Neogen Chemicals Ltd

NSE:NEOGEN

Earnings Call Transcript 2024-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Neogen Chemicals Limited Q4 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

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

[Nishid Solanki]

Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals Q4 FY '24 Earnings Conference Call for analysts and investors. Today, we are joined by senior members of the management team, including Dr. Harin Kanani, Managing Director; and Mr. Ketan Vyas, Chief Financial Officer.

We will commence the call with opening thoughts from the management team, post which we shall open the forum for Q&A where the management will be addressing queries of the participants. Before we commence, I would like to share our standard disclaimer. Certain statements made or discussed on the conference call today may be forward-looking in nature. The actual results could vary from these forward-looking statements.

A detailed disclaimer in this regard is available in Neogen Chemicals' Q4 FY '24 earnings presentation, which has been uploaded on stock exchange website.

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

[Harin Kanani, executive]

Thank you, Nishid. Good afternoon, and warm welcome to all participants on the call. We are here to discuss the Q4 FY '24 earnings performance of Neogen Chemicals. I would like to commence by sharing the performance, key developments, expansion initiatives and strategy, while our CFO, Mr. Ketan Vyas, will take you through the financial highlights.

Fiscal year 2024 was a landmark period for Neogen Chemicals marking the initiation of an expedited growth journey, where we laid a strong foundation to energize India's rapidly evolving EV ecosystem. To fuel our future success, we have undertaken several strategic initiatives this year, such as acquiring BuLi Chem, securing a licensing agreement with MUIS Japan, raising capital through a preferential offering and enabling Neogen Ionics expansion with the land acquisition.

The dedication and focused efforts of the Neogen family team members have been instrumental in achieving these goals, and I would like to thank them for their contribution and being a part of this dynamic journey.

Moving to our performance for the year. We traveled through a tough operating environment characterized by cheap imports, inventory corrections, geopolitical tensions, and logistical disruptions. We demonstrated resilience amidst these global challenges by harnessing our agile business model and robust manufacturing expertise. That being said, I'm pleased to share that we sustained increase our base volumes in certain cases by adding new customers and through cost improvement initiatives.

Let me quickly summarize the key financials. For Q4 FY '24, our consolidated revenue stood at INR 200 crores, while EBITDA came in at INR 36 crores, higher by 10% year-on-year, translating to EBITDA margin of 18%.

Profit after tax stood at INR 17 crores is up 18% year-on-year. Mr. Ketan Vyas will share more insights on the financial performance.

Turning your attention to our segmental performance.

In Q4 FY '24, organic revenues reported a growth of 22%, while inorganic revenues declined by 53%. Both bromine and lithium raw material prices significantly declined during the year. However, we were able to maintain our performance trajectory due to higher volumes across various product categories.

Now before moving to our expansion initiatives, let me share one important development. Based on the recommendation of our Board, we have filed for amalgamation of BuLi Chemical with Neogen Chemicals as now most of the customers have registered transfer from Livent to Neogen's ownership. There are additional synergies here due to common exposure to pharma and agrochemical customers, internal use of organolithium in Neogen and byproduct recycling and further, this will also lead to lower administrative costs and lean and cleaner structure.

Coming to our expansion initiative, we are making rapid progress in establishing our greenfield battery materials project. The plant design using MUIS technology is ready, and we have started issuing POs for activities related to construction work of the plant. Construction including related utilities is expected to start soon, keeping us on schedule to inaugurate this facility by second half of FY 2026.

The CapEx of the total upcoming capacities at all side around INR 1,500 crores, and I'm glad to inform you that we have already tied up majority of funds through existing bankers to fund this through project finance route. In the interim, our initial commercial capacities of electrolyte and lithium electrolyte salts will cater to immediate needs of our customers.

For the 2,000 metric tonne electrolyte clinical work is complete and the trial production has already commenced. For 400 metric tonne lithium salts plant, 200 metric tonne per annum is already commissioned, and the first approved material has been shipped to the customers. For remaining 200 metric tonne per annum, trial production has already commenced, and we continue -- we have started already construction work for expanding this capacity to 2,500 metric tonne by end of the current financial year.

We started shipping small batches of lithium electrolyte salts to global customers and electrolytes to local customers and the response with respect to product quality is awaited. Several domestic as well as international customers have visited and approved the facility and are now awaiting approval of the commercial products manufactured from the site.

The opportunity size for both electrolyte in India and lithium salts in international markets remains promising. In addition to the PLI advantage, there are additional 7 to 8 non-PLI players, who have also announced significant battery capacities to come online over the next 3 years. For salts, as well, the demand for non-Chinese lithium salts remain strong and is projected to grow at a healthy pace by 2030.

Presently, there are only two, three active manufacturers of Lithium Electrolyte Salts outside China. Lithium battery manufacturers, electrolyte producers want a China-free/ China+1 kind of supply chain due to implementation of IRA in U.S. and other regional policy initiatives and security of supply.

This represents a potential market for Neogen Ionics, which will drive faster installation of lithium salt capacities ahead of required to support the electrolyte salt demand in India. Our growth going forward ahead will be driven by augmenting the capacities of both organic and inorganic chemicals, higher focus on CSM and Advanced Intermediates through portfolio expansion, expanding our capabilities in adjacent complex chemistry, including organolithium chemistry and lithiation chemistry, making deep inroads in the Battery Materials segment and leveraging our strong R&D expertise to introduce innovative offering.

I will now conclude by saying that the ensuing year appears more promising considering the current pace of recovery. Our objective is to leverage our core strengths across various chemical domains to consistently enhance value for all our stakeholders.

That ends my opening remarks. I would now request our CFO, Mr. Ketan Vyas to share financial highlights for the period under review. Over to you, Ketan.

[Ketan Vyas, executive]

Thank you, Dr. Harin. Good afternoon, everyone, and welcome to Neogen Chemicals Q4 FY '24 earnings conference call. I'll take you through the financial highlights. Please note that these are on a consolidated basis and based on year-on-year comparison.

