Ladies and gentlemen, good day and welcome to the Neogen Chemicals Limited Q4 FY25 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference, please signal an operator by pressing star and then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, sir.
Thank you. Good evening, everyone, and welcome to Neogen Chemicals Q4 FY25 Earnings Conference Call for analysts and investors. Today, we are joined by senior members of the management team, including Dr. Harin Kanani, Managing Director; Mr. Anurag Kumara, Director; and Mr. Gopi Krishnan Sarathy, Chief Financial Officer. We will commence the call with opening thoughts from the management team, post which we shall open the forum for Q&A, where the management will be addressing queries of the participants. Before we come in, I would like to share a standard disclaimer. Certain statements made or discussed on the conference call today may be forward-looking statements. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals Q4 FY25 earnings presentation, which has been shared earlier and uploaded on the stock exchange website. I would now like to invite Dr.
Harin Kanani to share his perspective. Thank you, and over to you, sir.
Thank you, Nishid. Good evening, everyone, and welcome to our Earnings Call for Q4 and Full Year FY2025. We appreciate you taking the time to join us today to discuss our financial performance and provide an update on our strategic initiatives. I will begin with a review of our performance for fiscal year 2025. I'm pleased to report that we concluded the year on a positive note, achieving 13% revenue growth and 24% improvement in EBITDA. This performance is satisfying as we accomplished it against a difficult global industry backdrop, which led to weak pricing trends as well as a fire incident which happened towards the end of the quarter. Despite this headwind, we did observe some pockets of domestic demand resilience that helped partly mitigate the impacts.
Our ability to deliver amidst this challenge was an outcome of our agility, which was swiftly navigated by pivoting towards product applications with favorable demands like semiconductor, flavor, fragrance, and select opportunities in Axiom Pharma and Industrial CSM, among others. During the quarter and full year, both organic and inorganic chemical segments demonstrated steady volumes, while global pricing remained a factor. Our ability to capture greater market share through increased volumes underscored the strength of our product offering and operational efficiency. Now, before providing updates on expansion initiatives, let me share some important developments. On March 5, 2025, a fire occurred at Neogen Chemicals' Dahej facility, which impacted our main manufacturing plant, MPP-3 warehouse, and tank pump. While there were no injuries or casualties, the production at the plant remained suspended. We are fully covered by insurance for both asset damage and business interruption.
To mitigate the impact, we have already shifted production of certain products to our other sites, subject to customer approval, and construction has commenced on a replacement plant at an adjacent location within the same site to be operational by Q4 FY2026. While this incident has necessitated a revision of our FY2026 revenue guidance of INR 750 crore to INR 850 crore, we are taking all necessary steps to restore normalcy and minimize disruption. Following EC approval for brownfield expansion, we have more than doubled the capacity of BuLi Chemical facilities at Patancheru, Hyderabad, from 120 metric tons active to 300 metric tons active through de-bottlenecking. This enhancement of our manufacturing capability for critical organolithium compounds, which are essential reagents in the production of complex pharma, agrochemical, and semiconductor intermediates.
Further, in a major development, we are incorporating a wholly owned subsidiary of Neogen Ionics, namely Neogen Morita New Materials Ltd, subject to the name approval by ROC. The objective is to address growth opportunities in lithium and battery material space, especially related to electrolyte source needed for internal consumption for electrolyte, as well as to meet global market demand. In addition to this, Neogen Ionics Ltd is in advanced discussion with Morita Chemical Industries Company Ltd of Japan for formation of a joint venture company in India, and to facilitate the same. Neogen Ionics is in the process of formation of this wholly owned subsidiary. Shifting our focus to strategic growth drivers, I will provide update on expansion initiatives. New capacity of 400 metric tons per annum of lithium electrolyte salts and additives, and 2,000 metric tons of electrolyte for diets.
For salts, 200 metric tons per annum capacity has been commissioned, with the first approved material already shipped to the customers. Trial production is ongoing for another 200 metric tons per annum. Further expansion of salts includes 1,100 metric tons to be commissioned by September 2025, and another 1,000 metric tons by March 2026. For electrolyte, 2,000 metric tons has been fully commissioned. A major ACC battery manufacturer has commenced trial production, and commercial production is expected to begin by Q1 or Q2 FY2026, and our initial capacity is well aligned with their requirements. Update on the greenfield battery materials facility using MUIS technology. Construction is moving swiftly, with civil work, erection, and engineering phase nearing completion. The modular plant is also completed nearly, with structural work substantially finished. Concurrently, equipment assembly and installation are also towards end.
Major equipment have been assembled by MUIS and expect to arrive on site by Q2 FY26, thereby accelerating plant installation. Based on this progress, we remain on track to commission the facility by March 2026 or earlier. This project will fast-track our entry into high-growth lithium and battery material segment, crucial for India's EV and energy storage industry. By becoming a domestic manufacturer at scale, Neogen can capture substantial market share, reduce India's import dependence, and leverage our first-mover advantage with proven global technology. This strategic move not only diversifies our revenue streams and enhances our value proposition, but also positions Neogen as a critical supplier within the advanced battery supply chain, contributing to further growth and profitability. Though FY25 had its difficulties, the future of Neogen Chemicals looks promising. We are strategically positioned to capitalize on our profound expertise in multiple chemistries to fuel sustained growth.
Our approach involves a dual focus: both continued emphasis on higher-value specialty chemicals where we excel, and significant new impetus from our developing lithium and battery material segment. Overall, we are confident in our ability to continue delivering value to our shareholders through strategic execution, innovation, and unwavering commitment to operational excellence. That concludes my opening remarks. I would now request our CFO, Mr. Gopi Krishnan Sarathy, to share financial highlights for the period under review.
Thank you, Dr. Kanani. Good evening, everyone, and welcome to Neogen Chemicals Q4 and FY2025 Earnings Call. I shall now take you through the key financial highlights. Please note all the numbers are on consolidated basis and are based on year-on-year comparisons. For FY2025, revenues stood at INR 778 crore, higher by 13%. This was driven by strong volumes in the core business, including BuLi.
