Neogen Chemicals Ltd

NSE:NEOGEN

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Neogen Chemicals Limited Q4 and FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nishid from CDR India. Thank you, and over to you, sir.

[Nishid Solanki]

Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals' Q4 and 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 forum for Q&A, where the management will be addressing queries of the participants. Let me leave you with our standard disclaimer here. Certain statements made or discussed on the conference call today may be forward-looking in nature. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals Q4 FY '22 earnings presentation, which has been shared earlier.

I would now like to invite Dr. Harin Kanani to share his perspectives on performance and progress that the company has made. Thank you, and over to you, sir.

[Harin Kanani, executive]

Thank you, Nishid. Good afternoon, everyone, and welcome to our Q4 and FY '22 earnings conference call. We have shared our results document, and I hope you had an opportunity to glance through them. I will begin by sharing the performance highlights, key development and the strategy soon after -- soon after, our CFO, Mr. Ketan Vyas, will cover the financial highlights for the period under review.

We demonstrated solid financial performance during the fourth quarter and full year ended March 31, 2022, steered by capacity expansion initiatives undertaken in the past. Financial year 2022 has been the best year in the history of Neogen Chemicals with highest level growth in revenues at 69% in Q4 FY '22 and 45% in FY '22. We delivered annual sales of INR 487 crores, which was better than the expected growth trajectory. This came in spite of unprecedented challenges posed by inflation in raw material prices and utility costs, as well as supply chain disruptions.

I would like to thank the entire Neogen family for showing resilience and staying nimble during this remarkable growth journey. I believe we have built a high-quality business with robust execution skills, and this will help us scale new heights year after year. Our operational performance mirrored the trend in revenues, where EBITDA grew by 44%, translating to margin of 17%, while profit after tax increased by 68% during the quarter under review.

In Q4 FY '22, our organic chemicals division reported a gain of 38% year-on-year, while growth in inorganic chemicals stood at 176%. Here, I would like to explain everyone that we face significant volatility in the prices of raw materials linked to lithium in this quarter. As a process, this cost pressures are passed on to the customer with some time lag, while the objective is to increase the absolute earnings. There could be some margin pressure due to this time line. You all are advised to appropriately account for this.

Now let me turn your attention to a key development. The Board has approved and estimated CapEx of up to INR 150 crores for FY '23 at Dahej SEZ. The CapEx will be funded by a mix of equity raise through preferential issue and additional debt and deployed towards brownfield expansion across both organic and inorganic chemicals at Dahej SEZ. Let me list down the key areas where this will be utilized. Firstly, increasing the manufacturing capacity of specialty organic chemicals by 60,000 meters. This will support new molecules which have been developed in-house and to enhance the ability to do multiple chemistry.

Secondly, expanding the manufacturing capacity of inorganic salts from 1,200 metric tons to 2,400 metric tons in the existing inorganic MPP. This is to satisfy that demand coming from new approvals received from international customers from regular lithium-based molecules and expected growth in demand in the domestic market.

Thirdly, setting up new capacity in existing inorganic MPP for 400 metric tons per annum for manufacturing specialty lithium salts and additives for electrolytes used in lithium-ion batteries, advanced chemistry cell. This is targeted for trial approval in international markets and captive consumption for electrolyte manufacturing. Lastly, development of the site at Dahej SEZ, like adding admin loss, some expenditure towards common infrastructure, house expansion, etc.

These brownfield expansions are expected to be completed by June 2023, and will result into incremental revenue potential of INR 250 crores to INR 300 crores per annum post commissioning. And we expect to reach full utilization level by FY '22 or by FY '25 or FY '26.

Important to note that out of this incremental potential revenue from inorganic chemical are estimated based on stable lithium prices. Once these projects are fully on stream, I believe it will significantly strengthen Neogen's business proposition across a range of products within chosen chemistries and elevate its performance momentum in the years to come. I will now share some updates on our newly commissioned organic MPP plant Phase I and Phase II. Both these are stabilizing as expected with continuous improvement in utilization levels. Based on these, we are confident of achieving the targeted revenue of INR 725 crores to INR 750 crores in FY '24. As envisaged, we are executing high-value orders here that are more customized in nature and goes through multiple-stage processes with complex chemistries involved. So this is moving in the right direction. Separately, we are also progressing well with our pilot plant initiative of electrolyte manufacturing for lithium-ion batteries and expect this to be operational this year.

Meanwhile, we are closely studying the overall market for battery materials and evaluating promising opportunities in this sector. Overall, I am excited with our growth projections and believe that we have right drivers in place to achieve them. We will remain agile and demonstrate our execution capabilities, while capturing incremental market demand. Our aim is to profitably maintain the growth trajectory while enhancing value for all stakeholders.

With that, I would now request our CFO, Mr. Ketan Vyas, to share the financial highlights for Q4 and FY '22. Thank you.

[Ketan Vyas, executive]

Thank you, Dr. Harin. Good afternoon, and warm welcome to everyone. Today, I will cover the financial performance of the company for Q4 and financial year 2022. Please note that all comparisons are on a year-on-year basis and refer to stand-alone financial performance. In Q4 FY '22, our revenue stood at INR 156.8 crores, representing a solid growth of 69%, driven by capacity expansion initiatives as well as realization gains for select products. EBITDA came in at INR 26.6 crores, translating to EBITDA margin of 17%. The EBITDA performance was supported by higher utilization levels at newly commissioned facility as well as better product mix. The margin performance has to be seen in light of significant increase in raw material prices linked to lithium, in addition to high utility costs and other logistical disruptions.