In Q4 FY '24, revenue stood at INR 200 crores and for FY '24, it came in at INR 691 crores. Despite substantial decline in raw material prices, notably bromine and lithium, we managed to sustain increase our base volumes, as mentioned by Dr. Harin.

In Q4, our battery materials are also contributed to this performance through initial sales of lithium electrolyte salts. Organic chemicals saw revenue growth of 22% to INR 169 crores in Q4 FY '24, whereas inorganic chemicals reported a decline of 53% to INR 31 crores.

In FY '24, organic chemicals grew at 17% to INR 543 crores, whereas inorganic chemical revenues came in at INR 148 crores. The domestic and export mix for FY '24 stood at 73% and 27%, respectively. EBITDA increased by 10% to INR 36 crores in Q4 FY '24. And for FY '24, it stood at INR 110 crores.

Employee costs primarily attributed to acquisition of BuLi Chemicals and setup of Neogen Ionics. However, despite this increase we made, we managed to maintain our operating EBITDA for the full year, resulting in an EBITDA margin of 16%, EBITDA margin for Q4 FY '24 stood at 18%. The profit after tax for Q4 FY '24 stood at INR 17 crores, higher by 18%, while the same came at INR 36 crores by FY '24.

PAT performance was lower due to high depreciation and interest expenses linked to ongoing capital expenditure within the battery material divisions.

We utilized the proceeds from preferential allotment in Neogen Ionics and to improve working capital and reduce high cost debt. These actions underscore our commitment to even financial management and long-term value creation.

Our consolidated basis net debt after including current maturities of long-term debt stood at INR 393.5 crore in FY '24. The Board of Directors has recommended a final dividend of INR 2 per share that is 20% of the face value for FY '24, subject to shareholders' approval.

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 the first one was actually with regard to the working capital. It seems to have increased quite significantly one more time at year-end. So if you could please just help us understand whether what the reason for this? Is it something to do with unsold inventory at BuLi Chem or is there some other reason for this?

[Harin Kanani, executive]

Yes. So I think as regards to our inventory situation, as we said, when we started this year, we were basically planning for like a full utilization of organic production and like for a long period of time. And so -- and also, we saw a dramatic change in the demand on the agro side.

So basically, this, along with the fact that we -- when we acquired BuLi Chem, there was almost 0 inventory. And now BuLi Chem business has also taken up significantly. So the combination of that have basically increased both inventories. And when we think of debtor side, as you saw that usually, our exports are 40% to 50% of our revenue. And when we have exports, usually, the payment terms are better or we have factoring mechanisms, which are available.

Whereas when we are doing business domestically, especially generic market. So since majority of our business and export was agro, which was in fact significantly as well as there was some impact on the pharma business also in export market, we had to compensate that through more business in generic. Which is why -- where you know the payment terms are a bit longer and the realizations take longer, which is what affected the debtor side. Again, as we said, this was a very challenging year where we started with one objective, and then we had to do course corrections many times to respond to the market.

So over the next 2 years, as we achieve full utilization levels, as you know, some of the new products which we have made start getting approval, significant improvement, especially in terms of number of days. So the inventory that we have, the debtors we have can support even like the INR 1,000 crores kind of a revenue, so maybe INR 250 crore kind of revenue per quarter.

So we are basically aiming for that over, let's say, to achieve by end of at least next financial year. So that we are on track to get a INR 1,000 crore plus kind of revenue from this Neogen Chemical in FY '26 as we have targeted earlier.

[Abhijit Akella, analyst]

Got it. That's helpful. The other one was Dr. Harin, there was this announcement by a small NASDAQ-listed company regarding some licensing deal they have entered into with Neogen with regard to battery separators. So if you could please just help us understand what the company's thought process is on this front and whether that's an area where we intend to move forward in the future? Also, is there any synergy with our existing lines of chemistry for that?

[Harin Kanani, executive]

Sure. So this company has basically developed some technology, which basically for separator, and it's very early stage. So they just have a very small line where they make the separator that this separator in combination with a specific type of electrolyte can give very good performance at a high temperature.

So as you all know, like in India, like the temperatures are much larger and most of the world, the batteries were tested only at 25 degrees Celsius. So of course, the whole world is now getting ready that these batteries will be used in India, let's say, Africa, Latin America, basically Middle East, where the temperatures are going to be higher. So this is a company which shows like have, like basically developed a separator, which in combination with electrolyte can give improve the battery performance at high temperatures.

So we were very keen that ultimately, as India starts first-generation technology, where majority of this is basically coming from what has been tested international market. As they get into second-generation India-specific design, this technology, if it works at a commercial scale, along with the electrolyte design that we have for it, together can give batteries, which are most optimized for India.

So again, so that's the partnership. So we are using some of the trials, small quantities, which they have made, we are offering to all the Indian customers. So they recognize that Neogen has a good reach for all these customers, and we can offer that combination of different separator along with the relevant electrolyte.

So that combination our customers are testing. Most of them will not be used in their first generation of cells, but in the second generation. So if -- like so right now, it's an exclusive distribution agreement, and like if in future, any customers like the design and want to use it at a commercial scale, then we also can have a potential joint manufacturing activities. But currently, there's no revenue guidance, which I can give.

It's just a technology which -- if it works at a commercial scale in our customer trial as well, then it has a potential to have a very unique offering, specifically for India and can solve the high temperature issue of India. So that's why we entered into them.

[Abhijit Akella, analyst]

Got it, sir. Just one last thing, if I may, before I get back into the queue. Two parts to this actually. One is, now that we commenced shipments of the salts, are the realizations we are making in line with our expectations? Let's say, in the range of $20 to $30 a kilo, is that still in that ballpark? That was one.

And the other thing was just on the balance sheet. There's been a significant increase in both other financial liabilities and other non-current assets. So if you could please just help us understand what that might be due to?