This growth came in spite of soft pricing environment, as well as unavailability of our Dahej plants for 25 days in the month of March. Neogen Ionics reported a revenue of INR 12 crore for FY25. The revenue would have been higher if not for the fire event, which led to loss of finished goods inventory. Organic revenue for the year stood at INR 666 crore, reflecting a 22% increase, while inorganic revenue stood at INR 112 crore. Lower bromide prices on a year-on-year basis impacted the revenue trajectory in organic chemicals. Had they remained stable, organic revenue for FY25 would have been higher by INR 81 crore. Likewise, lithium prices also witnessed a decline on a year-on-year basis. Adjusting for this decrease, inorganic revenue would have been higher by INR 16 crore in FY25. EBITDA at INR 136 crore grew by 24%.
This was driven by operating leverage from the higher volume and supported by our continued focus on cost optimization. As a result, EBITDA margin improved to 17.5% in FY25, an increase of 160 basis points over those of FY24. PAT for FY25 stood at INR 35 crore, down by 2%. PAT was impacted by the exceptional items charge of INR 14 crore for the damage caused to certain PPE inventory and estimated cost of incidental charges due to the fire incident at our Dahej facility. Let me also give you a quick summary of Q4 FY25 financials. For Q4 FY25, we recorded a revenue of INR 203 crore, while EBITDA came in at INR 36 crore. PAT stood lower at INR 2 crore, primarily due to the exceptional factors related to fire incident explained earlier.
For FY25, we incurred a total CapEx of INR 470 crore in Neogen Ionics out of the total of INR 1,500 crore planned. As of FY25, our total debt stood at INR 566 crore, while our net worth remained strong at INR 789 crore. With these remarks, I will now request the moderators to open the forum for Q&A. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. The first question is from the line of Ankur from Axis. Please go ahead.
Thanks for the opportunity. I hope I'm audible.
Yes.
Yeah, great. Okay, so first, a few bookkeeping questions there. If I look at the working capital side, we have seen a significant improvement there, led by both inventory as well as payables being higher. Your thoughts on what could be a sustainable number here on the overall basis, as well as individually inventory as well as payables?
As we have said, when we were planning to hit full utilization in FY26, we basically were targeting 140 days of inventory, 140-150 days of inventory, and around between 75-95 days of working capital of the debtors. A similar number we wanted to basically target on the creditor side so that our debtors and creditors are balanced, and we reach around 140-150 days of total working capital cycle. Long term, beyond reaching full utilization in FY26, we would like to bring this down to around 110-120 days on a standalone basis. In Neogen Ionics, we are targeting to keep it below 90 days. On a consolidated basis, we would be below 100 days is our long-term target over the next two to three years.
Sure. Just on the payable side, the sharp jump for the year-end was more a timing issue, and we should be back to that 80-90 days average, as you suggested, right?
That's right. Basically, our intention is that by basically ensuring that we are debtors and creditors are more or less balanced, and we'll keep making business decisions and operational decisions to improve the inventory price.
Sure. That's helpful. A second question on the net block here. We see a year-on-year reduction in net block, and there is a jump in the advances as well, which to my mind is because of the insurance rate. So have we written off the entire gross block there for the new asset? Just trying to understand the accounting treatment there.
Yes. Maybe Gopi can answer this question.
We have written off the asset to the extent it has been damaged, and the balance for the utility section, the ETP section, the admin building, the NAL block, all those which have been good, has been continued as is because they are in good condition. Only the MPP- 5 and the warehouse, or MPP- 3 and the warehouse, has been written off. The accounting treatment is simple. Basically, as per accounting standards, since the loss has impacted both inventory as well as PPE, to the extent it is damaged, I need to recognize the loss. To the extent we can recover, we have to recognize an insurance claim, which is also elaborated in our notes to the SABI accounts. That is what we have done here.
Sure. The construction of this plant should be done by mid of next financial year?
No. We have given a nine to 12 month target. From the incident, if you look at the prior note that we circulated, we are targeting for this plant to come online by Q4 of the current financial year. Next year, we expect the plant to be fully available.
Sure. Thank you. Just lastly, on the battery plant ramp-up, any customer approvals that we're looking at, as well as the timelines, both at the domestic as well as from the global customers, if you can share your thoughts there.
We had visits post the fire because the customers wanted to assist. They came and they saw that the battery plant was not affected, and the operations here were continuing, except for some inventory we lost, both raw because we had a common inventory storage. Some raw material and finished goods inventory we had lost. Other than that, the plant was running okay. Both were satisfied. On the India electrolyte side, it just depends on the Indian demand ramping up. We are just waiting for our customers' demand. We are fully ready. The progress which we are making in Pakhajan is also in such a way that in 2026, as we have discussed in earlier calls, four to five gigafactories would be starting, and we should be able to take care of all of their 2026 demand.
I think electrolyte business will depend only on the demand side. On the soil side, the customers have visited. They've seen the plant, and they said we wanted to do a very detailed audit. They basically planned the detailed audit in the beginning of the second half of the year. The final approval they are expecting by Q3, so sometime in Q3, where the commercial shipment should start. They've also looked at the progress in Pakhajan, that the Pakhajan soil side also we are targeting by Q4. Mostly the revenue contribution from there will start coming from next year onwards. The progress which we are making in Dahej for the soil was appreciated by the customers.
With whatever geopolitical happening, they have asked us to fast-track the capacity increase to 2,500 tons there because they want to reduce the dependence on China starting end of the current calendar year. Basically, Q3 financial year onwards, they would like Neogen to start shipping. Q4 is where they expect major ramp-up there. Electrolyte, completely, as the Indian cell makers' demand increases, we are ready to take care of their demand. They have almost qualified the plant. Only a few additional trials are needed, but otherwise, there is no challenge on the electrolyte side.
Great, sir. Just one clarification. The ramp-up on the soil side Q3 onwards is largely for the global customers, and India is already there. Is that right?