The profit after tax stood at INR 15.7 crores, higher by 68% in Q4 FY '22. As was in line with operational performance of the company, further bolstered by lower effective tax rate due to higher contribution from SEZ facility. Depreciation increased during the quarter commensurate to a newer capacity needed.

Now moving on to annual performance trends. In FY '22, revenue stood at INR 487.3 crores, representing a growth of 45% with an EBITDA growth of 35% at INR 86.6 crores. Profit after tax grew by 42% to INR 44.7 crores. In Q4 FY '22, our domestic and export mix stood at 64% and 36%, respectively. Our net debt after including debt maturities of long-term debt stood at INR 99 crores in FY '22 as against INR 215 crores in the previous year. Revised on healthy performance reported during the year, the Board of Directors has approved a final dividend of INR 2.75 per equity share for FY '22. This has increased our previous year in spite of external and linked to higher raw material prices and utility costs. That ends my opening comments.

I will now request the moderator to open the floor for questions from participants. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Anshul Verdia from Edelweiss Wealth Research.

[Anshul Verdia, analyst]

So first on organic chemicals revenue side, so we have seen slight moderation quarter-on-quarter.

[Operator]

Anshul, request to please use the handset, the audio is not very clear.

[Anshul Verdia, analyst]

Okay. So first, on the organic chemicals revenue. We have seen a slight moderation quarter-on-quarter or INR 6 crores in terms of top line despite we are talking about the capacity expansion at Dahej. So could you please tell what led to this moderation? Is it the volume driven or the price correction in the organic chemicals?

[Harin Kanani, executive]

Thank you. So this slight moderation quarter-on-quarter was basically driven by -- like basically product mix as well as -- and mainly because we are basically trying to develop some new molecules which were like being done in Neogen for the first time. So in the first -- in basically Q3, majority of the molecules which we were making in Dahej were molecules which were already made in other sites, which were basically transferred to Dahej, whereas in Q4 we were trying to make some new molecules and there were some operational challenges related to that due to which the revenues was slightly lower as compared to earlier. But it's basically just related to the product mix. But if you look at overall utilization of the plant, that has improved in Q4 as compared to 2Q.

[Anshul Verdia, analyst]

That's really helpful. Just on Slide #18, just for clarity that you have said the electrolyte volumes required would be 150,000 tonne by FY '30 and if I revisit your third quarter presentation, there we are seeing 70,000 tonnes. So what had led to this tremendous increase in the electrolyte requirement, although the capacity in terms of gigawatt has remained largely constant at 160 gigawatts. So any comments on that?

[Harin Kanani, executive]

Yes, so in last quarter we had several interactions with -- like our customers, and many of our customers also are now progressing. I mean, the customers who are planning to make cell manufacturing. So our customers are also now progressing in their plants for making the cell manufacturing and their understanding of the technology. So based on these understanding that we have received from them, we got a better sense of different chemistries require different volume of electrolytes.

So the volume of electrolyte which we had originally estimated was based on some public information. Now we have more specific information from our customers, Also different chemistries of cathode require different quantities of electrolyte. So this information also became clear. So what is expected to be the more better understanding of what is going to be the composition between cathode chemistries.

And hence, what we have currently shown is like as of today our best understanding that for the gigawatt hour based on the chemistry -- cathode chemistries which are likely to be deployed, the volume of electrolyte which will be needed. So I think it's just our understanding that for a gigawatt hour what is the electrolyte needed has now become better as compared to the information which we had from public domain, let's say, 1 -- 3 months ago.

[Anshul Verdia, analyst]

Okay. Great. And just one follow-up, sir. Would you like to assign some numbers in terms of the opportunity size or this electrolyte?

[Harin Kanani, executive]

So that's something which has been asked last time also. And I would like you to refer that the rates of electrolytes are varying quite a bit. Lithium prices are also varying quite a bit. And what we have seen is electrolyte prices between regions also change quite a bit. And since this is very early stage, we would not like to yet put a, let's say, number in terms of revenue of the opportunity at current.

[Operator]

The next question is from the line of Ankur Periwal from Axis Capital.

[Ankur Periwal, analyst]

First question on the MPP utilization. If I recollect it right, Phase 1 was largely -- Phase 2 was largely used for the pharma molecules, while Phase 1 was for more on the agro innovative side. So what has been the exit run rate there in terms of utilization?

[Harin Kanani, executive]

Yes. So as I mentioned, our utilizations are getting better between the 2. We've, of course, not yet reached full utilization level. The agro was getting fully utilized. Again, the pharma is where we were trying to make some new molecules for approvals of the customer. So some of these were being made for the first time. And we are also planning more such molecules in Q1 and Q2 of the current financial year, where we are trying to get some of these molecules made and then send it for initial customer approvals so that over a period of time we can get approvals of them.

And then, let's say, by at least FY '24, we can fully utilize these molecules for our customers. So utilization levels are improving as compared to overall. Some of it was just sitting in the inventory because of the trial production still ongoing. And over a period of time as these get approved, then the utilization level in the phases will also improve. Also now over a period of time because both of these are in same plants, we've got to stop thinking much as Phase I and Phase II. So now almost all the reactors are installed and we are delivered just looking at as a single MPP. So in most of our discussions also in future, we would just basically like to consider this as a single MPP of organic.

[Ankur Periwal, analyst]

Sure. Sure. Okay. So secondly on the electrolyte part, now you did mention that since the customers are probably not progressing on their plans and we have more clarity in terms of which electrolyte and how. So any clarity, or let's say there is a variation of electrolyte variety as well that we'll be making, maybe a higher end or lower end and from a capability point of view where do we stand?