[Harin Kanani, executive]

Yes. So I think, the realization that is whatever pricing which we are seeing is looking into that range. Of course, Neogen has also partly intermediate of that. So again -- so some of it is the intermediate sales, some of it is the final product sales. But yes, it is in that range what we are talking -- what we are expecting so far.

Also, the -- some of the discussions which we are having with the international customers, which are like, as I said, non-binding MOUs or let's say, some purchase agreements or something like that, the pricing formula based, so there also, it seems that the realization remains in the range of that $20 to $30 depending. So again, and all are basically lithium-linked kind of -- lithium-linked seasons.

I'm not sure what you mentioned about the other financial assets, et cetera. Some of these are related to -- I don't know if it's in a stand-alone, then part of it is also related to the investments which we are making, plus which is happening between Neogen and Neogen Ionics. So as you know, Neogen Ionics was established just last year, and we had to wait for some regulatory clearances before which some of the investments can directly be done by Neogen Ionics.

So now all the future investment directly will be done by Neogen Ionics, but because of that, some of it are associated with that. But maybe subsequently, as we'll get shared our detailed financials with all the details and schedules, you'll get a more clarity around that.

[Operator]

Next question is from the line of Manish Gupta from Solidarity.

[Manish Gupta, analyst]

I had four questions. My first question was on the -- on Neogen Ionics. There's a lot of excitement about the renewable energy opportunity in India and people putting up wind and solar. I wanted to understand, sir, that, are we in discussions also with these guys for their storage requirements and whether these guys are going down the lithium route or the sodium route? And whether in our business plans, this segment is also of interest or will our plans will be really be for the EV manufacturers in India?

[Harin Kanani, executive]

So Manish, for the 160 gigawatt hour guidance we had given for India's electrolyte demand, roughly around 120 gigawatt of that was estimated to be EV and another 30 gigawatt to 40 gigawatt was basically likely to be the solar and wind energy storage and just overall, what is called as grid level energy storage kind of business.

So that's been all -- that's been part of our plan and projections from the beginning. And this is one area where, like, if it really picks up, then you can have a positive surprise where -- because EVs, you can say, okay, maybe 30% penetration, you have a good amount of estimate of how much number of EVs, which are going to get sold and at a 30% penetration, you can calculate relatively quite accurately as long as that 30% penetration number holds, the energy battery requirement of that.

But renewable and solar is still developing field. So depending on how fast it picks up and it makes a logical sense that it has to pick up. If the renewable energy contribution has to increase, so then, that's where that 30, 40 gigawatt hour that we estimated can go even higher.

Having said that, we don't directly discuss with them. I mean, this is basically an opportunity for battery makers. And I do know that some of the battery maker customers that the cell and the battery producers who we are talking to that they are also seeing this traction and they are planning more and more contribution or like sales coming from the renewable energy side as well.

Finally, your question of sodium. Yes, there are some people who are thinking of sodium for renewable energy as a potential. But -- what -- but so far, most of the renewable energy storage people are also considering lithium as chemistry. And some of the calculations that we have done or like what we have internally, only if lithium prices remain at a very high level, only then the sodium will become attractive. Otherwise, most likely lithium should continue.

In my view, like lithium prices, the level which lithium prices have to be, like, it's very difficult for lithium prices to sustain that levels. So I still feel personally that lithium will be the main driving technology. However, in case if it comes to sodium also, Neogen's existing facilities with few modifications [ like ] Lithium Electrolyte Salts. And I think you require almost very limited modification to make the electrolyte formulations for the sodium and battery also. So I think -- I hope this answers all your questions.

[Manish Gupta, analyst]

Yes. Yes. So this answers my first question, sir. My second question was that under the U.S. Inflation Reduction Act, there is a clause there where they want a lot more local manufacturing. Is my understanding right that, you can shift the intermediate of the salt and they will do maybe the last step of that and that will qualify under the Inflation Reduction Act. Is that understanding correct?

[Harin Kanani, executive]

Partly, correct. Just a little clarification. So there is -- there are two criterias on Inflation Reduction Act. One says, how much value addition which you have to do locally. And the second, which says that what is the percentage which you can't do with countries of concern. So basically, whatever we supply and when they bring the final electrolyte there, whatever we supply will be considered as the import.

So even if the final formulation is made in U.S., our imports will still be considered as an import at the final cell level calculation. However, as we know, electrolyte is around 10% of the cell cost and the electrolyte salt will be somewhere around like 4% to 5% of the final cell cost.

So at even battery pack level, it would be hard to meet 3% to 4% kind of a level. So because of that, that will remain into the things which you still have to import. So therefore, it is not going to create a big challenge from IRA perspective, if the salt is still getting imported from, let's say, India.

However, they need it from India for that non-China and non-foreign countries of concerned part. So that is where basically Neogen's offering becomes attractive for an IRA compliant. Of course, ideally, they would have wished if -- then it helps them with that value addition also, but that's little bit in the future. And still even if -- like there is some, I think, 15%, 20% leeway, which they have. So most of the OEMs or electrolyte producers feel comfortable buying the electrolyte salt from India. So their more requirement is non-China rather than local.

[Manish Gupta, analyst]

But sir, I mean, I'm just curious like why would they not buy this thing from, say, Mexico, which is -- there's a lot of automotive components that are going into Mexico now. Why would they want to import this thing from a geography so much farther away?

[Harin Kanani, executive]

If Mexico can make at the same prices, then if we can get the quality and reliably, they would prefer that. I agree with you there. But the fact today is that there is no manufacturer there. There is no person with the lithium expertise there. There is only one company which has made just an announcement that they will set up a plant in U.S., but again, no strong headway there. So again, from the timing perspective, from the long-term perspective, like can they get everything from U.S., the amount of quantities that they need. So this is a tough chemistry. You require somebody who understands lithium well, do all the purification there, like understanding, having experience of that, also being able to handle fluorine chemistry.

