell manufacturing part and that you want to support them by charging a lower -- by charging them -- getting a normal ROCE [ 20% ]. So how long do you see them to be globally competitive? Can they really be globally competitive given capital is working on 120,000 R&D team with -- and using -- looking at using AI to get the next generation of battery materials.

[Harin Kanani, executive]

Yes. So I -- whatever I have worked with some of the Indian companies. Look, there are 2 ways, right? I mean, either they get knowledge by partnership or they're generating their own knowledge. And frankly speaking, what I see is Indian and battery people last 2, 3 years were catching up. Once we catch up, then we can really innovate.

So I think like I'm like whatever I have worked with, I'm very happy and like proud to -- I even feel proud that some of the battery development, the expertise that we have in India is really good. Also, some of the Indians are also international, and some of them are even willing to come back to India at even very senior levels to help India basically catch up on the world. So I think after we have done catch-up, we will innovate.

Also, in case of India, most of the companies, if you see, also have a very strong captive consumption. So for example, companies like Ola, they have their own capital consumption or Tata who has announced they'll have their own capital consumption. So I personally feel that like there is going to be -- and similar like Lucas, TVS or JSW. So many of these are not like basically trying to sell the well the batteries and make majority of the revenue by competing internationally. So there will be localization.

And here, performance also will matter a lot. So we can also improve performance specific to India. And nobody is going to work specific to India other than India. So that's why what we are working is that, hey, India requires high temperature with cell performance will work best in India. So let's basically try and develop that. And then once you have the performance, then you can then you create more value out of it. So it's not just the cost of manufacturing or the scale.

So I think, yes, India can be competitive. In fact, many -- some of the people, I've worked with Japan, many of them feel that outside China, the best potential place to make cells globally on a long-term basis is India. Because like China, we have the local demand also, which can be significantly high. We have the skill set, we have the manpower. We have the expertise, we have the land, where, over a period of time, so again, many of us basically doubt that can India make cells competitive, but the international -- like many international people are looking at India as the next best base to manufacture cells long term once we have caught up to the world and once we have the initial start.

So this is the view, and I strongly believe that. Of course, we are not just part of India. So we are also taking care of international requirements. So we are also into international supply chain as well as Indian supply chain. So that also gives us a lot of good insight. So just recently, in our last Board presentation, I was summarizing companies with which Neogen is working.

So we worked with now in different forms more than 30, 35 companies in India who have either plan to make cells or are planning to make cells at different scales. And we have worked with more than 40, 45 companies internationally in different aspects of battery material supply chain.

So I think last 4, 5 years, being one of the adopters in India, has given us the option to both play very strongly with Indian customers who are interested as well as international customers.

Now whatever work we have done in the last 2, 3 years, we have to basically achieve the results from that in the coming 3 to 5 years. And that's just the beginning. What we are talking 3, 5 years [indiscernible] like is what we are currently targeting in electrolyte. That's just a [ peanut ] of 3,000 gigawatt hour like the world is going to be. So I think there's still a lot of room for growth for India as well as like companies who are in the battery material supply chain.

[Unknown Analyst]

Right. And sir, second was on this -- the partnership that a lot of them are working with partners at this stage. So Ola is doing it on its own, but are you -- the Mitsubishi partnership, does that benefit them Mitsubishi are they managing to any thoughts?

[Harin Kanani, executive]

I'm sorry, I didn't get your question clearly. So Neogen [indiscernible]

[Unknown Analyst]

And then -- so I mean, how do the -- how far a chance to this kind to compete to somebody like an Exide vision that partnership and how does it place overall. Like you mentioned, they will need to -- I mean, that capacity will be such that they will need to export around 50% is what they can use themselves given the size of capacity that they're putting up, they will have to compete closely very soon at this. I just wanted to understand your work around the competitive dynamics [indiscernible]

[Harin Kanani, executive]

Yes. So I think in your question, there are 2 parts, right? One is getting technology from outside is better or meeting your own technology, right? Both has its plus and minuses, right? I mean when you get from someone outside -- like when you get technology from outside, you are getting many years of their experience. When you do your own, you create your knowledge.

And I think most of the Indian companies which basically tied up with outside, they've also developed their own R&D. So even if you look at Neogen, right, I mean we knew 85%, 90% of the stuff, but we, okay, tied up with Mitsubishi to get the remaining 15% catch-up so that we have the most efficient technology available with us.

So I think that's basically the combination. And like again, but if you look at the scale of investment with somebody like Ola did, right, for R&D, I mean, it's much higher than as a percentage of revenue or as an absolute number also. So I think those are both approaches which can basically work together. But ultimately, we'll have to catch up with the world.

So there are different ways of catching up to the world. One is spend a lot of money on R&D on your own. Second is tie up with someone and do your own R&D, and then over a period of time, you internalize that knowledge, then you build on that. So I think we have all depending on the time at which we started, different approaches to basically gain knowledge and catch up and then build on that.

And like again, when you look at internationally, one fact remains that the whole world is going to say, hey, the whole world cannot depend on China for cells. So just as what we said for electrolyte salt, they are also going to say, outside China, who is the person who can give me the lowest cost cell.

So the main question is, okay, one, you can say, can you compete against China? And the second question, again outside China, can you be the best source. And then over a period of time, what is the gap between China and you. Is it like a 10% gap? Is it like a 25% gap? It's a 50% gap, right? So like if you see like even today in the U.S., there are like 25% EVs, or if we saw even in Europe in EVs, I think 40%, 50% kind of EVs. So if your gap is within that, right, then you have a right to play. And I don't think we will be so bad that because, again, material cost remains, lithium prices is almost similar for a Chinese company or Indian company, right? Nickel, cobalt, whatever material costs are quite similar. So I don't think the gap, as we grow our scale, becomes tens of giga and hundreds of giga will narrow the gap with the Chinese quite a bit, where India will be seen as a viable option.

[Operator]

Thank you very much. Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to the management for closing comments.

[Harin Kanani, executive]

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.

[Operator]

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