[Harin Kanani, executive]

No, I think each customer has their own unique electrolyte formulation. And the way we are seeing that some of the customers will also have multiple cathode chemistry and multiple electrolyte requirements. There is no higher end or lower end as such. What it basically means is just different kinds of formulation. So the capability to formulate will remain the same. What goes in the formulation will be decided by the customer depending on the chemistries that they are doing. What has only changed is our understanding that how much of electrolyte is needed. So the quantity of the electrolyte needed changes between chemistries and is much higher as compared to what we had originally estimated based on publicly available information. So considering these information, we have now revised our estimate.

[Ankur Periwal, analyst]

Okay. Fair enough. And just one last clarification. On the raw material side you did mention that the focus of the company remains on the profitability side. So how should one look at the margins here? Will it be an absolute pass-through of RM inflation and hence the percentage margin may look slightly under pressure or -- your thoughts there?

[Harin Kanani, executive]

Yes. So I think you will see one phrase which I have used in the opening remarks as well as in the presentation, is basically considering as a stable lithium price. So historically also when we have informed about our lithium capacities, our lithium revenues, this was basically keeping in mind the lithium prices which were prevailing, let's say in the period of 2017, 2018 and 2019. Now what has happened is as -- we also stated in our FY '21 that the prices were much, much lower as compared to the stable lithium prices. And now these prices are going higher.

So I think this is something which is going to happen. Now if I see today or let's say if we were to look at Q4, by the end of Q4 we would say that these prices have now moved beyond what is the stable lithium prices. So this is again, like talking about India. So generally there is 1 quarter lag between the world prices and the India prices because it takes like 2 months for the shipments to come from Chile and Argentina. But anyway, so this is one challenge which we've seen.

So now like if we look at current market prices, they are going -- they are like 2.5 or 3x what was the world's highest price in last like historic peak. So these are going to be really, really high DCM prices. And we -- like many of our traditional users, like at best we'll be able to absorb the cost. But for them to -- like do a business where our margins are also maintained at absolute levels will be a challenge. So what will happen is that the way at least we are thinking, that we are thinking of anything above the stable lithium price will be like additional revenue.

So our absolute number will keep increasing. But when you look at percentage margin, they could have some decrease because of this lithium price. So I guess -- so that's something which we will have to basically keep in mind, especially in this year. We are hoping that by 2024, the situation in lithium should become better, and like prices will start coming down -- sorry, in the calendar year 2023, which is FY '24, the prices should start moderating. And let's say by 2024, we are hoping that they are more closer to the stable lithium prices, which have been there. But this next 1 or 2 years, the lithium prices could remain much higher as compared to the stable lithium price and therefore they may have some impact on our margins as a percentage. The absolute EBITDA numbers or absolute PAT numbers will continue to grow. But sometimes this percentages can skew a little bit.

[Operator]

The next question is from the line of Rohit Nagraj from Emkay Global.

[Rohit Nagraj, analyst]

Congrats on a good FY '22. Sir, first question is, again, you just mentioned about lithium. Just wanted to get a perspective that whether there has been any resistance from the customers given that the pricing is substantially higher. And probably in the next quarter, as you said, that there is a lag for quarter to pass on the pricing things there. Would there be a challenge to completely pass on these prices and maybe increase will be partially absorbed by the customer and we'll have to take some hit in terms of per kg margin? And any expectation that the demand probably would have a challenge with such a high lithium prices.

[Harin Kanani, executive]

So, Rohit, yes. So far we've been able to manage to ensure that most of the price increase we've been able to pass on to our customers. What is really helping us also is the fact that the prices are high because lithium is not available. And because lithium is not available, at least Neogen customers are very happy that Neogen has lithium and their production has not stopped because Neogen is not able to supply lithium.

What has also worked in this that many other people who are buying from, let's say, other companies, or let's say from China, are actually currently suffering because their suppliers are not in as good a position in securing lithium as Neogen has been. So as you will also see, like in our presentation what we mentioned, that we are increasing our normal lithium production capacities because -- like 2 factors really helped us in last quarter. One is there are many companies which couldn't secure lithium and Neogen was able to secure lithium.

So just in the last 3 to 4 months we have added 20 new customers who have shown interest. And out of that, 5 to 6 new customers who also approved Neogen products and they have started buying products from Neogen in the international market. Now these customers are in U.S., in Europe, in China, in Japan and Korea. So like the other factor also which helped in this is that with the COVID restrictions going away. So as you may recall, the Neogen Dahej lithium site started in February 2020, and COVID restriction started in March 2020.

So we have very few customers who could come and visit. So now with this, like travel restrictions going away and customers feeling more comfortable to travel, we had several of these lithium customers who came to our site approved and now have started procuring lithium molecules from us. So yes, there might be some customers who will not be able to absorb these new prices of lithium. So we are also trying to work with them to find some recycling solutions from them where we can meet their requirements. But most of the customers are right now appreciating that Neogen can supply lithium. We have added new customers who were appreciating of the fact that we were able to give them lithium in such a tough environment.

And when they looked at the site also they were very happy with the systems and the plant which we have built for lithium. So these approvals are coming in. And overall, we are expecting the volumes to continue to increase, which is why we are currently planning for -- planning for the expansion in the lithium salt business as well. So our absolute margins, we are quite confident we will be able to give. But like when the prices are so high, will we be able to maintain percentage margins in lithium? That's the only question which we are seeing. So the absolute growth which you would expect from lithium business will continue, is just that the margin sometimes may look a bit acute.