So this combination at a competitive rate, very close to China kind of a combination, if Mexico can offer, somebody can do that. But -- and that would be preferred over Neogen. But so far, they don't have a credible option and definitely not an option which can take care of the entire U.S. demand.

[Manish Gupta, analyst]

Okay. So two other small questions. One is based on now your visibility and all the plans and the samples that you've shipped out. Any...

[Operator]

Sorry to interrupt you. We are losing your audio. Can you please speak over the handset?

[Manish Gupta, analyst]

Yes. Sorry. Can you hear me now?

[Operator]

It's coming a little muffled.

[Manish Gupta, analyst]

Okay. Great. So sir, based on now your latest visibility, any broad guidance for what the battery chemical business could do in '25 and '26 fiscal years?

[Harin Kanani, executive]

So basically, the capacity that we have, right? So let's say, first talk about, let's say, FY '25. So when we are talking of FY '25, the capacity that we have can produce, let's say, roughly around INR 250 crores -- capacity we have and what we are setting up during the year. In FY '25 we can do around INR 250 crores, INR 300 crores capacity is basically online. But we think that we'll have a full utilization level, let's say, in FY '26. So in FY '26, we'll have minimum INR 250 crores to INR 300 crores revenue.

On top of that, the capacity which is coming online during the year and coming in FY '26, will also contribute. So it will be something more than that, but it's a little bit too early for me to say exactly how much it will be.

And similarly, for FY '25 also, we are ready to do a revenue of around INR 200 crores, INR 250 crores in current year also. But the electrolyte demand will take some time. So majority of my customers are saying towards end of Q2 or early Q3, their trial production would begin for cell production. So that's when the electrolyte demand would pick up.

And electrolyte salt also, we are just shipping out or started shipping out some trial production in last quarter, some will happen in this quarter. So that will start picking up with their approvals maybe end of Q2, Q3. So you'll really see major contributions coming at Q2, Q3. So I would guess the number would be like INR 100 crore plus kind of a number. But a little bit early for me to give you a more precise number for this year.

[Manish Gupta, analyst]

Yes, sir. And my last question, sir, was, in this business, have we signed up any more contracts on more downstream value-added projects?

[Harin Kanani, executive]

What do you mean downstream value? But there are only two things we do here. One is electrolyte salt and another is electrolyte.

[Manish Gupta, analyst]

Sir, I meant the bromine business.

[Harin Kanani, executive]

I'm sorry, bromine business. We've not signed up contracts. But yes, we have initiated with maybe four or five companies like what we say, early-stage contract manufacturing. So as we said, we wanted to work with bigger customers. So we have started in agrochem space. So we started projects with them. We have also started like two or three projects in agrochem space, new ones. One of them also is like that the combination of bromine plus n-Butyllithium. So you've signed up for projects where this combination is critical.

And we are also signed up with one more pharma -- like two more pharma projects. But they're a little bit long term in nature, like they are clinical trials, Stage 3 kind of molecule. So we'll do. But again, all of these, I think, will start contributing in a meaningful way beyond FY '26.

Like up to FY '26, our existing pipeline itself is sufficient, all will help us beyond FY '26 to continue the growth projects.

[Operator]

The next question is from the line Parth Mehta from Vallum Capital.

[Parth Mehta, analyst]

So first, if you can help me, what would be your capacity utilization numbers for FY '24 and the Q4 quarter? And for organic chemicals and inorganic chemicals separately.

[Harin Kanani, executive]

So now include three categories like the Bromine Derivatives, the Advanced Intermediates, CSM as well as BuLi Chemicals. So the BuLi organolithium compounds. So all four were there. So we are very happy that like as we saw in Q3, we had a bit of a challenge because of the price fluctuation in lithium metal and like having lower demand on the BuLi Chemicals. So we recovered from that.

And like the organolithium itself contributed to almost INR 17 crores, INR 18 crores of our revenue even with a lower lithium price. Again, this was still not yet fully utilization. So I would say, at a utilization level, roughly, we are at around -- in the organic space, we are at around 60%, 65%. In the lithium space, we are almost at around 75% to 80%, which is very close to the peak utilization levels that we have. Of course, as you saw that the revenues were lower, but if you look on a volume basis, we were like about 4%, 5% better in this quarter as compared to last quarter.

I mean previous year, same quarter, just because of the price differential is why you saw the INR 66 crores become INR 35 crores -- I mean, around INR 35 crores kind of a number. So I think inorganic chemicals is close to full utilization levels. Organic chemical is at around 60%, 65% kind of utilization levels overall. And battery...

[Operator]

Ladies and gentlemen, please stay connected. Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you for the patience. We have the management line reconnected.

[Harin Kanani, executive]

Sorry, I was able to hear you guys, I don't know where I got dropped off. I think the question was on utilization levels. I think, I gave a long answer. Our inorganic chemical is almost close to 75%, 80% utilization levels. At organic chemicals, we are at around 60%, 65% kind of utilization levels, and we still have room to grow further there. And like, again, battery materials, we are just starting.

[Parth Mehta, analyst]

Great, sir. Just if you could help me with volume growth for this quarter and full year. I think, all of us, this quarter, you mentioned 4% to 5% volumes for the full year?

[Harin Kanani, executive]

Yes. No. For the inorganic chemical, it was 4% to 5%. I think full year was also close to 4% to 5%. Again, for us, it's very difficult to do metric tonne to metric tonne level because of the product mix. But the way we look at it -- the way we looked at it, that if the same prices, which were there today were driven in our last year or last quarter, what is the revenue, which would have been different.

So -- or similarly, vice versa, when we do that. So we see a volume growth of around 4% to 5% in the inorganic side. And on the organic side, we are seeing almost 25% to 30% for the full year.

[Parth Mehta, analyst]

Sorry, sir, you were inaudible. For the full year, it was 20?

[Harin Kanani, executive]

25% to [Technical Difficulty] on the organic side.

