Q1 23/24

Aug 7, 2023

Ladies and gentlemen, good day and welcome to the Neogen Chemicals Q1 FY24 earnings conference call. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishad Solanki from CDR India. Thank you, and over to you, sir. Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals Q1 FY24 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 Surana, director, and Mr. Ketan Vyas, chief financial officer. We will commence the call with opening thoughts from the management team, post which we shall open the forum for Q&A, where the management will be addressing queries of the participants. 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 may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals Q1 FY24 earnings presentation, which has been shared earlier. I would now like to invite Dr. Harin Kanani to share his perspectives. Thank you, and over to you, sir. Thank you, Nishad. Good afternoon, everyone, and thank you for joining us on Neogen Chemicals Q1 FY24 earnings conference call. We reported our first quarter financial results on Saturday, 5 August 2023, and subsequently circulated the result documents. I trust you had an opportunity to glance through them. I will begin by taking you through the performance highlights, expansion initiatives and key updates, following which our CFO, Mr. Ketan Vyas, will share the financial performance. I am glad that we have continued the momentum and entered the new financial year on a promising note, especially on a backdrop of challenging global scenario, aggravated by persistent inventory destocking, swift reopening of China, continued pressure from Russia-Ukraine conflict, as well as slowdown in several developed markets. All this has led to softening of raw material costs and resultant realization, thereby impacting the volume offtake for the industry. Given the resilience of our business model and quality of the product offering, we are partly insulated by this impact, the credit for which goes to our team who remained agile and traversed through this headwinds. Let me underline that the demand for our products continued to be robust and visibility going forward also remains positive. Now let me share a quick summary of our consolidated financial performance for Q1 FY2024. Revenues grew by 11% to INR 165 crores, while EBITDA came in at INR 28 crores, higher by 14%. Profit after tax stood at INR 10 crores. Increase in top line was in line with incremental capacities added in organic and inorganic chemicals through brownfield expansion. Growth in EBITDA was a combination of softening RM prices linked to lithium and favorable business mix. In Q1 FY2024, we registered strong gains of 35% in organic chemical revenue, led by both volumes and better realization for select products over last year. Whereas inorganic chemicals reported a degrowth of 25%, largely on account of lower prices of lithium raw material as compared to Q1 FY2023, while volumes remained intact. In an important achievement, Neogen Ionics Limited, 100% wholly owned subsidiary of Neogen Chemicals, housing the battery chemicals business, made its first commercial sale of trial quantities of electrolyte. This is just the beginning of our ambitious foray in battery chemical segment. Separately, during the quarter under review, BuLi Chem commenced commercial production and sales under Neogen Chemicals. While revenue was not very meaningful in Q1 FY2024, this is expected to significantly increase from Q2 FY2024 and in the second half give full year realization. Our agreement with MUIS is taking concrete shapes, and we expect the design work of the new plant to be concluded before the end of this year as planned. Moving your attention to several other updates during Q1 FY2024. Firstly, on electrolytes, we are in active discussion with three to four Indian cell manufacturers, where commercial terms, including discussions around Memorandum of Understanding, is being considered. We are hopeful of positive outcome from the ongoing discussions. Even for lithium electrolyte salt supplies, we are engaged with more than 10 international potential customers, thereby giving us the confidence and visibility for assured volume offtake. Based on demand projection and future visibility shared by our customers, we may consider setting up higher capacity of both electrolyte as well as lithium electrolyte salt, which will be communicated in due course. Considering the above developments, enabling resolutions have been proposed for equity raise. Now, a quick update on the expansion plan. Our CapEx initiatives are progressing well. Brownfield expansion of specialty organic chemicals by 29 meter cube will be commissioned by March 2024. While 31 meter cube has already commissioned by Q4 FY2023 and has started contributing. Expansion of inorganic chemical capacity from 15 meter cube to 30 meter cube in existing inorganic MPP was commissioned in March 2023. The positive contribution of which will be visible during the current year and will receive full utilization in next two years' time. For battery chemicals, new capacity of 400 MTPA for manufacturing lithium electrolyte salt and additive is expected to be commissioned before September 2023, while plant for manufacturing 1,000 metric ton of electrolyte at Dahej facility is expected to be ready before December 2023. This is in line with battery capacities coming up in the country. Once commissioned, we expect our growth trajectory to accelerate in both existing business and battery chemicals. Overall, we remain positive on the long-term prospect and maintain our revenue guidance of INR 900 crore to INR 1,050 crore by FY 2025/2026 in existing business and INR 1,000 crore to INR 1,200 crore by FY 2027 in battery chemicals. Revenue projections for battery chemicals is being considered for revision post MUIS agreement as highlighted previously, and will be in a better position to comment on this by end of the year. Let me conclude by saying that we are excited on the next phase of growth that lies ahead. Our CSM business, especially as we indicated in flavor and fragrance, is also progressing well. Also the first trial productions of several agrochemical customers are also going as planned in the current quarter, which will allow us to build pipeline for next quarter. We