[Rohit Nagraj, analyst]

All right. Got it. This was really helpful. The second question is we had earlier indicated that in FY '24 we expect about 20% revenues from the CSM segment. So where are we placed on that? And under CSM how are we placed on the pharma piece particularly? Thank you so much.

[Harin Kanani, executive]

Yes. So I think in CSM, our revenue growth or as a percentage growth in CSM continues to increase. So we have done -- it used to be around 10%, now it is more than 10%. And I think I'm still hopeful that by FY '24 our advanced intermediates will contribute 40% and the CSM will contribute up to 20% revenue of that. We continue to maintain, like progress on the CSM side. I think in this year we will be doing several customers, once Dahej stabilizes with regular production. In the first half, we were planning several trial productions for these new molecules, both CSM and our own advanced intermediates. And this will basically form the basis. So let's say by Q3 we will have a better idea on what is going to be next year CSM revenue contribution and advanced intermediate revenue contribution.

[Operator]

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

[Anirudh Shetty, analyst]

I had a few. So my first question is on the capex plans that we have for the electrolyte and the salt and additives business, 2 to 3 metric ton and the 400 metric tons capex, respectively. What is the capex amount we are spending for this? And what would the sales potentially be?

[Harin Kanani, executive]

So because of several reasons I will not be able to share the exact revenue -- the investment breakup for that. So because I don't want to mislead. So this will be basically done in the existing -- in the existing plant where we already have the lithium plant ready, in the existing block we are just adding like a few more reactors. So relatively the costs will be a bit lower.

However, like on the revenue side, both these electrolytes as well as the 400 metric tons per annum lithium battery materials, this should together allow us to give about INR 150 crores of revenue on a stable lithium prices on full utilization. So the way we are seeing, so our existing revenue guidance was around INR 725 crores to INR 750 crores. And the new capex that we are -- we've announced is adding INR 250 crores to INR 300 crores. So roughly let's say around INR 1,000 crores to INR 1,050 crores will be the installed capacity once we have completed this capex.

So once that is over, the way we are expecting it to be that about INR 700 crores to INR 750 crores would be coming in from organic products. the lithium -- traditional lithium which has currently installed capacity of around INR 100 crores will increase to about INR 150 crores and the battery materials, which is the electrolyte and lithium salts, that should contribute around INR 150 crores on the -- on full utilization, let's say by FY '25 and FY '23.

[Anirudh Shetty, analyst]

Got it. And you had mentioned that now we have the capabilities to do more high-value complex products. So at that level, at INR 1,000 crores, what would be a fair EBITDA margin assumption to work with?

[Harin Kanani, executive]

So again, I would like to stick to my, maybe slightly boring like that we will be able -- like you can improve EBITDA when we do innovation. And a lot of these things we are doing new, like the advanced complex chemistries as well as the lithium derivatives which we are doing. So also in this lithium derivatives, especially on electrolyte and lithium salt, this is a very, very new business for us. So -- and like there's a lot of non-homogeneity across markets.

So even in India this market is very different. So with all this, again, I would like to say that our effort will be to continue to maintain 18.5%, plus or minus 1%. So that's something which we would like to stably do. Of course, in this, whatever is additional cost of lithium which we passed down, we have to basically correct for that. But otherwise we would try to be in this 18.5% plus/minus 1%. And only after FY '24 when some of these businesses have stabilized, we will basically try to look if we can further improve our margins. Again, the first level would be to try and see if we can cross 20%. But like as of now, I would still like to maintain my previous guidance in this matter.

[Anirudh Shetty, analyst]

Got it. And I want to probe too much on this, but I understand the gross profit margin really depends on how the product mix and how the new product margin kind of stabilizes. But if you just look at the cost below GP margin, you just break it up into your employee cost and your other overhead, shouldn't we see operating leverage on this cost as we go from INR 490 crores to INR 1,000 crores?

[Harin Kanani, executive]

To some extent, yes. But also you have to think that a lot of operating costs were also capitalized during last year. So it's -- so I'm not seeing -- I'm not expecting a very significant change in that, especially when you're talking of employee costs and other manufacturing costs. In fact, the way things are happening, your fuel cost is like increasing significantly. Your transportation costs are increasing also significantly. What is broadly happening is, yes, because of these advanced intermediates, our gross margins are improving and the manufacturing and other costs are increasing. But overall, again, at the EBITDA level, we remain more or less similar. So I'm not -- also because we are also now planning to also start building this lithium business, so there are going to be some like non-fully utilized or not most efficiently utilized lithium businesses as well. So at least for now I would want to maintain similar margin guidance as earlier.

[Anirudh Shetty, analyst]

Got it. Got it. And just one final question. As we look to do more sales on Dahej, what will the blended tax rate look like at that INR 1,000 crores scale?

[Harin Kanani, executive]

So I would see refer to Ketan for this.

[Ketan Vyas, executive]

Yes. See, we are in the early phase of this Dahej. Dahej being a tax free zone and we have this tech depreciation also at a higher rate. But what we anticipate is that this blended tax rate going forward should remain approximately about 19% to us -- 19% to 22% maybe it comes to. That's what we anticipate because the depreciation part plays a role where you don't get the benefit of it.

[Harin Kanani, executive]

So just to add, Anirudh. See, when we had done this exercise earlier, we were expecting blended rate to be closer to around 25-odd percent. This time we also had an additional benefit of additional deficiency. So, like going forward, my guess is, like as Ketan mentioned, somewhere between 20% to 25% on a broader range blended tax rate.

[Operator]

The next question is from the line of Saurabh Kapadia from AMSEC.