[Operator]

Sir, sorry, we're again losing your audio, sir.

[Harin Kanani, executive]

Okay. Let me reconnect, sorry.

[Operator]

Participants, please stay connected while we rejoin the management back to the call. Ladies and gentlemen, thank you once again for your patience. We have the line for the management reconnected. Sir, please go ahead.

[Harin Kanani, executive]

Yes. I think the last question was about volume growth. So what we mentioned that for the organic production, it was around 25% to 30%. And for inorganic, it was around 5% to 10% volume.

[Parth Mehta, analyst]

Great, sir. And if you can help me, we have set a target of reaching 40% revenue contribution from CSM business. So where do you currently stand? And so as last quarter, you had mentioned we are somewhere around 30%, you are still on 30%. So when do we see reaching 40% contribution?

[Harin Kanani, executive]

I think 40% contribution is our CSM and Advanced Intermediates together. So Advance and CSM together is going to be 40%. What we said 40% is going to be of bromine derivatives and 20% is going to be inorganic lithium salts on a stable lithium price. So there also the breakup right now stands 50% and 30%. Out of which 15% was CSM and 15% was Advanced Intermediate. And I think the idea is to have 20%, 20%.

So I think, this is an area where we expect that the future growth as we reach INR 1,000 crores by FY '26, you will see more contribution coming from Advanced Intermediates and CSM business. So by FY '26, we would be at 40% from Bromine Derivatives, 20% CSM, 20% Advanced Intermediate and 20% Battery Materials -- sorry, Inorganic Lithium Salts, non-battery within Neogen. So that is the breakup which we are targeting.

[Parth Mehta, analyst]

Okay. Great. And sir, in last quarter, you had mentioned we are facing some challenges in the agro and pharma side. So what is the current situation? And like, is the current situation improved? And if not then, when do we see it improving?

[Harin Kanani, executive]

So on the pharma side, my view remains in that the specialty pharma, where which are not very bulk like statins or like your sartans or anti-retroviral. So those kind of pharma, we have seen normalization and some of them are even now growing very well. So fortunately, we were part of some of these value chain. So if you might also recall our -- like we have signed a long-term agreement with one innovator customer for supplying intermediates to their [Technical Difficulty] So that business is also doing very well and growing very fast. That is taking care of like some of the business, which we are losing out or lower demand from our traditional bulk pharma kind of customers.

Agro, we have still not seen -- we've seen some increase in April in the bulk pharma. So we started seeing maybe after March, the inventory correction have happened and you see a little bit of uptick in even the bulk pharma. So sartans kind of revenue also has started increasing, where it's too early to call out whether it's just for inventory, they are building up inventory after controlling it in March or whether it's going to be long term. So we'll take a view of that.

Then agro side, we are still not seeing again, the interest for non-China remains very strong. As I said, we started working with two or three more customers in last, say, 3 to 6 months, who want to have an alternate to China, so that interest remains high, but we have not seen really volumes come up.

Most of them are saying that 2025 is when they'll have their demands, half of 2024. So like maybe towards September, October, they might start releasing POs for their '25 requirement. So like agro, we are still expecting in the second half to start contributing.

[Parth Mehta, analyst]

Okay. Great. Sir, just last one, if you can help me, what would be the current bromine and lithium prices?

[Harin Kanani, executive]

We can't give you -- lithium prices touched their lowest and they have just started increasing again. But with [Technical Difficulty] and we're still below what I call is a long-term sustainable price of lithium. So I don't know how the industry develops, but my expectation is over let's say, next 2 years, you will see an increase in lithium price. And depending on how fast demand growth comes, you might again see crazy lithium prices in '26 or '27. So that's on the lithium and bromine also have reached its bottom price and have started increasing slightly or at least stabilizing. We've not seen further decrease on either bromine or lithium in the last one.

[Operator]

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

[Archit Joshi, analyst]

Sir my first question on the expectation of doing somewhere close to INR 300 crores of revenues through Battery Materials in F '26. And sir, obviously, some rough calculations. If I look at it from the realization range that you gave, would it be fair to assume that we would be able to service around 2.5 to 3 gigawatt hours of battery capacity in India basis, the INR 300 crore revenue that we are expecting?

[Harin Kanani, executive]

Yes. So Archit, the electrolyte 2,000 metric tonnes can already contribute -- can take care of like 2 to 4 gigawatt hour, depending on whether it is LFP chemistry or NMC chemistry. NMC, it can support up to 4 giga. If it's LFP, it's like more closer to around 2 giga is what on the electrolyte side. So that is something which can happen.

And on the electrolyte salt side, we have basically 5,500 metric tonnes, which will be fully be available, let's say, for FY '26. So that can support, let's say, around 30 gigawatt of final electrolyte production and then battery is made out of that. So on electrolyte salt, let's say, for FY '26, we'll have a 30 gigawatt hour capacity available.

And on the electrolyte, it will be around 2 to 4 gigawatt hour capacity. So roughly, let's say, you can say 80%, 90% of the salt -- of course, this is just beginning of FY '26. And then in FY '26 in the second half, our Pakhajan site also will come online. So then overall electrolyte capacity available for like or FY '26 will be even higher. Because when that comes in, in the second half, I can support 30 gigawatt hour more.

So if you -- if we go to the second half of FY '26, we'll have a capacity to sell up to 30 gigawatt hour on electrolyte side and up to 30, 35 gigawatt hour on the electrolyte salt side.

[Archit Joshi, analyst]

Sure. Got it. Got it. Sir, lastly, small bits on our expected books. Sir, we have recently in the Board meeting approved a INR 500 crore inclusion through CCDs. Is that expected in FY '25 immediately? And what will that entail into an incremental debt? Is there any other debt than the CCDs that you are introducing in Neogen Ionics. And if you can kind of give us the peak debt that we might go to in FY '26 also?