are now poised to garner a significant share in battery chemicals given our domain expertise. Various initiatives undertaken in the past will bolster our offerings, strengthen our market position and relationship with our valued customers. Neogen will continue to leverage its expertise in complex chemistries and R&D to deliver sustained performance and enhance value for all stakeholders. That ends my opening thoughts. I would now request our CFO, Mr. Ketan Vyas, to share financial highlights for the period under review. Thank you, Dr. Harin Kanani. Good afternoon, everyone, and welcome to Q1 FY 2024 earnings call. I will take you through the key financial highlights. Please note that these are on consolidated basis and based on year-on-year comparison. In Q1 FY 2024, revenues grew by 11% year-on-year to INR 164.9 crore, in line with incremental capacities added recently. This came on the backdrop of significant global headwinds like inventory destocking, reopening of China, and slowdown in EU and other markets. Organic chemicals saw revenue growth of 35% year-on-year at INR 121 crore, whereas inorganic chemicals noted a decline in revenue by 25% year-on-year at INR 44 crore. As highlighted by Dr. Harin Kanani, this captures the impact of lower prices of lithium raw material as compared to the same quarter in the previous year. The domestic and export mix stood at 65% and 35%, respectively. EBITDA increased by 14% year-on-year at INR 28.1 crore, driven by decline in raw material prices, especially of lithium and other input costs, along with favorable business mix. PAT declined by 12% year-on-year at INR 9.8 crore. The moderation was on account of higher finance cost and depreciation from the ongoing expansion initiatives. This was also impacted by initial costs associated with the restarting of BuLi Chem facility and administrative related expenditure related to Neogen Ionics Limited. That concludes the financial highlights. I will now request the moderator to open the forum for Q&A session. 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 touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Nilesh Ghuge from HDFC Securities. Please go ahead. Yeah. Hi, Harin. My first question is on the end user industry-wise. Can you give us the end user industry-wise revenue mix for this particular quarter? For this particular quarter, the pharma was between 50%-60%, and agro and engineering was roughly between 15%-20%, and then around 4%-5% were rest of the industry. Okay. Harin, on the long-term contracts, earlier you always guide us that you have two long-term contracts. Yes. One in CSM business and another into bromine derivatives. Yes. And you used to guide us that about INR 300 million to INR 400 million kind of a revenue on the lower side and about INR 700 million to INR 800 million on a higher side. Can you just tell us how much is currently revenue we are getting on this long-term contract and where are we, at what stage? Yes. In this long-term contract, I will not be able to give you specific number, but, as we had said, the bromine derivative customer was a pharma customer, and they were expecting a launch. We are seeing year-on-year their revenues increase. In the agro, till last year, the revenues were increasing. This year, we are still yet to receive a PO, but we are expecting a bit slower because, in there, we are seeing a more stronger Chinese competition. Okay. But together, they will contribute, again, around INR 40 crore, INR 50 crore plus, so INR 400 million, INR 500 million plus kind of a volume in this year based on whatever projections we have received so far. In fact, it might exceed a little bit more than that. Okay. When you are guiding in your base business, you are saying that INR 950 to INR 1,000 kind of a revenue. Any another addition in the long-term contracts or it is just based on your- No Excluding long-term contract? For the long-term contracts, as I mentioned earlier, we are currently in this year doing what we call as a first trial production for four to five agro customers in Japan and one or two flavor and fragrance companies. These might lead to then long-term contracts. Again, it will depend because what we have seen is, they might get into a long-term arrangement, but if the value is not more, they might still give us PO to PO. They will still add to our CSM business, but might not lead to a contract. But yeah, if the value is higher, then we will get into a long-term contract with them. But from a CSM point of view, these four or five customers currently this year, we are doing 1 ton, 5 ton kind of a trial production. Then these will start contributing from next year onwards in a more meaningful way. But that will support our CSM business, in addition to the existing contracts and the existing customers that we already have. Okay. Thanks, Harin. Yeah. Thank you. The next question is from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead. Hi. Thank you for the opportunity. I had a few questions. My first question is, I see that the finance cost has gone up. Could you quantify what would our total debt be at this point in time, and how much would be the term loans and how much would be working capital related debt? Also if you could give the working capital days as it is today. Maybe just on the debt side. The increase is also being because so far, the capitalization which we have done last year of all the CapEx which we have done, that has now started contributing, which was earlier getting capitalized. This is one of the criteria. We will not be able to give you the exact number of days, but more or less, they are in line with the numbers we had last September to December. They are a bit higher in terms of number of days as compared to March because the revenue is a little bit lower as compared to our last quarter. But in terms of absolute numbers, they are more or less in line with whatever was there in earlier quarters, slightly higher as compared to March, and in terms of days, in terms of absolute numbers. Could you quantify the gross debt right now? As on June end, sorry, you have the number? Okay. The total gross debt was somewhere around INR 450 crore to INR 500 crore, in that range, as on June end. Okay. You had mentioned that some assets got capitalized, which