[Saurabh Kapadia, analyst]

Sir, just on your CapEx side, if I look at the past capex and the asset turnover, should it be similar for both organic and inorganic capex similar to last what we did it the Dahej?

[Harin Kanani, executive]

So I think we've already defined like about INR 150 crore capex and INR 250 crore to INR 300 crore. So if we look at that, it's relatively like about 1 is to 2 of -- I mean, asset turn of around 2. So it is slightly lower as compared to other. Some of this is because; one is, some of the Dahej facilities that we are building, like admin block, warehouse expansion. So some of that is contributing to that and there's a higher contribution of that.

Some of the CapEx which also we are doing would be to make the plant a little bit more efficient in their operations. So will not be directly adding to the revenue. So that's the reason why it's a bit lower as compared to our usual asset turns. And the third part is that we are right now also doing some of this like equipment, which are very specialized equipment, which we are getting related to electrolyte and related to this lithium salts. So they are on the slightly higher side. So these are 2, 3 factors where as compared to our normal asset tons of 2, 2.5, we are like expecting slightly more closer to lower, which is like more closer to around 2 asset turns for this particular capex.

[Saurabh Kapadia, analyst]

Okay. And sir, just to further understand the new CapEx. So should we assume the electrolyte business will have a lower asset turnover and margin profile similar to the existing business or it should be lower given the high volume what we can do over the years?

[Harin Kanani, executive]

So again, we are trying to understand this. But generally whenever we think of inorganic chemistry, our expectations is that the asset tons are usually better and the margins are usually slightly lower. This is a normal perception of inorganic chemistry versus organic event. Now when it comes to electrolyte, current investments are just basically very trial investment. So some of the equipment we are purchasing for the first time, we are still standardizing on some of the procedures and the terms.

So this would not be really representative of what a large investment would look like. So that's something I would request you to be a little bit more patient with us. As we get no clarity, we will be very happy to share, especially when we do like, let's say, a few thousand metric ton kind of production capacity, that is where we will have idea.

In this case also, it will depend upon how much work we are doing. So for example, if I just make electrolyte and only electrolyte using everything from outside, the asset turns are very high. But what we are proposing is we are starting from lithium carbonate, and we will then make the intermediates, then the complex salt, then the electrolyte. So it also depends on how much work you are doing at your end versus how much you are going to outsource.

So that's also going to determine the capex. So again on the margin side, for now, as I've said we can like basically guide that the margin will remain more or less similar. We are not saying there's any negative or a positive impact as yet. But give us up to FY '24 to see how these margins can further improve or if there is any change. But specifically for electrolyte and lithium battery materials business, whenever we basically plan a more commercial scale capex, that's when we will be able to give you more sense on margins, ROIs in this business.

[Saurabh Kapadia, analyst]

Okay. And sir, just last thing on this electrolyte business, so once we scale up to the commercial level, maybe 2,000 3,000 tons of electrolyte capability. So similarly we will add to this MPP plant as well, the capacity. So we'll be doing the basket of both the capex, your inorganic lithium salt as well as electrolyte?

[Harin Kanani, executive]

Yes. So I think our intention is to make -- like start from scratch. So lithium carbonate comes out of mine. Then from this carbonate all the way up to electrolyte is what we want to do in-house. So currently the investment which we have made, so the electrolyte capacity is only 250 metric tons and 250 metric tons will not require more than 60, 70 metric ton of the lithium salts. But the higher capacity that we have will basically like help us in serving international customers and test international customers' requirement and maybe also take care of the initial larger plant capacity.

But in future whenever we will go for electrolyte, we will also have to go with lithium salt production required for that. So captive consumption. And depending on the success that we have in the international market, we can also build on capacity because electrolytes are very difficult to sell internationally. But the salt can be sold internationally. So we will also keep exploring that and put capacities for that. So generally the way I think going forward will have x capacity for electrolytes and the salt capacity will be for meeting the electrolyte demand as well as the salt demand in the international market. So we'll keep basically at a slightly higher level.

[Saurabh Kapadia, analyst]

Okay. And so this -- we will be doing entire thing on our self or we are looking for any technological partner or we are working with some international partners for developing the technology.

[Harin Kanani, executive]

So we have currently basically developed most of the technologies in-house. But at the same time, we, as a country, are catching up. So we do keep looking at international, let's say, processors or universities or even some companies which are doing this commercially who have tied up with them to basically gain knowledge and like increase the trust in the technology that we are developing and look for any scope of improvement because there are people out there who have done this for a longer period of time or our understanding this better in the international market. So this is something which we are doing on a regular basis.

The biggest challenge, however, is that the international business is also growing so fast. Getting attention, time and interest of these people for India is the challenge. So while we keep trying to work with them, and like we do get some help from there, and these efforts continue. But we basically have to be ready to do this on our own. So our -- the work will be to basically try to do this on our own. And as and when we can do any tie up or get some advice or consultancy from international market, use that to increase the knowledge that we have for Neogen and for India.

Just as a sample when India is supposed to require around 150 to 160 gigawatt hour of cell manufacturing by 2030, the world demand that time is going to be 3,500 gigawatt hours or something like that. So India, even after 7 years or 8 years will only have 5% of cell manufacturing capacity based on the projection which is there. So there's a huge transformation which is also happening internationally. And like everybody in this area are very, very busy just doing that also in the international or domestic markets there.

[Operator]

[Operator Instructions] The next question is from the line of Aashish Upganlawar from InvesQ Investment Advisors.