[Harin Kanani, executive]

So in terms of CCDs, this is basically -- on requests basically from our bankers. So we are very fortunate that our existing bankers have extended us like a 10-year, 12-year term loans, especially for our Pakhajan side, where majority of the CapEx -- majority of the CapEx we are doing, we have received like a 12-year term loan with like moratorium for 2 years on interest then 1 year on principal and then a gradual repayment over 9 years. So these were very strong preferential terms that we got.

And the equity portion, the bank requested that it could be -- like, of course, the bank would have requested directly as an equity, but we didn't want to put everything as a at-par equity. So the CCD was a way for us to basically put of equity or, let's say, quasi equity into the Ionics. Again, this is an enabling resolution up to INR 500 crores. We will be doing it gradually over 3 years of time.

And even our existing investment, which is either in terms of transfer of some assets or in terms of transfer like intercorporate deposits. So even now so far, we've already invested around INR 220-odd crores. So out of that INR 500 crores, INR 220 crores would be the investment which we've already done, which will be converted basically into the CCD from shareholder approvals and all the formalities are completed. So that's basically the reason behind that.

[Archit Joshi, analyst]

So sir, and the peak debt number, let's say, in FY '26, sir? What might be?

[Harin Kanani, executive]

So FY '26, like out of the INR 1,500 crores CapEx, around INR 1,100 crores would be -- sorry, yes, the CapEx number INR 1,150 crores would be the debt which will come from outside. Again, this debt not only includes the direct CapEx, but under the terms, they are also funding GST, which we can't use the initial working capital, the interest for the 2 years. So everything together INR 1,500 crores.

Of which around INR 1,150 crores will be funded by our bankers. And this will be all at Neogen Ionics level, so it will not be on Neogen. At Neogen level, we feel whatever is our current debt will remain stable as we maybe infuse a little bit more depending on how much we generate versus how much we infuse.

There might be a slight increase in working capital utilization, which today, like we have a working capital limits, which can support up to INR 400 crores, but we are using it under. So maybe some of that might get eventually used as we put our own money and do infusion into, let's say, Neogen Ionics. So, I would say INR 1,150 crores there and maybe what we have another INR 350 crores here so or maybe another INR 100-odd crores more, so add INR 450 crores somewhere around INR 1,500-odd crores over the next 3 years.

[Archit Joshi, analyst]

Got it, sir. Sir, one last question. I think our net block which has increased by around INR 140 crores, we have another CWIP close to INR 110 crores in our...

[Operator]

Sorry to interrupt. We are losing your audio. Can you come in a better reception area, please?

[Archit Joshi, analyst]

Sure, sure. Am I audible now? Is it better?

[Operator]

Little bit.

[Harin Kanani, executive]

Yes, you're audible to me.

[Archit Joshi, analyst]

Sir, I was speaking of a net block, which has been increased by around INR 140 crores, and we have another CWIP of close to INR 110 crores. And our CapEx numbers, as you mentioned previously that we are expecting to -- with the 30,000 plant that we are expecting to commission and capitalized by FY '26. The balance seems to be around INR 1,200 crores, INR 1,300 crores of incremental CapEx infusion. So sir, if you can give us net as to what might be the CapEx you are expecting at F '25? And what would be the balance less than at F '26? That would be my last question.

[Harin Kanani, executive]

I think, we are expecting another INR 400 crores to INR 500 crores in FY '25 and the balance will be coming in FY '26.

[Operator]

[Operator Instructions] The next question is from the line of Bhargav from Ambit Asset Management. Bhargav, sorry, can you please speak to the handset?

[Bhargav Buddhadev, analyst]

Yes, is it better?

[Operator]

No, sir. Your voice is still coming muffled. Can you please use the handset?

[Bhargav Buddhadev, analyst]

Yes, I'm using the handset. Sir, can you hear me?

[Operator]

It's better now.

[Harin Kanani, executive]

Yes, we can hear you.

[Bhargav Buddhadev, analyst]

Sir, my first question is that on the revenue side of about INR 700 crores, clearly, the CapEx of INR 1,500 crores is a sizable sum. So have we sort of decided that we'll go ahead with the entire CapEx or will have some milestones, which we will monitor and take a slightly risk-adjusted approach for this CapEx?

[Harin Kanani, executive]

No. So you are absolutely right, and that's something which I would have also been happier if I had to do this CapEx over 3 years, 4 years time, instead of, let's say, 2 years time, but it does that, the situation demands this way, but we are watchful. So what -- as I mentioned, our first facility from where we can supply electrolyte, we can supply electrolytes. We are sending this approval. So let's say, next 3 to 6 months, we'll start having approvals. And for the electrolyte business also in next 3 to 6 months, as I said, end of Q2 and early Q3, some of the Indian customers are also starting their electrolyte facilities.

So we will keep watching both how the international electrolyte salt approved [Technical Difficulty] is progressing as well as how India electrolyte demand is like developing. In India, mostly, we feel it's a demand issue depending on how well the Indian battery industry starts manufacturing cell.

And accordingly required, we can slow down and we can moderate our CapEx accordingly. So we'll be watching it very carefully. Please be rest assured, because again -- and there will be milestones there where let's say, for example, we can delay some of the equipment deliveries or do some of the investment in the electrolyte module depending on wherever -- whether if there's a slowdown in electrolyte salt or electrolyte, so we'll keep watching that.

[Bhargav Buddhadev, analyst]

Secondly, sir, this IT Act in the U.S. is likely to be passed in 2025. But in the event that there is a delay in passing off that, then how does it impact our exports revenue that we are targeting? Is there a plan being placed?

[Harin Kanani, executive]

So one is, when you say IT means, IRA Act or.

[Bhargav Buddhadev, analyst]

IRA Act, sorry. Yes, absolutely, yes.