It's only global, right? Because otherwise, it's internal consultation.
Okay. Yeah, yeah. Okay. Fair enough. That's it from my side. Thank you.
Or which you like.
Yeah, yeah. Got that. Sure. Thank you and all the best. Thanks.
Thank you.
Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund. Please go ahead.
Hi. One question on this fire incident. Out of INR 360 crore of loss, how much is for inventory?
Approximately INR 160 crore to INR 180 crore would be inventory related, and the balance is the physical assets.
Okay. Second, in the battery chemical business, I have had the last two, three calls of yours. Given the last two, three years, a lot has changed in terms of the overall economics of the business. I have heard your explanation. In capitalism, no commodity we have seen in the world can have such a huge disparity for a very long period of time. For a short period of time, one country can have different prices, another can have different. Over a long period of time, things have to get at equilibrium. Do you think from the point where we had started versus today, the economics of the business have completely changed versus what we were expecting, and we need to rethink how we should see this business?
Thank you for the question. No, I fully agree with you that over a period of time, most of the countries will have to come to a more reasonable kind of numbers, which are the right numbers. We have seen that if you look at the four-year, five-year data of China, there are times where they go very low, but then they go very high basically to make up for that. Sometimes there is a period where it is average. I fully agree with you. Our view today and most people's view today is that because China set up very large capacity, not only thinking of a very bullish China trend, but international trend, they kept the prices lower.
If they sustain at this level, we have already started seeing some of the companies that are the smaller, weaker players to kind of start exiting the market. We believe eventually once, and also the demand, while it is not growing, especially outside China at a rate which was estimated. Overall, what we have seen is the demand is still growing. Energy storage is also one very strong growth area which has emerged. Overall, once the demand and supply match out, we expect the prices will become more reasonable and would be higher as compared to what it is today. It is across the value chain. If you look at the price of lithium, if you look at the price of electrolyte salts, or you look at the price of electrolyte. Having said that, we are right now into two businesses.
One is electrolytes for India, and second is electrolyte salts for the international market. For electrolytes in India, whenever we look at it, we feel we are very because one, there is a necessity that this has to be local. Even if you were to think as compared to international parity, at the same apple to apple, so let's say we are talking 10 KTA to 10 KTA demand or 50 KTA to 50 KTA or 1 KTA to 1 KTA, we feel our price is very much close to what the international price is, the landed cost if you were to consider. I think that's very much in line. If you look internationally, yes, today the salt prices are very low, and we believe these are not sustainable. The premise there was, are we the cheapest source outside China?
That still remains true that outside China, we remain one of the key cheapest sources. With whatever is happening, all the international companies, because if you think of EV, if you think of within EV, the contribution of the battery, within that, you think of contribution of electrolytes, and then you think of contribution of the salts. That too, lithium is something which is anyway fast through. If you think of the manufacturing cost of the salt as a contribution, it is very low in the overall EV or a battery price, but it is very critical. In case if tomorrow there is any disruption on supply from China, definitely they need a backup source. I think we still have that space of a backup.
As I told you, even the customers who visited, their question was, "How can you bring the capacities more faster and not any concern?" They really have that concern. We feel there's a very strong demand for a non-China supply, and we qualify for that.
See, because tomorrow your customer also has to fight with somebody for the market. Today, because of the unavailability and discomfort, there might be an aggression to get the new suppliers on board. Eventually, because there is no case study that the one commodity which is not so difficult to make can trade at very differential price versus in some other countries. There are many commodities which cannot be transported, but it has to have some parity. Maybe eventually when your customer starts facing that competition, one has to manage that. Apart from customers looking for China Plus One, is there any other advantage we Indian players have which can help us to get the required ROCE from these projects?
Sure. One is China Plus One. Second is the business model because historically, the way China works is go very low, very high. They do not work on a price plus kind of model. In fact, if you ask for them a price plus model, their price also comes very close to where our prices are, right? On top of that, I think these are two factors. You might have heard recently in our announcement that we have made significant progress in getting into a JV with one of the Japanese companies. They are in this business for the last 30 years. They have two plants in China. They are already making in China. They have made in China and supplied for the last 30 years against Chinese competition in China. We will have some of the benefit of their 30 years of experience.
Their quality is supposed to be one of the best when it comes to electrolyte salts. We now have an advantage of a better quality which leads to better performance of the final electrolyte and the batteries made out of that. On top of that, we would also have experience which will allow us to further compete in a very aggressive kind of a market. You are right that the China price today is very low, but we have faced similar situations in specialty chemicals, in pharma. There are many intermediates where China reduces the price, then they increase the price. We have sustained against Chinese competition for many of our pharma molecules by having more steady best price and giving that option where the customer makes more money over a four-year, five-year period once this price is basically recalibrated.
It's a different quality, different price model, and criticality. Everything together makes us still attractive for the customer.
Sure. I have to follow up. I'll come back in the queue. Thank you.
Thanks.
Thank you. The next question comes from the line of Abhijit Akela from Kotak Securities. Please go ahead.
Yeah. Good evening and thank you so much. Would it be first possible to just share with us the revenue breakdown for the full year Fiscal 2025, please, in terms of the bromine-based compounds, advanced intermediates, and then the CSM business?
Yeah. I think the bromine-based compounds basically contributed to roughly around 55% of the revenue. The advanced intermediates and CSM together were roughly around 25% of the revenue. I think the inorganic was around 15% of the revenue. The BuLi was around, sorry, the BuLi was around 10% of the revenue.
The conference is now being recorded.
Okay. I think it's gone to, yeah, about 105 actually. So that's fine. Maybe, yeah, some rounding error somewhere. And also just to clarify, the electrolytes or the Neogen Ionics business is part of organic or inorganic in the way we presented?
INR 12 crore. It would have been higher because majority of the salt shipments we were planning in the end of the quarter were impacted. Normal quarter would have been somewhere between INR 5 crore - INR 8 crore additional is what we would have achieved had the fire not happened.