[Unknown]

Harin ji, so it's been a wonderful 3, 4 years that you've been listed by our investors since your IPO. So the performance on the P&L front has been great. However, the concern then and today also it remains that the cash flow generation for the company because of the inventory and basically the working capital that remains a challenge, and that's why we have to go for debt and equity around simultaneously many times actually.

So since you're building another business basically on the lithium and electrolyte side, so would that be the endeavor to ensure that we don't have -- I mean, we have certain power as to basically ensure that the cash flow generation is much better versus the current business. Any understanding you can give to us on that aspect it will be good. And how you think overall Neogen and other companies would stand once this business also becomes a big part of your P&L?

[Harin Kanani, executive]

So Aashish, I think fair point that while we have delivered on revenues, we've delivered on our -- let's say, more or less the margin levels that we predicted. And yes, there needs to be an improvement on our working capital management which allows us to be more -- like basically deploy more capital towards growth. Just in my defense what I would like to say that the growth has been very high.

So for example, at the time of IPO in 2019, we had mentioned that in FY '24, we were -- we would be INR 500 crores capacity, of which we will do about INR 450 crores. Today, the capacity -- installed capacity in parallel, we also increased to almost INR 750 crore and we are adding more. So I think there's more deployment which is happening there. And if this was like a peak utilization of INR 450 crores, this is fine. But as you can see, if you look at like from a run rate point of view that, okay, in last quarter we did -- like last 2 quarters on an average, we did around INR 140 crores of revenue. And like for the next year, the guide guidance that you provided earlier also somewhere around INR 575 crores to INR 600 crores. So like if you were to just look on a quarterly basis, we have done some improvement on the working capital cycle as well.

Also, if you look historically the year in which the growth was minimal, we have delivered cash accrual significant. So far we have not been able to deliver both very high growth as well as cash together. So area, we will keep improving on that. There is some improvement which we've done on our debtors and our creditors. On the inventories, as I had guided earlier also that one of the key factors for us is to have molecules which are like more and more molecules where I can have dedicated.

So I think this is the key challenge that when we have a dedicated set of molecules which we are making, then there is no changeover, there is no like penalty where we have to make inventory and keep. So that's something which is still happening. And we had set by FY '24 when we can kind of reach full utilization of Dahej, we hope we will achieve this where more percentage of the revenue will come from dedicated molecules. So even last year there was a lot of turmoil in our product mix also.

So some of the, like very traditionally, very strong molecules in our Pharma segment. Like, for example, our top molecule in Pharma segment in advanced intermediates, like there was very low demand in -- like because during COVID there was a lot of inventory built up. And then last year, the pharma requirement of that was very low. But we were able to grow in spite of that, and we are always able to make it up with other molecules. So I think that's just been something which we work with. And hopefully, let's say by FY '24 and beyond once this molecule stabilizes, then we have more molecules coming from dedicated reactors, then the inventory can be rationalized.

Now when it comes to the electrolyte and lithium, Yes, these usually have a lower processing time. So they don't require like many multiple step chemistry and things like that. So I think that is something which will help us. And at least from our side we will try to make sure that like the way we set the contract, that they are not very working capital intensive because the numbers there will increase very large. So I think as we go into this electrolyte and lithium, efforts will be to basically set it in a way where our inventories or our working capital requirements are minimized.

[Unknown]

Okay. So maybe over the next 7, 8 years, as that part of the business grows, cash flow generation will be much better in terms of operating cash flows.

[Harin Kanani, executive]

Thanks.

[Operator]

The next question is from the line of Dhavan Shah from ICICI Securities.

[Dhavan Shah, analyst]

So I have a question on -- you mentioned that there were some ticking issues in terms of the new molecule development last quarter and that way we have seen some lower growth in terms of the quarter-on-quarter in chemical. So how are we placed for those molecules? And are they into the final stages or we have started some trial production on that? And also I think earlier we won some 2 contracts and those contracts you're contributing about -- contribute roughly INR 60 crores to INR 80 crores last year. So is that in line with the guidance? I mean have we achieved that guidance last year?

[Harin Kanani, executive]

Yes. So first, the easier answer. So of the second part, which is yes. So the 2 contracts contributed to between INR 60 crores to INR 80 crores, what guidance we had given. They contributed to revenue to that level in last financial year. The second part about have this molecule stabilized. So yes, they have stabilized. We have started shipments. What would have ideally happened in the month of March. If that would have happened, we would have maybe crossed INR 500 crores as well. But these shipments have started in the month of April and May.

However, like again, these are pharma, so there will be some trial production, then customer approvals and more will come in the second half. And we are using, as you know, historically Q1 and Q2 is a little bit like more less demand is there. So we are using this period and using this extra capacity that we have to try to make these new molecules which we had planned for Dahej, because when Dahej started, there was a existing customer, regular product demand was so much that we were not able to do this. So now with those molecules stabilizing, we are using some of the capacity for this new molecule concept for trials in Q1 and Q2. So hopefully by Q3, Q4, and for sure, by next year, we basically have a full utilization levels in Dahej.

[Dhavan Shah, analyst]

Okay. And secondly, you mentioned that we have been working on the pharma molecules. So is it fair to assume that -- or maybe if you can help us to understand the industry size of those molecules? And is there any possibility that one of the molecule only, few of these molecules we can get some CSM opportunity from that? In our dedicated facility going forward?