was also explained why the depreciation went up. Which assets are we talking about? In last year in March, our organic capacity, 50% of that has already came online, and also the lithium capacity already has also come online. That was capitalized in the month of March. Both these are already contributing to the depreciation. As well as, in July came the land that we hold. That is also basically a lease land, but in that also in India, the lease also has a depreciation component of that. That gets added in depreciation part. Got it. My next question is on our battery chemicals business. In the last call, we had mentioned that we're looking at about 18% kind of EBITDA margin, and just wanted to understand the basis for this number because, when I look at some of the global companies like Tinci from China, they seem to be making a higher EBITDA margin. Just want to understand the basis for the steady state margin that we're thinking about. Okay. Again, I don't know if you're talking of Tinci, maybe. I don't know if Tinci actually also owns mines or they have something like that. They have their own mine or they are backward integrated, and they do some other raw materials also. What happens is in that case, your EBITDA is higher and your asset turns are lower. Correct? I think you should look at this EBITDA and asset turns both together. As we've guided that we are doing lithium carbonate to, let's say, electrolyte. So lithium carbonate to first simple lithium salts, complex lithium salts, and then finally the conversion and formulation to electrolyte. When we are looking at this piece of portion, we look at the investment, we look at a 20% kind of a ROI. Then, we are looking at EBITDA around 18%, is what we are looking. Now again, as I said, this is first time this is happening in India. Electrolyte is something which is very fragmented. If you look at the market in China, it's a different condition. In U.S., it's a different condition. In Japan, it's a different condition. This is our assumption of what it will be in India. Based on that, we are guiding of this 18% plus kind of an EBITDA. We feel it is at least that much. We'll try to always get better because we have to do a significant investment. The more we can get, we'll be able to keep reinvesting in the battery material business. Got it. Just one final question. The salts capacity that we have, I think the last call you had mentioned it will be primarily for the export market. Does that approach still remain? China is very large in the salt market, but basis your discussions with customers, from people from the industry, are there issues around the quality of the salts that come from China? No. We got some more clarity, and as we mentioned also, our interaction on the lithium salt in the international markets have also increased. We got a fair sense of where we are as against China. A couple of things that we have understood is that, there are some, like we have PLI scheme. Similarly, in U.S. also, there is some act called IRA Act. As per that, there is a requirement for some of these companies to decouple from China. In fact, if any OEM makers who want the government subsidy on the final EV vehicles, they have to make sure that their supply chain of the critical minerals is basically decoupled from China. In this view, there is a lot of interest from these companies. Whatever numbers that we have seen, we feel that, also in U.S., there is a duty on top of normal duty, there is also some additional duty which is there if you are importing this from China. Therefore, considering all of that, when we are looking at it, we are not very far off from the pricing point of view. The main question which we had earlier is that, can we be competitive? We are seeing we are there in the ballpark. But, again, once we have the new plant starting of the salt, that is when our customers will be able to then test it. Overall, the international testing period, initial some samples would be three months kind of a period. But, let us say for a longer test, it could be around a six-month period, by which time then the customers can commit for a longer term contracts and things like that. But we have seen lot of interest internationally for the salt capacity, and we are seeing also lot of international customers are interacting with us. Yes, if that happens, then the salt capacity that we were planning, as I have shared earlier, we have to put the salt capacity for the electrolyte, as well as we have to put the salt capacity for selling anything outside. By December, once we complete the design with MUIS, and by that time, we hopefully can also get a better clarity on the MoUs which we are discussing with our customer and get some volume commitment. So then based on that, once the capacity for electrolyte will get decided, based on that, our capacity for the salt requirement in India will get decided. And in parallel, we will also get a clarity on what is the international demand looking like. So with that, we will come up with our final CapEx plan. Got it. But so my question was on quality of the salts that come from China. Would you say that, purity wise, that it is at par with India or there are instances wherein the quality could be poorer? Yeah. No, so honestly, what happens is, look, 95% of today's batteries are being made from LiPF6 made from China. Of course, in China, there are many different grades. There are good manufacturers, and there are cheap manufacturers. So sometimes the guys who are making cheap, their quality is sometimes a challenge. But there are good manufacturers who are currently part of the supply chain, and honestly, it is Neogen's turn to actually prove that our quality is at par with some of the best in China, Japan, and Korea. So this is what is a challenge for us. But in China, there are guys who are good. So the main reason why people are considering other than China option is mostly because of the regulatory scenario and de-risking. So these are the two main challenges. Got it. So I will join back in the queue. Thank you. Thank you. The next question is from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead. Yeah. Hi. Thanks for the opportunity. First, this on the revenue. I feel like the standalone revenue in consol revenue, the standalone