Sorry, I think I lost your voice right at the beginning. So Neogen Ionics is part of organic or inorganic?
Inorganic.
Inorganic. Okay.
Inorganic.
Got it. Got it. Okay. Also, just one sort of bookkeeping thing. The INR 12 crore revenue for the quarter, sorry, for the full year, whereas the difference between consol and standalone revenues is only about INR 4 crore. How do we reconcile that?
Some of the raw materials, till we directly got approvals, Neogen used to import and then transfer it to Neogen Ionics.
Okay. Okay.
Yeah. Sorry, I have the revised numbers with me, what we just pulled up. So 44% was bromine derivatives, around 31% was advanced intermediates and contracts, 11% was organolithium, BuLi. The inorganic lithium compounds was 11%, and the battery was about 1%.
Thank you. On the battery chemicals business, would it be last quarter you had mentioned a revenue target of somewhere around INR 300 crore-INR 500 crore for fiscal 2026?
Yes.
Does that still seem feasible given the fact that it seems that the salt approvals are taking maybe a quarter or two longer than we previously thought?
Yeah. So that 300 to 500, the 300 distinct on that. It looks now more closer to 300 than 500 depending on this approval.
Okay. Also, the delay is because of the fire in any way, or is it just something to do with the customer schedule?
I think a little bit of both because, for example, the customer was planning, but then the fire happened. What happens is before their expert team comes for validation, they send a pre-team to look at the situation, then they come. Maybe a quarter delay because of that.
Got it. Also, for fiscal 2027, is there any rough number you have in mind? I know it's very, very far away, and it depends on the market, but any rough number we could work with for revenue battery?
Again, internally, what we are targeting is it has to be a four-digit number. We did single digit last year. We did double digit this year. The target is in the current year, we want to do three digits and the year after four digits. Again, it depends on how much electrolyte market share we get. That is one of the criteria and how the salt volumes ramp up. The capacity will be there to do the INR 1,000 crore plus kind of revenue, but how much INR 1,000 crore+ is something that we need to decide.
All right. If I just, one last thing from my side, and I'll get back in the queue for more. One is just this investment with Morita, any sort of size in terms of CapEx or something that we would have in mind? Just on the margin side, when we've guided to the INR 775 crore-INR 850 crore revenue from the big business for 2026, any dent on the margins because of maybe moving the production around within our plants or somewhere outside as well?
Yeah. On the first bit, the CapEx would be basically what will happen is that the salt capacity that we are planning, especially the Pakhajan salt capacity of 3,000 metric tons, this will be basically transferred to the joint venture, the subsidiary company. The overall CapEx would remain more or less the same. We are doing the exact alignment of Morita technology with Neogen. We have already done quite a bit, and based on that, we have even modified some of our existing plants. The exact overall impact would be done as we conclude the JV, let's say, as we conclude the JV. We will then know the exact change, whether positive or negative on the side, but we will basically see what the total CapEx which we will be doing is. Overall, the capacity plan remains the same.
The 3,000 ton which we are setting up in Pakhajan and maybe future salt capacities would be done by this subsidiary JV company is what we are targeting. More or less, we feel it should be similar to what we have guided. The total CapEx of Neogen Ionics in the battery space will be INR 1,500 crore. As we conclude our discussions and once we have aligned completely, then we will be able to see if there is any revision on the overall CapEx and the breakdown on how much will remain with NIL and how much will go in the JV. This will be provided at a later date. In reference to your second question about margins, broadly speaking, the margin should follow the same trajectory, except, as you said, we will have to move around production or do some bit of outsourcing wherever it is permitted.
Some impact of that should ideally be covered by the business interruption, the loss on profit policy that we have for insurance because any additional cost, in fact, would be. The only thing is from an accounting point of view or from an insurance point of view, I do not know when we will be able to recognize that because normally the loss on profit policy gets completed once the reinstatement is over because then you know exactly how much profit you lost, right? Most of that will happen either in Q4 or in the next financial year. We will know the exact. Any margins that we miss, we should be able to cover through that. I do not know on a quarter-on-quarter basis how it will move.
Overall, if we think of it, once we've taken that into account, the 18%+ kind of margin that we, I mean, 18.5%± 1.5% at a Neogen level, we should have that. And Neogen Ionics will be ROCE driven.
Thank you. That's very helpful. I'll get back in the queue for more.
Okay. Thank you.
Thank you. Our next question is from the line of Arun Prasath with Avendus Capital. Please go ahead.
Thanks for the opportunity. Good evening, Dr. Harin. My first question is something on this Morita JV. Can you just help us understand why we entered into a JV in the first place? Because it was not there in the past, what is the need at this point of time? What is it we are trying to do with this JV which we could not do earlier? What would be the CapEx contribution from the JV partner and all those things? Those details, can you just help us?
As I explained earlier, Morita Chemical is a 100-year-old company based in Japan. For the last 30 years, they were making this LiPF6 in China. They have been making it consistently, competing against China in China. They are supposed to be the best in the solid LiPF6 technology even within China. We felt that as we grow to 3,000 tons and then when we think of it from a future point of view, somebody who has done this business internationally. All the electrolyte makers of the world in Korea, in China, in Japan have used their LiPF6. That makes the approval process for a broader customer base much faster. They also have experience of which customer has which tendency, which customer expects more stable price and benefits.
That also is something that we have been, that is something that is going to be beneficial. Also, having worked on this for almost 30 years, their quality systems, their process systems also will be better, as well as the safety systems to handle AHF at such a large level. All of these experiences which they are bringing. Of course, while we can make it, it is the same thing like Mitsubishi, right? We can make the electrolyte, but with Mitsubishi, we can do better. Similarly, while we can do with Morita's help, we can do better. Their technology is superior.
When we are talking of higher salt, because before it was electrolyte and salt was only for our own internal consumption, we say, "Okay, we can do international business." When we want to make salt as a focus business area, then somebody who has done it for the last 30 years would be also which will add a lot of value. Almost all non-China customers, the three Koreans and the two Japanese electrolyte makers, whether they are doing business in the U.S. or not, they have used their LiPF6. We basically can work together. We also get some capital which is coming in a strategic form. That also helps. They are constantly updating the technology. The speed at which also we can update technology and keep track of that.
We felt this was something which we were discussing for a long period of time. We felt just as Mitsubishi, when we did, it gave a lot of comfort to our customer. Same thing, we felt that this is also something which can give us superior technology. As a joint venture partner, even more than just a licensed technology. I think considering all of these, this was something which we discussed for a long period of time. Because it was a joint venture, many things which we needed to align. It took its time, but we feel it will really consolidate because now you have somebody who has the China experience, who has all the customer approvals. With the same technology, we are meeting in India, a non-China base.
It will be one of the lowest costs outside of China is what we feel. If the China price is same, where they are doing a fair pricing, we can even match basically same as Chinese technology and prices on a fair comparison.
Okay. So out of 5,500 tons, 2,500 tons will be based on our own technology, and 3,000 tons will be from the Morita JV, right?
Sorry, the 2,500 tons is basically some bit of salt and also additives. This JV is specifically to electrolyte salt. The majority of that 2,500 tons is going to be with the additive part, which is what we will be doing. Even the salt part there, the technology, while the plant is already partly already designed or partly already constructed and remaining under construction, we will try, and Morita will also support us on the improvements there, whatever we can. The new plant will be built from scratch completely as per their technology. Whatever salt we are doing, the main salt LiPF6, that will be directly exactly Morita technology or with the help of improvements suggested by the Morita technology. The additive continues to be our own technology. Electrolyte 2,000 metric tons in Dahej is own technology.
The 30,000 tons in Pakhajan will be basically Mitsubishi technology.
Right. Dr. Harin, just again, I'm coming back to this. I'm sure you would have been discussing this with Morita for a long period of time. Throughout the last year, we were very confident of making salt with our own R&D capability and tech. What pushed us towards this JV? Is it customer feedback, or are commercials now much better? I just wanted to understand the decision-making part of getting into this JV.
We were discussing with them on technology collaboration or JV almost the same period of time since we started Mitsubishi discussion. This is something which we were discussing for the last two and a half, three years because we knew that this would be beneficial. It is the same thing like electrolyte. We can make on our own. There is no change in that, but we can do better with their experience. The same thing like electrolyte. This is something which we were discussing. As against the technology license, they were very clear in the beginning because they also needed a non-China facility. You understand that technology licensing is one decision, and a joint venture is a bigger commitment and a bigger decision. It just took us longer for this to happen.
In the past, also, if you remember, three months, six months, or even nine months ago, we said that we have some balance equity which we need, but our preference is through strategic. We always felt that these kind of JVs where we get strategic money is beneficial for us because we get the commitment from them, and then we are doing it together. This is not something which was decided in three or six months. It just took us a bit longer than Mitsubishi to get it to conclusion.
Okay. And this JV is 50/50 control or 51/49? How should we understand this?
It will be significantly controlled by Neogen. It will be much more than 50% of Neogen. Majorly Neogen control. Exact percentage we will share. It will largely be owned by Neogen.
Majority control.
Majority control and above. Yeah.
Understood. Secondly, on the guidance you provided, Dr. Harin, with INR 300 crore which falls under the lower band, it seems like even if we start by the end of Q3, only from salt, if we have to make INR 300 crore for this year, utilization should be much higher, right? It cannot be like a very phased-wise increase in utilization. Probably a lot of 70-80% utilization should be there in the SI26. Then only we can get this kind of a revenue.
This is not from salt. That is total. 300-500 was total. It is electrolyte and salt, everything together.
Oh, okay. Electrolyte, we are not looking to export during this year.
No. So 300-500 is the total guidance we had given for Neogen Ionics. Electrolyte will be from India's requirement. As you know, one gigafactory is now getting streamlined. Second one is likely to start by the end of the year. Another, at least one more, will start before in the Q4 financial year. We are expecting at least three customers requiring electrolytes before end. The demand of these three, as well as salt in the second half, together should be able to do. We had initially guided INR 300 crore-INR 500 crore. Now it looks a little bit more closer to around INR 300 crore.
Is there any rough breakup in 300 between salt and electrolyte revenue?
I think let me get back to you on that. I think approximately we had targeted around INR 150 crore-INR 200 crore of electrolyte and INR 150 crore-INR 200 crore of salt.
Of the salt.
Yes.
The electrolyte part depends upon the local manufacturer's readiness.
That's right.
Understood. On the.
These will be more in the second half as compared to the first half.
Understood. Understood. On the export side, we spoke about the customers who need to do the field audit by Q2. This we are talking about a couple of customers or multiple customers? How should we look at it? The nature of these customers also, can you help us understand? Are they battery manufacturers or OEMs? If it is battery manufacturers, do they need further approval from the OEMs? These kind of details please help us understand.
Whatever we are doing, at least in the U.S. market, it's battery manufacturer plus OEM. They are basically both aligned on this. It will be actually electrolyte maker, battery maker, and OEM, right?
Okay.
This takes into account all of that.
Okay. So basically, battery manufacturer is who will be taking the final shot of giving an approval?
Sorry, I'm not able to.
No. Whatever the approval given by the battery manufacturer, that stands final irrespective of what the OEM says.
No, no. I'm just saying everybody is aligned in this. That's the only thing.
Okay. Okay. Our customer is the battery manufacturer, not the OEM.
Anyway, I would not like to specify more here. We would absolutely be selling it to the electrolyte makers, but we would have several, all the electrolyte maker, the battery maker, OEM, everybody is aligned.
Understood. Is this field audit a final step in the overall approval process, or is there anything else apart from this as well?
Basically, post-field audit, the actual in-battery manufacturing trials will start.
Okay. That is approximately how long the field audit?
They will do the field audit. There will be large-scale trials in actually making the batteries out of that and any additional trials that people want to do, the customers would like to do.
Okay. So all this can be completed in this time?
We do have participants awaiting their turn. The queue requests you to please rejoin the queue for follow-up.
Sure. Sure. Thank you.
The target is to complete it in Q3, just to answer your question.
Thank you. Ladies and gentlemen, in order that the management is able to address questions from all participants in the queue, you are requested to please restrict yourselves to two questions per participant. You may rejoin the queue for follow-up questions. We have the next question from the line of Arjit from Novama Institutional Equities. Please go ahead.
Hi. Good evening, sir. Thanks for the opportunity.
Sir, I have a few on Morita and the JV that we are working on right now. The first one is when the MUIS deal had happened, I think we were proposing that there will be a mix or rather a good mix of some recipes that we will get from MUIS, and it will also be supported by our technical expertise in making the electrolytes. Now it seems, as we have indicated, that Morita will be taking care of the salts bit. MUIS will be taking care of the electrolyte bit. We obviously will be more like a manufacturer or executor of all this at the end of the day. It seems like a good trinity in the making of three companies working together. Has this all been worked out well?
Because the salts that you probably would have made earlier, you would have had some discussions with MUIS with regards to what grades and keys and purities that you will be providing. Now with Morita coming into the picture, does that change anything materially? Anything that you might want to comment on how these all three of us will work together?
Basically, Neogen is, like you said, right, before, that Neogen can make the salt. We've demonstrated our ability to do that. We will send samples to customers who approve them. We've made electrolytes for the last now two and a half years, and none of this is from the Mitsubishi plant. We are already, but we are using Mitsubishi because we feel we can learn from their three decades of experience. Just like Mitsubishi started, one of the founders of making electrolytes in Japan. Similarly, Morita is one of the founder person in the LiPF6 or electrolyte salt. We are very happy that both of these guys have trusted Neogen. While it's not public, they are both from Japan. They've worked together in the past.
The customers are even, and even our existing customers also, they have even now more confidence just as before we were having. With Mitsubishi, it gave the added confidence to the customer. Now Morita coming on board gives more confidence to especially future customers. Having Morita, one of the advantages of having Morita is because they have used Morita quality LiPF6 for especially the Japanese and the Korean electrolyte makers. They have used it for decades. They bring that confidence also along. Not only that, very deep understanding of also China market, having played in China for the last 30 years and competed in China against Chinese for the last 20-30 years.
Sure, sir. Just the pricing bit that we were discussing earlier, I think I was reading somewhere that electrolyte prices now are ranging somewhere between $9.50-$10. And I think from what I heard from you before, Morita does have this experience of manufacturing and selling in China, which I'm presuming that will be far more cost competitive. That is what kind of brings them on our table with regards to their manufacturing expertise. Would that still be low enough in terms of cost of manufacturing or production? At this price point of dollar realization, when electrolyte prices have fallen so much, we would additionally need some government support going ahead?
Now that we already have PLIs and all these things in place, would the ancillary companies like us who are into battery chemicals or battery materials at these price points that we were discussing earlier through an earlier participant because the business dynamics have changed and stuff like that, do we think that Morita's technical experience would in itself bring so much capabilities to reduce the cost, or do you think that more government intervention is required?
First of all, you asked about whether Morita can help us reduce the cost. I mean, look, the better technology and the better technology that we have, whatever is said and done, when you think of manufacturing costs in China and manufacturing costs in India, that is always going to be different. Again, our stated goal, and Morita is aligned with that goal, is that we should basically target 20% ROCE kind of on the business. Whatever benefits which we can bring will pass on to the customer. Again, we do not want to commit to a specific price point. With their 30 years of experience, that will definitely help. Second point is, in none of our business, we have basically expected or planned based on government support.
We're not basically banking on any government support or subject to a government support, the business model is possible or not. As you said very clearly that in electrolyte, we have to supply locally. We will supply one of the lowest costs available in India, good quality, international quality electrolytes. We have seen positive customer feedback on not only the quality of electrolytes, the transparency, and the business model. Same goes while electrolyte salt is mostly for the international market, what we are going to do with Morita, as well as our own internal consumption. I think with having Morita with 30 years of experience gives us a lot of confidence. As I explained earlier to Arun's answer, we are not waiting. This is not something which has triggered in the last six months, nine months.
It's something which we are discussing for the last two, two and a half years. It just took longer time because a joint venture is a much bigger commitment as compared to a technology license. It just took us that much longer for everything to fall into place.
Sure, sir. That answers a lot. Thank you. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Rohit Nagraj from B&K Securities. Please go ahead.
Thanks for the opportunity. Again, apologies for hopping on the same issue. First, in terms of the 400 MTP capacity which we had worked on in terms of electrolyte salt, then the next about 2,000 tons of TPA capacity. Now the Morita technology, which will again give us some capacity from LiPF6. All these three products are different. How is the user dynamic for all these three products?
Okay. See, what we basically have was electrolyte salt and additives and some intermediates of electrolyte salt. We were totally planning 2,500 tons in Dahej , which was a mix of additive and electrolyte salt and the intermediate. We were planning 3,000 metric tons in our Pakhajan facility, which is for only electrolyte salt. Basically, the additives and the electrolyte salt, they are basically very similar. They are lithium compounds. We have to purify lithium. Then we have to make some basic simple lithium salt like lithium fluoride, lithium chloride. From lithium fluoride or chloride or a very high-purity lithium carbonate, then we basically go and we make the electrolyte salt or electrolyte additive. The difference between additive and electrolyte salt is just how much it gets used.
Usually, the electrolyte salt is used between 10%-15% in the formulation. The additive is normally used between 1%-3%. That is the only difference. Otherwise, your end customers are the same, and the dynamics remain the same. The pricing for the additive is a little bit higher, and a slightly lesser number of people make the additive as compared to the electrolyte salt. These are the different dynamics of the two.
Okay. So the 2,500 metric tons salt and additive would be different than LiPF6, which will be with Morita?
No, no. LiPF6 is also included in the 2,500 tons.
Okay. Fair enough. Fair enough.
We started making salt and additive both. Salt, as our own electrolyte plant comes up, we will need more capacity. Salt, we are increasing capacity in Pakhajan because the international demand of this is much, much higher. If we are doing in Pakhajan, we can quickly ramp up. In case of additive, we are already setting up in Dahej. Right now, we have not announced any capacity increase of additive in Dahej. If we feel the demand increases, the volume increases to the level where we cannot support in Dahej, and we need to go to Pakhajan, then we have environment approvals even in Pakhajan to make the additive also.
Yes. Got it. Second question on the numbers. For FY 26, our legacy business will have about, say, INR 800 crore of revenue and additional INR 300 crore from the battery chemicals. Effectively about INR 1,100 crore± , sorry, INR 1,100 crore± kind of growth. What could be the EBITDA margin that we are looking? Slightly similar question for FY 27. Given that the affected plants will be up and running, we will again close to maybe INR 1,000 crore, INR 1,100 crore from the legacy business. You said about INR 1,000 crore, which is aspirational number from the battery chemicals. Effectively about INR 3,000 crore of revenue for FY 2027. In both the years, what is the kind of margins that we are looking at at the EBITDA level?
Yeah. For FY 27, I can give you clarity faster.
As you said, there will be a full utilization of our new facility because it will be fully available. Demand-wise, we are already seeing a demand like around INR 1,000 crore-INR 1,100 crore kind of a demand will be there. For FY 27, we will target somewhere around INR 1,000 crore-INR 1,100 crore kind of a revenue. At a full utilization level, those EBITDA should be 18.5% ± 1% is what we target in our base with that. For the INR 1,000 crore revenue, for INR 1,000 crore+ , when I say it is not the number, I am just saying it will be something more than INR 1,000 crore. It is too early for me to say because we need to understand how the electrolyte demand in India basically pans out. That will be clear as we get more closer towards the end of the current year.
But the exact EBITDA percentage will depend upon many factors like utilization level, what are the lithium prices. There we have given a guidance of a full utilization at 2,000, sorry, at full utilization, the revenue of INR 2,500 crore-INR 2,900 crore at a 20% ROC. Depending on the price of lithium, the EBITDA ranges from on the lower side 15%-16%, on the higher side going upwards of 20% depending on, but for our INR 2,500 crore-INR 2,900 crore kind of a revenue projection, which was at a normal lithium price, the EBITDA percentage margins were in 16%-18% kind of range. That is on FY 27. On FY 26, as I explained earlier, the INR 750 crore-INR 850 crore kind of revenue, like 750 to 850 crore, the revised revenue projection due to fire, what we have given, normal EBITDA margin would have been 17%-18%.
But like I said, because of impact of fire, and we have to do operations at different plants, some bit outsourcing. So combination of that, there will be some impact on the margin. That should partly get covered by our loss on profit. But whether that will be applied in the current year or that will be applied in the next year, depending on the insurance systems and accounting policies, that is something which is not very clear to us.
Fair enough. Just one question from the modeling perspective. In terms of the capitalization of assets or investments during FY 26, what are we looking at? So there will be one capitalization which will happen because of the plant reconstruction and in between the projects which are likely to be getting commissioned from the salt side. So on a broader basis, how much amount of assets will be capitalized?
Just to get a perspective on what could be the depreciation amount. Yeah.
Yeah. So totally we are expecting the whole all the lithium CapEx is likely to be completed by March 2026. So that's around INR 1,500 crore will be fully capitalized. On the plant side, we are expecting whatever is the replacement value of this. The loss was around INR 170 crore. Somewhere around INR 200 crore-INR 225 crore as a replacement value is where you would have a full capitalization.
What could be the mode of funding for this entire CapEx?
We are at a very advanced stage for completing the insurance policy. The funding for the MTP and our insurance is on a reinstatement basis. Any additional capex, everything, that will be taken care of from Neogen's own, sorry, from the insurance outflow. Any temporary funding needed, our banks have said that they can give us some temporary loans. Most likely it will be from insurance by the side of it. On the battery side of it, this is already tight that the equity we had raised as well as the bank term loans, so long-term loans which we have from both our phase one and phase two. On top of that, now we will also have the JV partnership, so some money coming in also from the JV partnership contribution. All these will be the mode of funding for the battery business.
Sorry. Last bit. In terms of FY 2026 exit, what is the kind of debt that we are looking at? I understand that probably for the MTP3, there would not be any debt because whatever insurance claim comes in, probably it will get knocked off with the investment that we are making. Excluding that, on the battery chemicals and plus the working capital front, what is the exit rate that we are looking at?
We have seen at Neogen Chemicals, you would have basically similar debt levels at present. It will be that roughly around, yeah, no, total debt would be around INR 450 crore-INR 500 crore in that.
Including working capital.
Including working capital. Yeah.
Including working capital.
Yeah. Around INR 450 crore at the Neogen level. At the battery Neogen Ionics level, roughly around 70% is funded by the bank. Totally from INR 1,500 crore, 70% of that. Somewhere around INR 1,100-INR 1,200 crore would be funded by debt.
Sure. That's all from my side. Thanks a lot for answering all the questions and all the best.
Okay. Thank you so much.
Thank you. Ladies and gentlemen, you are requested to please restrict yourselves to two questions per participant. We have the next question from the line of Nilesh Ghuge from HDFC Securities. Please go ahead.
Yeah. Good evening, team. Just one bit of question on this CapEx. As you mentioned that around INR 1,100-1,200 crore will be funded through debt. For FY 25, you already incurred CapEx of about INR 470 crore on your Pakhajan Greenfield facility. In this INR 470 crore, how much was the debt part?
Gopi, do you have the number?
Yeah.
Basically, the debt is in two parts. We have already one is a TCD, which is my equity contribution, which is already gone. I have another INR 150 crore, around INR 150 crore drawn from the project loan.
Yeah. I think basically INR 150 crore is from the debt. Yeah.
Okay.
Yeah.
Okay. Yeah. Okay. Thanks. Thanks a lot.
Nilesh, are you done with your questions?
Yes. I'm done.
All right. Thank you. Our next question is from the line of Jason Soans with IDBI Capital. Please go ahead.
Yes, sir. Thanks for taking my question. I just wanted to understand. I mean, of course, earlier you alluded to, I mean, we have a really, really good improvement in the working capital. This has reduced quite dramatically. Now I understand there must be definitely a big impact of the fire in it as well because you said the inventory, etc., gets written off as well. I just wanted to understand if you've done some analysis, excluding the fire, what measures have we taken, something with the suppliers or something like that to improve our working capital? Just excluding this fire event because that will be a one-off thing. I just would want to know what is the sustainable impact of this.
Yeah. Excluding fire, as you have seen, we have done several things to basically work on our debtor cycle as well as our credit cycle. That has already happened. We were also more mindful this year because, as I told you the year before, we were just ramping up our production. In between, we had to change from working from one set of customer to another set. When agro kind of slowed down, we had to move to pharma and other industries. This was some changeover that we had to do. Other than that, I mean, even after you take the fire impact, you can see that overall there is an improvement. I think largely still, I mean, we basically maintain the stock levels at a similar kind of level.
Even after impacting for fires, in terms of number of days, etc., and our debtors and creditors both improved. Together, we were able to do better. I think, as I explained in one of the earlier questions answered, long term, we want to have a policy in place where we can at least manage debtors and creditors so that they can balance each other by securing better credit terms and funding products. For the stock and the inventory, business is working so that we have more larger molecule, more visibility. Over a period of time, we can improve that.
Sure, sir. Thanks for that. I just wanted to, I mean, if you could, I mean, you do speak about a 20% ROCE in your battery business. Are you working with some kind of steady-state realizations for the salts and electrolytes? I mean, considering the lithium prices, the low lithium prices. Just would understand if you are working with some steady-state realizations for both the products.
What we have done is, we have done for the last 40 years business with Thermax to make lithium bromide and with some other customers for the lithium salts, which are for the non-battery market. In this, what we have seen beneficial both from a customer point of view and our point of view, and to sustain a long-term relationship, is to have lithium as a price proof. Almost all non-China customers really appreciate that because they know we are not making price money on lithium price fluctuations. That is something which is very transparent. We are mostly working on what is Neogen's efficiency on conversion. This is the way we have done it.
The salt business, that whatever agreement we have signed, where we have basically kept 20% ROCE, of course, subject to Neogen hitting the manufacturing costs and the operating cost targets. The consumptions have to be correct. The EEs have to be correct. If we get whatever we have targeted correct, then we can basically earn the right to get a 20% ROCE on the salt business. Electrolytes, so far, we have not yet signed contracts. The majority of the pricing discussions with the customers are on a very transparent basis that, look, as we increase capacity, we will keep reducing the per metric ton margin because my CapEx per metric ton is going to reduce. I think this is really appreciated by the customer and is one of the differential factors when we work with both local as well as international customers.
There is no number which I can predict on the realization because lithium price fluctuation affects significantly, especially the salt. Electrolytes, the impact is a bit lower because the lithium content per kg consumption there is much lower. In today's scenario, all the other raw materials in electrolyte also are depressed prices. We pass on that to our customers because we do not want to play on price differential in one market versus other on RM. We want to basically earn our margins through our technology, through the processes, and through controlling cost in the right way.
Sure. Okay. So totally both the businesses will basically targeting a ROCE of 20%.
Correct. Yes. That is the target. In salts, we have been able to already conclude, while the volume is not 100% confirmed kind of contract. But whatever price understandings that we have, right, pricing mechanisms that we have concluded, they basically ensure the 20% ROCE. For the electrolytes, we still, because the customers, as they get closer to their ramp-up, but in principle, that concept is accepted by the customer that everything else has to be priced through. We need to discuss mostly on Neogen's contribution point.
Sure, sir. Sir, just wanted to understand the gross block has reduced. The gross block is reduced. Is that only because of the fire? Or is there any other reason? That's the reason.
That's the only.
Okay. That's the only reason. You mentioned that Neogen Ionics has a top line of INR 112 crore or INR 120 million. When you do a simple minus to minus, the subsidiary revenue is around INR 40 million. What explains the difference here?
I explained to earlier call that there were some raw materials which were needed, which were initially bought by Neogen because Neogen had a stance to get credit as a lithium. And then they were transferring it to Neogen Ionics. This you will see in a three-month, six-month, nine-month also, right?
Okay.
Some raw materials. Now, as Neogen Ionics stands on its own, the business becomes regular, then the customer, the suppliers will give directly credit to them. There are some intercompany transfers, which is what explains the INR 8 crore there.
Okay. Sir, just lastly, wanted to understand. You mentioned INR 300 crore for battery chemicals and INR 26 and 1,000 crore. Is that a sort of a guidance?
More than that.
Is that a sort of a guidance or are you just, I mean, it's just, are you guiding for INR 300 crore battery chemicals and INR 27,000 crore for battery chemicals?
Yes. We have already guided for INR 300 crore-INR 500 crore guidance on battery chemicals. As we discussed in our call, we will still look at a INR 500 crore number. Based on the discussions we had on a call, it looks more closer to around INR 300 crore is what we are saying that across the first half, we will be able to give you a better. The second is just kind of a number. It will be more than 1,000. The guidance, more specifically as a guidance, we will let you know maybe as we get more closer, once we have clarity on India battery as well as once the supply starts to our customers.
Okay, sir. Thank you so much for answering all my questions. Thank you.
Thank you. That was our last question, ladies and gentlemen. I would now like to hand the conference over to the management for closing comments.
Thank you all for participating today. We hope we were able to answer your questions. Our investor relation team is available for any further questions you may have. We appreciate your time and look forward to speaking with you again next quarter. Thank you again.
Thank you. On behalf of Neogen Chemicals Ltd, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.