[Harin Kanani, executive]

Yes. So in last year we have basically worked or like, let's say, I would say we have made almost 18 to 20 molecules, which we made ready for commercialization, right? Where we completed the pilot work, we have completed the R&D. And like some of these are -- can be made in our existing facility. So that's where we have -- some of these we already started trying and some require also specific reactors, which is what is going to be contributed by this additional 60,000 meter reactors that we are trying to put. Because some of these chemistries which we are doing will require that. So, like, and yes, in these 20 molecules, several of these are CSM molecules, both for agro as well as pharma and some are even -- like one is even in the engineering segment, one is in food and flavor segment. So there are like multiple segments to which the CSM molecules are catering to as well as our own molecules are also catering to. Although our own molecules are more driven by pharma because most of the agro opportunities are under the CSM model.

[Dhavan Shah, analyst]

Okay, okay. So is that fair to assume, I mean CSM business revenue contribution that you have mentioned, roughly 10% to 15-odd percent. So given that these molecules are under the pipeline, so is this not, I mean, very lower estimates in terms of the overall revenue contribution on the CSM side, vacancy higher revenues over the period of time based on the current pipeline?

[Harin Kanani, executive]

So currently, we have given revenue guidance only till FY '24, right? So till FY '24, we are just saying 20%. And again, the revenue is also going to be increased 50% from, let's say, so the guidance is for INR 725 crores, INR 750 crores. So that's almost 50% higher than the INR 486 crores, which we've already done. And again, that guidance is also on a stable lithium price. So if the lithium prices will remain higher, it will again increase beyond the INR 725 crores, INR 750 crores. So anyway, so we still feel 20% is a good reasonable number. As and when we sign more contracts, we can be more confident. But otherwise, noncontracted CSM business, which are not very large, but do contribute to CSM revenues, that 20% of INR 750 crores is still a very good target to have.

[Dhavan Shah, analyst]

Got it. Got it. And secondly, about -- I mean what is the stable lithium prices that you considered while doing the calculation of the incremental revenues from the coming capacity? And what is the current crisis prevailing now, if you can help on this?

[Harin Kanani, executive]

So when I say stable lithium prices, I basically mean the lithium prices, which were like in calendar year 2017, 2018 and 2019, because this was a period which was before COVID. There were some movement because of the Chinese, but it was reasonably like stable. And it's like reasonably stable considering, let's say Tesla and Chinese, like initiatives in the EV. Now if we look in 2000 --calendar year 2020 and like up to early '21, this was a time where these prices are actually going lower. So if you see historically in our last year also we had said that almost INR 19 crore revenue was lost because lithium prices were lower. And like I think in last year we kept saying that the prices are now improving.

So from 2020 -- from, let's say, 2020 during COVID period and '21, in '21 the prices started increasing. They first came to the -- what is my stable lithium price. And we can see, like in Q4, they were a bit higher as compared to that. And like they reach whatever is close to the historical high in Q4. This is, again, from a Neogen perspective. And Neogen is basically lagging 1 quarter from the world. So the world had, like because of the shipments and things like that, the world contract prices are like 1 quarter behind. So what prices are today, based on that, let's say next 2 quarters, they are like maybe 2x or 3x the peak demand or maybe 4 to 5x the stable -- 3 to 5x the stable lithium prices.

So -- this is -- it's a very -- like this is uncharted territory. Lithium prices have never gone so high and not like by a close margin. So we'll see -- it's going to be interesting for us to see. But what is good is that there are many critical operations of lithium where lithium cannot be easily be substituted. So there are many customers who don't have a choice. And fortunately in many cases, lithium is a very small component of the overall molecule.

So that's where customers are able to still manage, let's say, in pharma and some new customers, which you added. But yes, some of the traditional customers, this impact will be very, very difficult to manage. So I don't know. Maybe they will also adapt and figure out a way to pass on this to their customers. If not, some customer demand may decrease, but with the new customers which are coming in, we feel our revenue should not decrease, and eventually this will help us to grow our customer base, product base and application base, and hence our traditional lithium business.

[Dhavan Shah, analyst]

Sure. And sir, one last question, if I may, is about the -- I mean, you already mentioned the lithium salt requirement, which is not more than 60, 70 metric ton against -- we are putting up 250 metric ton of electrolyte capacity. So if you can help the conversion ratio of lithium electrolyte to lithium cells. And...

[Harin Kanani, executive]

Sorry, go ahead.

[Dhavan Shah, analyst]

Yes. So this is one question. And the second one is we have used roughly INR 140 crores out of the INR 225 crores preferential allotment money. So if you can share the breakup of these proceeds, I mean, how much is used from -- into which part, I mean, if you can help on that.

[Harin Kanani, executive]

Yes. So on the first part of it, let's say, how much lithium salt get used in electrolyte depends on each customer's configuration. So it changes. But roughly it's between 15% to 25%. So broadly it's in that range. And then again it depends on which lithium salt, which additive, etc. So the actual lithium contribution also can change based on that. But that's roughly the percentage of lithium salts in electrolyte. I think to answer your second question. See, at present, most of it has been deployed to reduce our loans. So we have repaid some working capital. We have repaid some parts of the term loan and some part of it is used for like a little bit of capex, which we've already started doing in our existing products. And our margin towards the capex which we are doing, which was earlier announced and which we are basically planning to do now.

[Operator]

Thank you, Mr. Shah, I request you to join the queue for any follow-up. [Operator Instructions] The next question is from the line of Sabyasachi Mukerji from Centrum PMS.

[Sabyasachi Mukerji, analyst]

First question, a clarification on the CapEx. So last time when we interacted in Q3 call in February somewhere, you mentioned that there will be capex for lithium salts as well as capex from electrolytes. What we see in the announcement is I think capex for licensors is there apart from capex for organic and inorganic. But electrolyte capex is not there. So we'll be announcing the electrolyte capex in the next 1 or 2 quarters? Am I right?