number says higher. Sir, the line for you is not very clear. I request you to please use the handset. Hello. Much better. Yes, please go ahead. Yeah. I was asking on the revenue. Your standalone revenue is higher than the consol revenue. Can you throw light on that? Sorry, your voice was gone. You said revenue what? I didn't get you. The standalone revenues are more than the consolidated revenues. Basically in anticipation of this BuLi Chem happening, before the handover happened to us, we had imported some of the raw materials for that, partly which were processed in Neogen and then transferred to BuLi Chem. But in BuLi Chem, complete conversion had not happened. This was just one time thing to basically facilitate the transfer. That's the reason why because of that inter-unit transfer, the standalone revenues were a bit higher, but the consol was a bit lower. Okay. What would be the quarterly fixed cost for BuLi Chem going ahead? It is difficult for me to give you the fixed cost, but as I said, even there, we will expect kind of an 18% plus kind of an EBITDA, because again, we are seeing a very good demand. In last 3 months, we have received inquiries from Korea, Japan, Europe, and even U.S. We were originally targeting pharma and agro, but we even got some industries which we were not aware, demand from there. We are looking at it positively. In fact, in the first few months, not only India's customers are slowly restarting purchase because they have already some POs with others in pipeline, now they have started shifting back to us. We even got some international POs and have started working internationally, giving them the trial supplies for conversion. Hopefully, in Q3, Q4, we expect that with the India demand and with the international demand, we should be seeing already a full utilization. Then depending on how this goes, we will take a call if we need to further increase capacity for next year. Okay. Sir, the last thing on the trial quantities of electrolyte which you have supplied, is it to the 3 or 4 customers you are in talks with or this is to some other customer? Yeah. It is a mix. There are some customers who have not started the MoU discussion, but they wanted some initial quantity. It is few lakhs. It is not a very large number, but we already made a start. We had one international customer as well as one domestic customer to whom we have started now giving small quantities for their trial plant. With one of them, we are now also discussing a long-term MoU, and the other one is still having only their trial plant. Their bigger plant is still taking time, so we will start. But there are a few others who have already made a progress. There are a few people who do not have a small facility, they are directly building a large facility. These guys have already started discussing with us for their requirements, and we hope, if the requirements which they are saying goes as per what we are expecting, with these two people as well as few others, even in Q4, we will start seeing contribution coming both from our Neogen Ionics salt as well as our electrolytes. Okay. Thank you and all the best. Okay. Thank you. Thank you. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead. Hi, Dr. Harin Kanani, sir. Thanks for the opportunity. Sir, if you can just add some supplementary things on this battery chemicals project. From what I heard from previous participants was largely on the international markets, wherein you are seeing a very good traction. If you can share your learnings as to how we are seeing this progress in the domestic market, which is where we are largely going to plan the sales of electrolytes. Basically, this is on the lines of what we had anticipated before, that before the PLI benefits kick in, there will be some amount of capacities for the gigawatt facilities that we are targeting. Are these on stream or there are any delays here and there, and how would that basically change what we are looking in terms of revenues by maybe FY 2026 or FY 2027? Sure. Thanks for the question. As what I have seen earlier, we still reaffirm that there is no change, that there are maybe some people who may start in 2024, and most of the other people will start in 2025. They will all start with about 1 gigawatt-hour or 1 to 3 gigawatt-hour kind of initial capacity in 2024, 2025. The guys who start in 2024 will have a ramp up in 2025, and the guys who start in 2025 will have a ramp up in 2026. That first jump will happen in 2025 or 2026. My expectation is by 2026, all the people who are currently planning, who have shown their investment intentions, would be operating, let's say, at least between 5 to 10 gigawatt-hour kind of capacities. Then 2027 and 2028, they will all basically double their capacities or even faster rate, depending on. Based on whatever we have said or whatever we have seen, that's the reason why we've maintained our guidance. In addition to that, and this is again, still considering electrolyte demands of India, and based on whatever we had estimated earlier, if we get a higher market share, as we start doing this contract, then, we will see. We are seeing some of the customers said that in the beginning, because of their technology partner's requirement, in the beginning, they might get some quantities from, let's say, China or Japan, wherever the technology partner was, when they want to prove that the cells and the plant is working well. But they all said, after initial quantity, it is not sustainable and we have to localize. They have shown keen interest for localizing it and to work with Neogen. Based on that, now we have started working on a more detailed contracts with these customers. Again, MoU, they are happy to sign, but again, what kind of a minimum commitment they can give, or these are the things which we are basically working on, so that we have at least some better visibility on the demand. The main challenge is, for them also, it's happening new, so therefore that commitment is a challenge. What if the project gets delayed and stuff like that. That's why we are working with how we can resolve it in a comfortable way, and then basically proceed based on that. We feel, again, in the next 3, 4 months, we'll have a better clarity from these customers, and that's why by the time we get the design from Mitsubishi, by the time we get from this, we will be able to decide exactly on our capacity. The 1,000 MTPA, which we have said, our effort is that from 1,000 MTPA, we can directly go to the Mitsubishi plant. The first 1,000, which we are starting in December, we'll start with that, and that should take care of the people who are starting in 2024. But for 2025, depending on exact time, we might have to maybe increase this 1,000 a little bit. Depends on the timelines of the plant which we are building with Mitsubishi's help. This is something which we'll keep reviewing, and hopefully around October, December. Let's say either our September call is the good scenario or definitely, let's say by our December call, which is in January, we should have a more concrete information on the capacity also. Great, sir. Thanks for this. I have a couple more. One again, sir, on the international markets, especially in the supply chain, that we are hearing of a lot of dumping that you also mentioned in the initial remarks. Given that since you're seeing this localization trend within the battery chemicals division, would it be fair to assume that because China, as you said, 95% of the batteries are using the LiPF6 or battery materials from China. Would dumping also impact this particular chain that we are trying to target with? Sorry, I didn't understand the question. Dumping where? Dumping, sir, in LiPF6 globally. Are you seeing any effects of that or is it that because of a largely more B2B kind of a setup and the localization trends that you were talking about, most of it will be insulated and we may not have China to pose a very serious problem despite having very high production capacity. Sure. Actually, the way I said, I said actually anti-dumping kind of duties, not dumping by China. In U.S., they have identified some countries of risk, and if you are importing the critical battery material from there, you have to pay some additional 20%, 25% cost. That is what I meant that, while they have a volume, but because they have the duties, therefore, let's say India, if you're supplying from India, our product becomes more comparable to the landed cost of the Chinese because if you are importing from India, you just have a normal custom duty. You don't have this higher duty. That is what helps us compete against China in international markets. When it comes to India, we don't plan to make the salt. We basically want to make the electrolyte and almost all the companies have said that they want to ensure that the electrolyte is basically bought locally. Now, within electrolyte, let's say LiPF6, if they want the value addition, the people who want PLI or maybe there will be future PLIs. For the future PLIs also, if the value addition becomes critical, or let's say in India also there are some custom duties, the LiPF6 also has to be made in India because otherwise you will not meet the value addition criteria. Also from a supply security point of view also it makes sense. That, we make directly from scratch, from directly lithium carbonate to electrolytes. This is something which is really appreciated by the customers. What we have seen is, because LiPF6 is only 10% of the cost. Because it is only 10% of the cost, I am sorry, 10% to 15% by volume, not cost. Therefore, on an electrolyte level, the impact gets reduced and the logistical advantage and the security of supply advantages that we have can be better managed at the electrolyte level when we are thinking of the India market. Understood, sir. That is quite elaborate. Thank you. One last bit, on our potential capital structure. I can see that along with the enabling resolution for fundraise, we have also proposed to the board that you might want to extend our borrowing limit to INR 1,000 crores. What would our capital structure be? What is the kind of debt to equity we are looking at? Not in the interim, obviously, given that we are expanding capacities, but any broad outlook on the capital structures? That would be helpful. Thank you. Yeah. We still stand by that we would like to basically make sure that we remain debt equity below 1.25. That is kind of our limit, and ideally we like to be below one. That is why along with the increase in the borrowing limits, we also increased intention to basically raise equity. Again, both these are just enabling resolutions, so they are all on a higher side, what we feel can be maximum required. We will keep checking on that. Based on that we will take a call and balance so that debt equity remains, let us say, below 1.25 as we plan our expansion. We are also discussing with some customers where they can part-finance the plant and stuff like that. Not domestically, but international customers where there is an interest rate arbitrage also, and it further reduces risk on our side, but we will see how those go. Sure, sir. Thanks a lot for answering all the questions, and all the best. Thank you. Thank you. The next question is from the line of Yash Shah from Investec. Please go ahead. Hi, sir. Thank you for the opportunity, and congratulations for a good set of numbers. Sir, my first question was regarding a development which happened in China. They have launched first in the world lithium contract with global physical delivery. We would like to understand the impact on us. What are your views on that, sir? Sorry, can you repeat your question? First time they have done what? They have launched a lithium contract with global physical delivery. Okay. I think what you are basically meaning is like forward contract kind of a structure in the lithium market, right? Yeah. I think so far, majority of the industry is still not yet caught on to that, and if at all it becomes, it just helps you hedge your risk better. However, what we have seen is that whenever we are talking of these large volumes, the lithium companies are anyways very happy to link it to a contract. This is ultimately for us, it is always going to be back-to-back. If my lithium mining guy says, "Hey, we can get into a 5-year contract with a minimum volume kind of a commitment, and you have to basically change the price every quarterly," my LiPF6 customer or electrolyte customer is basically going to be able to do that. If my customer wants to do the hedging, then we will also do the hedging. It just gives or increases the options that we have to control our prices. Got it. Got it, sir. Sir, my second question was regarding our current capacity expansions. If I notice across all our 3 segments, organic and inorganic and the new business, which is the battery chemicals, basically our completion timeline has been increased by a quarter or 2. What is the primary reason there, sir? Is it because of the macro headwinds which we are facing? Can you elaborate on that, sir? For us, it's just couple of months actually. We had said our battery capacity was basically going to start sometime in June, July. Instead of that, it is basically starting the salt capacity starting in August, September. Basically our phase 1 is likely to start by August, and the phase 2 of that. There are 2 stages. Stage 1 will start in August, and stage 2 is expected to start by September for the salt. For the electrolyte also, earlier we had said September, October. Against that, we are now seeing November, December. This is something which new we are doing, and just couple of months delay on that in this. As regard to specifically the organic where you are seeing almost a 2-quarter jump. There, we were basically waiting for this project that we are currently executing to complete. Then based on that, take a call exactly which kind of reactors we want to offer. The capacity which we've been adding last year and this year, it's not just adding more glass-lined and stainless steel reactors. We are fine-tuning it to different chemistries we want to do. Let's say if you want to do more organolithium, or if you want to do more fluorination, or if you want to do more pressure reaction. Depending on how these projects move, that's the reason why we took a call that already the ones on which we had clarity, we installed it. The ones which are remaining, we wanted the current trial runs to get over, let's say in this quarter and next quarter. Then based on the visibility that we get from the customer, like which customer is interested in the larger volume, with those customers, we will basically try to add capacity in Q3 and Q4. That's why we've delayed that a little bit. Got it. Got it, sir. Thank you for such elaborate answer. Sir, my next question was regarding the bromine prices. If my understanding is correct, please correct me, sir. That on the contrary to the price erosion which has been happening in the industry, bromine prices have in fact increased this quarter. Do we expect to see any kind of benefit in absolute profitability in the quarters going forward because of the bromine prices increasing? So actually, first of all, bromine is our raw material, right? Like I said, we always get into annual contracts. So this year from a bromine point of view has been bit of a challenge for us because with the international guys, we basically get into contract in December and January. With the local companies, we get into contract in the month of usually April and May. So this time what has happened is in December, January, the price was different, and in April and May, the prices are corrected very significantly. Yes, this year is a little bit. So if we average it out, I would say most of the time this long-term bromine really help us, but this time it's going to be a bit of a challenge, but it's okay. It just gives us the stability and most likely what we expect usually by around November, December. So by Q3, Q4, our average price will be almost similar to let's say whatever. Because again, as you rightly said, the bromine prices hit their bottom and now slightly started kind of going up. But we feel on an average, when we look at the whole year, our average will be similar to what the market average has been. So we are not seeing any positive if the prices is increasing. We don't see a direct benefit of that immediately. Got it, sir. One last small question, sir. Regarding tax rate, so this quarter we had a tax rate of around 29%, and we had previously guided that we will have a tax rate of between 22%-25% for the whole year. So, do we maintain that guidance and the tax rate will be lower for the rest of the three quarters then? Yeah. So our understanding is that, I think it was around 27%, but we'll have to just check that 29% maybe on the consol level and there might be some difference. But we feel, again, little bit it was also because you've seen our exports are a bit reduced, so from Dahej the export sales were a bit lower. But we feel for the whole year, we should be in that range between 22%-25%. Perfect, sir. Perfect. Thank you for answering all my questions, sir, and all the best. Thank you. Thank you. The next question is from the line of Sabyasachi Mukerji from Bajaj Finserv Asset Management. Please go ahead. Yeah, hi. Thanks for the opportunity, Dr. Harin. So my first question is, you mentioned this 10 international potential customers that we are within dialogue. These are electrolyte makers or are these cell manufacturers and which geographies are these customers, if you can highlight? See, broadly they are Japan, Korea, and U.S., and some in Europe, but mostly these three countries. They are a mix. They are electrolyte producers, cell producers who want to control their whole supply chain. They have somebody who will make their electrolyte in the international, but they still want to discuss directly for who they will buy LiPF6 from. Are they procuring from their respective geographies and as well as a second source or a third source they are approaching us? Is it that way? Mostly many of them are dependent on China and some are a mix of China plus Japan or China plus Korea. Now they want to also add India because in Japan and Korea the capacities are not increasing to the level which they need because it is very difficult and very costly to increase the capacities there. They are increasing, but not to the levels which they want. There are more capacities also which are coming in U.S., but that is going to take a longer period for them to come online. Whereas we are coming online one of the first outside these three countries and also the cost-wise also we seem to be competitive. This is why there is interest from them to develop India. Got it. My second question is on the BuLi Chem revenue. Yes. I think last call you mentioned that we are probably looking at somewhere around INR 50 crores to INR 75 crores in this current fiscal. Yes. You want to change that number or is that looking upwards or some color on that? No, so at least for now I will maintain that number, that we are looking at that number for the year. If things go really well, then we might be able to do a little bit more, but at least that much we should be able to do. It will also depend on what is the lithium prices. So current lithium prices, we are somewhere between INR 50 crores to INR 75 crores. We are at about INR 60 odd crores or something like that. We will see where it goes. Also, whatever we have lost in Q1, in Q2, we feel will be better and in Q3, Q4 we will make up for that, so that for the full year we achieve that revenue potential. Right. Lastly, on this two quarter delay in the balance capacity addition in the organic chemicals reactor. Yes. You clarified that you are just waiting for the current pilot project to how it pans out and probably which customer, which chemistry you are waiting for. My question is, where do we see that we will be kind of running out of capacity in the organic chemicals post this expansion by March 2024, and we will have to kind of think of the next phase of CapEx in our organic chemicals and what would be that size approximately? Sure. Our full capacity utilization we were expecting somewhere by 2025 or 2026. Let's say, looking at current global scenario and other challenges, we assume FY 2026 as a full utilization kind of a condition. Sometime in end of FY 2025, early FY 2026 because next will be a brownfield expansion. Sometime end of 2025, early 2026 we should be looking at further capacity addition. Now we will have to see whether it is the incremental capacity or if we have some large projects then we have to go for a whole block. Now, if the block is the same size as our existing, then roughly it is somewhere around INR 150 crore-INR 200 crore kind of investment, which basically gives us a revenue visibility of around INR 300 crore-INR 400 crore. That will be additional one. But again, we have to see at that time what the pipeline looks like and take a decision. If required, if the situation remains the same or by that time also, we can take a pause also. We want to make sure that it should be optimized and we are fully utilizing our facilities and only once we have a very clear visibility of full utilization, we will do a major further capacity expansion in organic. Got it, sir. Last question for Mr. Ketan Vyas. What would be the absolute inventory number at June end? It is a similar level at what we had in March. Okay. Thank you. Thank you. That's all from my side. All right. Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead. Yeah. Thanks for the opportunity and congrats that we have started the sampling exercise. My first question is, you mentioned in the opening remarks that we will be ready with the designing part by end of this year. Is it calendar year 2023? An allied question to that, how much time will it take for us to put up the plant in terms of, I understand there would be some technical people coming from Japan during the erection phase. What is the timeline that we are looking out from the plant commissioning perspective? Thank you. Sure. Yes, that is end of calendar year this year. As we had said, sometime between October to December, I think I was being more optimistic on October. We still keep pushing. We feel, let's say by November, December, we will be having the final design ready from our technology partner MUIS side. In terms of execution, we are expecting from the time the design gets finalized, it will be 15-18 months, by which the plant will be ready. We can start our trial production of that. We expect sometime in 2025, sometime basically in FY 2026, the new capacity should come online. Sure. Second question is from the R&D perspective. Given that we have already started the sampling exercise, we probably will be getting the recipes from MUIS collaboration. How are you segregating the time and efforts in terms of from the R&D new product perspective on the legacy business and on the electrolyte and salts business? What is the plan that we are looking at in terms of further product basket expansion? Thank you. Sure. In terms of our R&D, we have a dedicated separate team which is basically taking care of the lithium-ion battery materials and a separate team which is basically taking care of the organic production. Basically this entire battery materials team was added in last two to three years. So there is no conflict that, okay, this is more, that is less. We are also expanding our R&D capabilities. So that work, the admin part is over and before the end of this year our, let's say, R&D capacity will also be two and a half to three times of what is our today size. Again, the main increase in the capacity, the way we are planning to use is that we feel by this time we will start having some innovator CSM projects. So we will have some teams dedicated for the larger innovators. Sorry, I meant the larger innovators with whom we have started working. So maybe some will be additional CSM projects from these larger innovators. We are also going to increase our work in lithium and battery material space. The third, which we will also planning to consider is to expand our capabilities around the BuLi acquisition that we did. So in terms of main thing that we have there is our lithium metal handling ability. So how we can use this in other molecules and other applications where lithium metal gets used. So that is going to be also something which we will keep working on. So that going forward. But again, most of this, the additional activities will start in next financial year as our R&D team expands and R&D space expands and R&D team expands. So this is what we are looking going forward. Sure. That's helpful and best of luck, sir. Thank you so much. Thank you. We have the next question from the line of Anirudh Shetty from Solidarity Investment Managers. Please go ahead. Hi. Thank you for the follow-up opportunity. Sir, you had mentioned that the opportunity to de-risk from China is there with the IRA Act. You have done an interview with BloombergQuint where you had also mentioned that there are some challenges as India doesn't have FTA, but there was a critical mineral treaty in U.S.A. I just wanted to get more color around those points that you mentioned. Yeah. Basically China has a problem, because there are two challenges for China. One is the additional duties. The second is, because of being countries of risk, if you don't have that, if you are buying significant quantity from China, then you will not be able to get the benefits. When you buy from India also, the negative part is not there, but there is no positive that you bought it. But the duty part still remains. The 25% duty still remains, right? That's basically the understanding. But at least India is not on the negative list, right? That is one good thing. If you are on that negative list, you'll have to pay 25% extra duty. We don't have to pay that. Got it. Is there any dumping duty on China in European countries as well, or it is just U.S.A. right now? So far as I know, in U.S., in Europe, I am not aware yet if there is a provision like this in Europe. Because, again, in Europe now there were no batteries being made. So Europe is like a similar situation as India. They are also starting, only they are maybe a year ahead because they could get capital and clarity and the government action was a bit faster. As we said, they are starting in 2024, 2025, and majority people will start in 2025. In Europe also, it is similar situation. The plants are starting 2024, 2025, but they are starting at a much larger capacity from the beginning. So Europe is a little bit ahead, but that is why the rules around that are not yet framed because there is no major electrolyte production anyways happening in Europe, currently. All of this will start in 2024, 2025. This 2024, 2025, 2026, the three years are going to be very critical world over in all the geographies where the entire reshaping is happening. Because, from the time after COVID, when the world decided, okay, EVs are good and we want to go to EV. That thought started in 2021, 2022. You know, any implementation project takes two to three years when you are starting from scratch. That is why these 2024, 2025 years are critical. I think by 2026, we will have a major new kind of alignment, per se, of the new supply chain all over the world. This is our estimate. These three years are very critical if you want to do something in battery supply chain. Got it. Samay, second question is, in the market there could be an inflection point wherein the electrolyte demand could really pick up in India. If you all have to expand, say, from 1,000 MTPA to hypothetically 5,000 MTPA, how long does it take to set up new capacities? The market opportunity is much bigger. You all can grow even larger than 5,000 MTPA over time. How do you think about securing your lithium carbonate sourcing at a larger scale? Do you all have that kind of visibility right now, or that will be something that you all will have to build as you go by? Sorry, I got your question, but is it sourcing of what? How do you do sourcing of? Your raw materials, your lithium carbonate. Okay. Yeah, so for lithium carbonate, the capacities exist. We have given various projections, including cathode material, what India requires, and we are fairly confident we will not have a bottleneck on lithium. Because we have very good relationships with the top two, three producers. They have a lot of comfort in India. In fact, even the lithium companies want India to kind of develop because they are also currently very heavily dependent on China. It is also very difficult and very painful sometimes for them. Because China sometimes plays many, many games, which they have to unfortunately live with, because today the majority of the demand is there. So even they are quite keen of this new alignment because then the world can do business in a more stable way. In China, you have extreme lows and extreme highs. Whereas rest of the world usually works on a more lesser kind of a deviation. As the supply chain gets distributed, so the lithium that they are selling also gets distributed, and their dependency to sell it in China, the way Chinese like to do business also reduces. So they are very happy to support India or Neogen at least, if I can say, and they are keen to work with us. Of course, the only thing is, if we want commitment from them, we have to give them commitment. It is as simple as that. My customers have to decide that do they want to remain open or do they want to secure? If they want to secure, we can get that security, but ultimately the customer will also have to give a commitment. So the customer ultimately makes the choice between security versus commitment. Accordingly, once they make the choice, we can always source lithium for them. That's not going to be a challenge. Got it. And sir, on the ramp up, you all have to ramp up from say, 1,000 MTPA. Is the gestation period to get the next phase, how long does that typically take? Usually our expectation is, let's say, around 12-15 months. But again, this is in the beginning. I think in the electrolyte it will be a bit faster. In electrolyte salts, it will be a bit lower. I mean, sorry, it will be a bit longer. Mainly reason being that, the number of equipments involved and when we prepare the site, we can always have some common infrastructure ready, and then we have to do only equipment order, something like that. We'll take a view. The first one is going to take a bit time, but luckily we also have time because, one, my Dahej can take care of the immediate requirements. I mean, for example, if somebody wants 2,000 MTPA or 4,000 MTPA more, in my Dahej side also, I can increase. I mean, if it's international business, I mean Dahej side also, I can increase capacity and take care of that in 12-15 months time. But once we have the new greenfield, it will be planned in such a way that we can do a faster increment in future. Got it. Sir, okay, great. Thank you for taking my questions. Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments. Over to you, sir. Thank you all the participants 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 in the next quarter. Thank you. On behalf of Neogen Chemicals Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.