[Harin Kanani, executive]

So IRA Act -- so that has already been passed and that is already implemented. So this is one clarification I wanted to make. The second thing is, yes. So the plan B is the capacity, which I was just answering Archit's question earlier where I said the capacity for the electrolyte salt is like 30, 35 gigawatt hour and the electrolyte capacity is 30 gigawatt hour. So if we feel that anything which is happening in the U.S. market, which is adverse. So in such a case, for example, we can go slow on the 3,000 metric tonne electrolytes salt facility which we are going to do in our Pakhajan side. And then we can build it gradually if we are not looking at the international market and if we are looking only at the India market.

So therefore, the plan B is India electrolyte market, where we feel we have the maximum rights to win. Being one of the first mover having Mitsubishi's technology and already having relationship for and already having supplied electrolyte for the trial productions of the customers for the last 15, 16 months.

[Bhargav Buddhadev, analyst]

And is there any government support expected to protect the domestic manufacturers in the event, there is any dumping from the foreigners as far as electrolyte or salt is concerned?

[Harin Kanani, executive]

So there are two levels of protection. One is the people who have bidded for the PLI scheme. And today, that is basically Ola and Reliance and who are already selected and who are active. And there is also a separate follow-on PLI, which has just been concluded and the application [indiscernible] who are concluded. So these companies have to meet certain value addition criteria if they want a government subsidy, which is very sizable. So to meet that value addition, the electrolyte salts, electrolyte have to be all produced locally.

So they are incentivized that if there's a small difference, please buy from India. Otherwise, you lose out on subsidy, which is almost 30% of the cost of -- 25% to 30% of the cost of the cell production. So this is one incentive for the companies which are having PLI.

Then historically, in our interactions with government policymakers, they said that once they see any component being made in India, they are ready to increase custom duties and have protective custom duties to support the local industry. So currently for, [Technical Difficulty] cell manufacturing on cells, there is very low custom duty. But once...

[Operator]

Sir, we are again losing the audio. Sir, let me reconnect.

[Bhargav Buddhadev, analyst]

No, no, I'm able to hear him. I'm able to hear you, sir, yes.

[Harin Kanani, executive]

Yes. Okay. So like the cell manufacturing, so as cell manufacturing will come online, the policymakers have said they will put custom duties on that. And similarly, as component manufacturing will start, then they have promised custom duties. Internationally, such duties are in the range of 15% to 25%. U.S. being higher. So on top of the IRA, they have also put 25% duties on imports of the electrolyte and other components from China. So similar protection, we are also expecting in India. Once the manufacturing here is stabilized and the manufacturing of cell production will also start.

[Bhargav Buddhadev, analyst]

And sir, lastly, if we succeed on utilizing the salt capacity, but we struggle on the electrolyte capacity, then what could be the difference in terms of return on capital employed that we can expect only from the salt utilization vis-a-vis the electrolyte utilization?

[Harin Kanani, executive]

So I'm just guessing that if the electrolyte utilization -- saying electrolyte utilization struggle meaning, India is not manufacturing enough cells is your concern. Am I right? Is that correct?

[Bhargav Buddhadev, analyst]

Yes. Yes. Yes.

[Harin Kanani, executive]

Okay. So in the case where India is not able to make enough cells and therefore, there is less local electrode demand, there are two options. One option remains that there's some cell manufacturing starting in other geographies also where there is no electrolyte producer or no electrolyte producer is going there very fast. Slower one international market with the permission of Mitsubishi. As long as we are not conflicting with them, we have that option also available with us.

The second option, worst case scenario, even that doesn't happen. And if you have no electrolyte business coming, so if we see that happening, first of all, we would also graduate the investment which we are doing. So we'd not do the entire INR 1,500 crore. So some of the [indiscernible] like our ISO tank filling capacity, drum filling capacity, our storage tanks. So these can -- the CapEx of that can be modulated and we don't have to do everything upfront, if the demand doesn't come.

So with that, and even if -- like after we'd have done and then we have a surprise or something like that, we would have at least 14% or 15% ROC in the battery business. If just the salt happens and electrolyte is happening like at a partial level. Although the way my customers are making progress, for me, it's a little bit difficult to believe that India will not be able to make 30 gigawatt hour of cells by 2028, is what we are targeting.

[Operator]

[Operator Instructions] Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. [Operator Instructions] The next question is from the line of Jason from IDBI Capital.

[Jason Soans, analyst]

Sir, my first question was just relating to your base business has been soft. Q3 also was pretty weak. Now you have mentioned that pharma and agro, we are seeing some green shoots there. Now I just wanted to know in terms of the BuLi Chem acquisition and the lithiation chemistry, which you added to our skill set, does that help us give a strong boost to this business? Should we see a strong boost to the base business from this acquisition?

[Harin Kanani, executive]

Yes. Thank you so much for your question. And again, I apologize to everyone because of the reconnection you all had to wait. To answer your question for me, I'm really excited with the BuLi Chem acquisition that we did and what it can help us in our base business.

There are three aspects of this. As I've mentioned earlier, one is this base business -- like it will support us our Advanced Intermediate and CSM, because we have a very unique combination, somebody who can make organolithium compounds, somebody who can combine it with bromine derivatives. And when we make and do the combination, we have lithium, which comes out as a byproduct, which we can again recycle back to our non-battery lithium business.

So that's a combination with like very unique in the world and whenever we want to innovate our customers, they simply love this idea, especially when they know lithium price is going to get fluctuate -- is going to be fluctuating, so at that time, with the recycling, we can reduce that, they really like that part.

Also, how it is helping us that, there are many customers -- there are very few suppliers of n-Butyl Lithium, like as a whole. Again, this is a business which is normally done locally. And there are only two or three companies in the world which are basically lithium mining companies, who also were doing organolithium business.

So this is the first time, like we are one of the significant companies who basically has a plant -- a proven plant with 17 years of track record who can basically manufacture these organolithium compounds. So that has allowed us to also enter many pharma, like specialty material customers, even semiconductor customers. So it increased Neogen's visibility also to a larger group of companies in the international market. So I feel, over the next 3 to 5 years, this will play a very big role just selling N-butyl Lithium and the organolithium compounds as well as doing the combination. So I think both opportunities are very exciting for Neogen.

[Jason Soans, analyst]

Sure. And sir, in terms of battery chemicals, the margins which we're expecting should be in line with our existing 16%, 17%? Or do you see scope for more upside on those levels?

[Harin Kanani, executive]

For the Battery Materials, what we feel is it's basically going to be ROCE-driven business. So therefore, a bit like right now, if I think of a stable lithium price, at that stable lithium price, we expect that, yes, around 16% kind of margin basically works out based on the ROCEs. But like, again, incrementally also when we will go beyond this capacity, it's something which is going to be driven by ROCE. Where we can really get better margins is, if we basically give something which improves the performance of the customer. Now that we are doing in partnership with Mitsubishi. As we were discussing one more discussion in earlier question that a combination of a specific kind of electrolyte along with kind of a specialty kind of a separator can improve the performance of the batteries or the cells for the end user.

So when we do that, we earn the right of getting higher EBITDA. Otherwise, again, it's an ROCE-driven business. And I think if we do a 20%-plus kind of ROCE for this kind of scale, I think that would be a very good outcome. EBITDA level, I think it will work out at around 16% or so.

[Jason Soans, analyst]

Sure, sir. And sir, I just want to ask you in terms of -- if you could provide a breakup in terms of end user industry, like, for example, our whole market, of course, battery chemicals is different. So in terms of our whole end-user industry pharma, agro chem, engineering or something, how would that breakup be? And I was also want, you had shared this earlier, but I sort of missed it. You had mentioned about the bromine compounds, the AI, the CSM and the organolithium, what breakup is it currently is? And what do you aspire it to be? So I would want both of these breakups if you could provide that.

[Harin Kanani, executive]

So for the breakup based on our categories, so it's about 40% -- so what we today are at around 50%, 55% on bromine derivative, around 30%, 35% -- around 30% on our Advanced Intermediates and around 15% to 20% on the lithium chemicals. We feel by the time we will reach full utilization levels, we would be around 40% on bromine derivatives, another 20% on Advanced Intermediates, another 20% on CSM. So together, Advanced Intermediates and CSM would be 40% and around 15% to 20% would be the non-battery lithium compounds. This is a non-battery business breakup.

In terms of industry, the industry, usually, it is 50% to 60% is pharma. Agro is usually around 20%, 25%. Engineering around 10% to 15% and remaining 5% to 10% is other industries. That's the normal case. Currently, because agro is low, agro is like almost close to 10% or below 10%. And consequently, like the pharma segment is a little bit higher, where it's around close to around 70%, 75%.

[Jason Soans, analyst]

Sure, sir. And just one last follow-up, sir. Just a very short question. You had mentioned the lithium salt is around 4% to 5% of the cell cost. Is that right?

[Harin Kanani, executive]

Yes. Basically, electrolyte is between 8% to 10% of the final cell cost and electrolyte salt is between -- depending on the price of lithium, 40% to 60% of the cost of the electrolyte. So at the cell level, it becomes around 4%, 5% kind of a -- at a cell level. At the battery pack level, it will be somewhere around 3% to 4%, or let's say 2.5% to 3.5%, something like that.

[Operator]

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

[Rohit Nagraj, analyst]

My first question is on the 2,000 metric tonne electrolyte and 400 metric tonne lithium salt -- electrolyte salt. So for both these we have mentioned that the electrolyte salt we have already shipped the material. And on the electrolyte front, the trial production has commenced. So what is your understanding in terms of the approval process and commercial supplies for both these facilities?

And when do we expect maybe optimum level of utilization given that everything goes as per plan in terms of the approvals, and the battery manufacturing maybe from domestic or from the international players?

[Harin Kanani, executive]

Sure. So if we think of electrolyte salts, we feel that in Q1 we will be shipping out basically trial volumes. So like it just started. And in Q1 also, we will be making trial production, 5 tonne, 2 tonne, 5 tonne kind of supply for the electrolyte salt. And with that, we should start seeing permissions come, let's say, by end of Q2.

Again, some customers will be a little bit higher, some will lower. So by end of Q2 -- sorry in the Q3 and Q4, we expect that this 400 metric tonnes will be used fully. And as more capacity will come online as we go from this journey of 400 to 2,500 in different phases, different sections, the capacities will come online, they can start contributing like in the second half of the year. This is on the electrolyte salts.

On the electrolyte, it is more geared by like how fast cell manufacturing comes up in India. So our understanding is that initial one or two customers should start by, let's say, towards end of Q2 and early Q3, and if both -- if they start even at a bare minimum, like 1 gigawatt hour kind of capacity, depending on how fast they stabilized Q4 of the current financial year or Q1 of the FY '26, we should be seeing full utilization level of our electrolyte plant.

[Rohit Nagraj, analyst]

Fair enough. That's helpful. Second question is just in terms of the INR 1,500 crores of CapEx from '24 to '26. If you can provide a broader breakup across the electrolyte salt, the legacy business, the electrolyte MUIS and the newer Pakhajan facility?

[Harin Kanani, executive]

I'm sorry, like there are too many informations here, which I'm not able to share because of confidentiality reasons and several other reasons. But broadly, if I were to say, like -- so this is basically, as I said there are four components of this, that is -- one is the investment into land, which is not only for today but future. And when you buy the land, you have to do the initial facilities wherein you basically also have to take water connections, pollution permissions, power connections. So basically, it's land, common infrastructure, that is one segment.

The second segment is going to be 3,000 tonnes of salt. Third segment is going to be 30,000 tonnes of electrolyte.

And as I explained earlier, based on our request from our bankers, we are also basically -- they've also included in the INR 1,500 crore interest during this period as well as the non-usable GST and our working capital contribution, et cetera. So all of that together is the INR 1,500 crores.

[Operator]

Thank you very much. Ladies and gentlemen, we'll take that as the last question. I will 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.