[Harin Kanani, executive]

Yes. So you are right. So in our last call we had 3. One is lithium salts for international market, then electrolyte related capex for India, and the third is the additional requirements of pharma and agro customers. So I think with this 60-meter cube additional reactors coming in, unless we get a very large project, which is very time bound, this will take care of the immediate requirements in the organic side. So I think that is basically taken care of.

The second, which was for the -- this lithium salt was more like a surprise because in last quarter we got a lot of interest. So we had to do some incremental capex to increase our existing lithium capacity with the interest that we got from customers. And as we have planned, we did the capex for lithium salt for electrolytes. So this electrolyte lithium salts for the international market, basically it was driven by what is the quantity which I can fit in my existing NPP, because we want to get it done in a shortest period of time. So taking that as a guidance, we've basically gone ahead and completed the capex.

What we have not yet done is what is the electrolyte requirement for India and the salt capacity for that. So that is something which is still being determined. So as our customers give us clarity as we are getting some kind of a contractual or soft kind of a commitment from customers where we are more certain on the volume demand, this is what we are still working on. And hopefully, as you mentioned, our estimate is also that this is something which should be done between June to September. So next 3 to 6 months, like next 2 quarters, we should get a clarity and then we should plan the electrolyte investment. Unless we feel our customers are still not ready and like maybe their time lines for the cell manufacturing are getting delayed, then it will be delayed. But if our customers are ready, then Neogen should also make a decision in next 2 quarters.

[Sabyasachi Mukerji, analyst]

And just a follow-up to that, what would be the quantum and -- of capex in the electrolyte and expected revenue out of that?

[Harin Kanani, executive]

So again, I think because these numbers keep changing, it's better that we wait when we have the clarity on that. It will be in thousands of metric ton basically for it to make economic sense. But how many thousands is something which I'm not yet sure. So please give me some time to get clarity from customers, some commitment from customers, and then we can plan this capacity.

[Sabyasachi Mukerji, analyst]

Sure, sure. Second question, the INR 150 crore CapEx that you have announced, this is divided into 3. Will there be any sales-wise commissioning of the 3 like? Or how -- what is the priority out of this 3, which will be the commission first or something like that if you have. And also, if possible, the capex split among the 3 projects.

[Harin Kanani, executive]

Yes. So I think CapEx split was asked to me earlier, but because of several reasons and there's also a fourth, which is our Dahej, general overall site development. So we have not shared this and like we'd like to maintain some confidentiality. So I'm not -- and also avoid some confusion because they have downfield capex, right? So that's the reason why we're not able to give the capex breakup for now.

And yes, in this -- in case of organic, this will happen over a period of time because, again, some products, some of it may come by even first half, some where we have to build a separate building may come towards end of the year or by next June. But again it's relatively small, like it's 15% of my existing capacity. Of that, a little bit may come this year or a little bit may come the year after. So I think we'll keep updating every quarter, but it's not something very significant, but we expect everything to get done by, let's say, June 2023. And the lithium modification -- the lithium salt modification may happen slightly early. But the lithium battery materials should be more towards the end is our experience, because it requires some specialized equipment which will take a little longer lead time and also the design -- the final designing and detailed designing also of that will take a long time.

[Operator]

The next question is from the line of Gaurav Chopra from Union Asset Management.

[Unknown]

Congrats on a good set of numbers. Most of my questions have been answered. Just wanted to get your sense around investing additional money around this battery related chemicals. Do you foresee any threats from the sodium and battery technology which many people have started talking about, if that were to pick up, does that put our growth plans on hold or some something like that?

[Harin Kanani, executive]

Yes, so far, in all our interactions what we have seen is that the --like for the -- sodium ion is mostly considered only for, like storage -- energy storage applications. While the major driver for the lithium cell production has been mostly be driven by, like for the EV applications. So therefore, yes, our volume of electrolyte may have some impact of that. But to the best of my knowledge, so far most of the EV vehicle manufacturers or the batteries which are to be used in EV will be lithium-based, and that is what is the current driver.

So I don't think sodium will have too much impact on that. There are also some synergies. So once we make this battery materials, both the salt as well as electrolytes, they also potentially could be used for sodium ion as well because the systems are very similar, the molecules are very similar. The way of formulating is also very similar. So I think it will -- I mean, even if sodium ion happens, it's -- like it will not have a tremendous impact on -- tremendous impact on the plans that we have.

[Unknown]

Got it. Got it. That's good to hear. Last question, sir, can you share the capacity utilizations for both organic and inorganic as of FY '22 and '21 if it is possible?

[Harin Kanani, executive]

So I think my lithium plans are almost fully utilized now. There is some room still. But I think Mahape and Dahej. Mahape and Karakhadi are also almost fully utilized. And the Dahej, I would say is, let's say about 45%, 50% utilization levels at present.

[Unknown]

Got it. But if I were to sort of get exact volume details from the expanded capacity, then what would be the branded utilization levels in that context?

[Harin Kanani, executive]

So we've not shared these numbers site wise, specifically category-wise with absolute percentage. So let me think internally, discuss internally whether we should do this or not. And -- the second thing is, yes. And I think it's on a very broad level in FY '21 also lithium, as we had mentioned, was not fully utilized. And comparing Mahape and Dahej -- Mahape and Karakhadi, 3 organic plans were fully utilized and there was no Dahej. So Dahej is now slowly building up, and we are at about 45%, 50% utilization levels there.

[Operator]

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for their closing remarks. Thank you, and over to you.

[Harin Kanani, executive]

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

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of Neogen Chemicals Limited, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines.