Q4 22/23

May 15, 2023

Ladies and gentlemen, good day, and welcome to the Q4 and FY 2023 earnings conference call of Neogen Chemicals Limited. 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 the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishit Solanki from CDR India. Thank you, and over to you. Thank you. Good evening, everyone, and welcome to Neogen Chemicals Q4 and FY 2023 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, 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 statements. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals' Q4 FY 2023 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, Nishit. A very good evening to everyone, and thank you for taking time out to join us on Neogen Chemicals Q4 and FY 2023 earnings conference call. Hope everyone is keeping safe and in good health. We reported our financial performance on Saturday 13th May 2023, and subsequently circulated the results documents. I hope you had a chance to glance through them. I will take you through the performance highlights, update on expansion initiatives, and several developments that occurred during the period under review. FY 2023 was a landmark year for us. Not only did we report a solid financial performance, but also relentlessly worked towards executing several critical opportunities that would lay a strong foundation for our ambitious growth plans. We entered the year on a challenging note, mainly influenced by Russia and Ukraine conflict that disrupted the global supply chain and resulted in steep inflation in raw material costs, utilities, and adverse movement in ForEx rates. I am glad that we stayed nimble and navigated through this pressure to report a healthy performance in a difficult operating environment. I would like to thank all our employees who displayed resilience and supported us in this endeavor. Let me quickly summarize some of the key financial highlights for the year. Revenues grew by 41% to INR 686 crores as guided earlier, while EBITDA came in at INR 112 crores, higher by 29%. PAT stood at INR 50 crores, an increase of 12% year-on-year. Performance was steered by incremental contributions from expanded activities and demand for strong lithium derivatives, favorable product mix change towards value-added products as well as lithium prices. We continued to witness sharp volatility in input and logistic costs, volatility in pharma demand and lithium prices, which we were able to pass on to our customers with some time lag, thereby protecting the absolute earnings. For FY 2023, we reported 28% increase in organic chemical revenue, which was largely volume driven, while inorganic chemical revenue grew by 90%, a large part of which was on account of significant increase in the prices of lithium raw materials and the balance was contribution by new customers that we added during the year. Having said that, RM prices linked to lithium have pulled off post Q4 and impact of which will be visible in the current year. I will now share some crucial developments that occurred in this quarter, which will steer our performance momentum going ahead. Firstly, we acquired 100% stake in BuLi Chemicals India, which owns the technology to manufacture n-butyl lithium and other organolithium products using lithium metal. This acquisition was completed on 3rd May 2023, pursuant to which BuLi Chemicals has become a wholly owned subsidiary of Neogen Chemicals. The acquisition is expected to significantly boost Neogen's portfolio by offering lithiation reaction to existing customers as well as new pharma and agrochemical customers. In addition to this, we will further strengthen and help scale up the advanced intermediate and CSM manufacturing business. Secondly, in a major development, we signed a landmark agreement with MU Ionic Solutions Corporation, Japan, MUIS, a Mitsubishi Chemical Group company, to acquire technology license for manufacturing electrolytes in India. This is a historical development for us as MUIS, a global leader in electrolyte manufacturing, has issued its first-ever license to anyone in the world, and they have chosen Neogen Chemicals. This will bolster our growth initiative in the battery chemical space. It will ensure that our electrolyte plant meets the stringent global standards for quality, reliability, safety, and efficiency, while helping greatly in reducing the approval time for lithium ion battery makers. Both these developments are a testament to our promise and commitment towards building a solid foundation for the future. I believe this will significantly strengthen our competitive position in the market as we expand our R&D prowess across several chemistries to offer deep value to our customers. Moving to our expansion plan, our CapEx initiatives are underway and well on track. We have increased our reactor capacity for specialty organic chemicals by 31 meter cube in Q3 and Q4 FY 2023, and additional 29 meter cube will be added by September 2023, as per earlier plan. Within inorganic chemicals, we completed the expansion of our lithium salts to install up to 2,400 metric tons, which is coming from 30 meter cube of reactor volumes by March 2023, one quarter ahead of schedule. For battery chemicals, the new capacity for 400 metric tons per annum for manufacturing specialty electrolyte salts and additives will be commissioned by June or July 2023, as per earlier guidance. The manufacturing plant for 1,000 metric ton of electrolyte at Dahej is also expected to be ready by September 2023, as per our earlier guidance. Further to this, we have started basic engineering work for the expansion project announced in the previous quarter, and the same is being planned in a phased manner. However, post our announcement with MUIS, some of these projections around battery chemicals, including the capacities and revenues will change, and we will come back to you in couple of quarters to share further details around that. Our planned efforts to increasing the contribution of advanced intermediates and custom synthesis and manufacturing is on right track, and we are witnessing higher contribution from value-added products that require multiple steps. In line with this, we are strengthening our R&D competencies. During the year, we added 82 new customers which contributed 7% to our revenue, both within India and globally, taking our total customer tally to almost close to 1,550 customers. In advanced intermediates, 1,500 customers. Currently, we have totally 245 products in portfolio and additionally working on 25 new products in our R&D, which has a potential future demand potential of almost close to around INR 2,000 crores. Let me conclude by saying that we are prepared to embark on the next phase of expansion, showcasing our proficiency in multiple intricate chemistries and manufacturing capabilities at a larger scale. The demand situation remains favorable, and our goal is to sustain this profitable path of growth. 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. Hari. Good evening, everyone, and welcome to our Q4 and FY 2023 earnings call. I will take you through the key financial highlights. Please note that these are on standalone basis and based on year-on-year comparisons. In Q4 FY 2023, revenues grew by 30% year-on-year to INR 203.9 crores, and FY 2023 they grew by 41% year-on-year to INR 686.2 crores. The company achieved its highest-ever revenues driven by higher contribution from expanded capacity, consistent demand situation, and a positive shift in the business mix towards value-added products. Organic chemicals saw revenue growth of 39% year-on-year at INR 138 crores in Q4 FY 2023, whereas inorganic chemicals revenue increased by 14% year-on-year at INR 66 crores. In FY 2023, organic chemicals saw a growth of 28% year-on-year at INR 463 crores, whereas inorganic chemicals grew by 80% year-on-year to INR 223 crores. The domestic and export mix for Q4 FY 2023 stood at 55% and 45% respectively. EBITDA increased by 22% year-on-year at INR 32.6 crores in Q4 FY 2023, and 29% year-on-year at INR 111.6 crores in FY 2023. The company managed to achieve better EBITDA performance even though there were considerable fluctuations in input prices, utility costs, and adverse ForEx movements. This can be contributed to a positive shift in the product mix. Although there was increase in cost components, it was broadly in line with expansion of revenue and when viewed as a percentage of overall revenue, the cost remains stable. Coming to the PAT performance for Q4 FY 2023, it stood at INR 14.3 crores and in FY 2023 it increased by 12% year-on-year to INR 15.1 crore. The company's PAT performance remained robust despite several challenges. The finance costs were higher due to ongoing expansion initiatives and higher interest rates compared to the base year. Moreover, the depreciation was high related to incremental reactors added during the year, which has not yet reached full utilization yet. Net debt after including current maturities of long-term debts stood at INR 255 crores in FY 2023. To remind on strong performance during the year, the board of directors has recommended a final dividend of INR 3 per share for FY 2023, subject to shareholders' approval. Those were the key financial highlights. I will now request the moderator to open the floor 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. We have our first question from the line of Saurabh Kapadia from Sundaram Mutual Fund. Please go ahead. Yeah. Thanks for the opportunity. First question on the BuLi Chemical. Is there any seasonality in the business or the revenues will be equally distributed in the quarters? Hi. Whatever we have seen so far, this should be more or less uniform because it goes to pharma customers. However, the BuLi Chem people were actually focusing only in the India market, whereas we have an opportunity to also sell this internationally in markets such as Japan, Korea and Europe. We are still not yet aware if there is a seasonality or if the revenues in the international market would be a bit lump, depending on our business development activity. But at present, we can estimate that, let's say, maybe this quarter we just completed the acquisition and now getting ready to start operations, importing the raw material and other things on our own. But from Q2, Q3, Q4, you should see more or less uniform revenues coming in. Okay. Sir, what is the utilization level for that plant and what will be the peak revenue, what we can achieve from this current capacity? This n-butyl lithium is heavily dependent also on lithium prices. Subject to lithium prices, it will be somewhere between INR 50 crore to INR 125 crore kind of a revenue potential, depending on how much lithium prices move forward. For the current year, I expect now lithium prices have cooled down a bit, so I expect somewhere around INR 50 crore to INR 75 crore revenue contribution coming in additionally from this business. Okay. Sir, coming to our business, what is the utilization levels for the organic capacity and by when we should reach optimum level? At our peak utilization with our existing installed reactor capacity was somewhere around INR 150 crores per annum, and we are at around INR 130, INR 135 crore kind of revenues as you see from our results. In addition to that, our new reactor capacity is coming online. With this new capacities coming online, we should be somewhere around, the total peak revenue potential would be INR 175, INR 180 crores per quarter kind of organic revenue potential. However, I think, our capacity is coming online by September, and maybe sometime in FY 2025, we can reach this peak revenue potential of, let us say, close to around INR 175, INR 180 crores, sometime in FY 2025. Okay. Lastly, on the working capital. Now if you look at the working capital has further deteriorated compared to last year. How we should look at improvement, by when that improvement will come to? Basically as we have stated in our last two calls that we were going through a significant change and increase in our capacity, increase in product mix, and due to that there was a higher working capital requirement, especially when we are getting the capacity to full utilization levels. If you see, for example, our inventory increased drastically from almost INR 189 crores in March 2022 to INR 282 crores by September 2020. In that first six months we did a revenue of around INR 300 odd crores. Now in the second half, we increased it further from INR 300 crore to INR 400 crores, but the inventory has remained more or less stable. Basically to sustain the current level of business, we need somewhere around INR 280 to INR 300 crore kind of inventory. But as our utilization improves and as we reach our peak revenue potential, in terms of number of days we will improve. It is our target that, if you look from even September to March, we have improved almost by 25 days and by let us say FY 2024, our target was to reach inventories levels of around 120 days on net sales. So we will again target the same, that by FY 2024 we will reach peak utilization in our Dahej and other facilities. And we hope to reach about 120, 125 days on the net sale basis inventory levels. More or less similar to what we had in FY 2021. Okay. Thank you. All the best. Thank you. Thank you. We have our next question from the line of Nilesh Ghuge from HDFC Securities. Please go ahead. Yeah. Hi, sir. My question is on the tax rate. In our earlier conversation you guided that for FY 2023, the tax will be in the range of a 25% plus or 20% plus or minus. But if I look at FY 2023 number, the tax rate is about 29% plus. Can you guide us on how the tax rate will be in coming years? Yeah. We have completed majority of our CapEx in Dahej, and when we do higher CapEx, it creates that additional depreciation, et cetera, which does not give us a tax level significant profit, which is basically contributing to a higher tax rate. Since we have now completed majority of the CapEx with Dahej in Neogen Chemicals, and now we have only limited CapEx remaining, our expectation and with Dahej now reaching full utilization levels, over the next two years, we expect to first start around 22%-25%, and then later on move to 20%-22% tax rate over the next two financial years. This is our estimate based on our current projections for Dahej. Okay. On the top line guidance, I know that you're continuously guiding us on FY 2024 top line, but with the recent acquisition of this BuLi, 100% acquisition. Can you just guide us on the FY 2024 and then FY 2025 top line number? Sure. I think, originally, if you remember, our FY 2023 guidance was around INR 600 crores. And we have done INR 686 crore, but that was mainly driven by historically very high lithium prices, which is what we basically passed on to our customers. If I were to do a correction of that, we would be somewhere closer to INR 600, INR 615 crores, in that range. Now, in the current year, we have currently seen the prices have reduced drastically and come down very close to what the original prices were, although they are still higher than the original prices. Previously we had given around FY 2024 target of around INR 750 crores of revenue. With the acquisition of BuLi, what we estimate is at least INR 800, INR 825 crore kind of a revenue coming in on the stable lithium prices. Depending on how the lithium prices fluctuate above, it might be somewhere closer to around INR 850, INR 875 or in that range. Basically, what we are looking, if we remove the lithium price correction, we are looking at a 25%-30% growth in our regular business, including the BuLi business. Similarly on our EBITDA also, we expect around 25%-30% increase over our current year EBITDA performance. Okay. So that means at a- The exact top line will depend upon how much lithium fluctuates during the year. Correct. Absolutely. Is my understanding correct, just correct me if I'm wrong. As you mentioned in your initial comment that lithium prices are already corrected but still on an elevated level. So with that current lithium prices, you are guiding INR 850 to INR 860 for your base business, but expects BuLi? No. I was saying, see, our base business was supposed to be around INR 750 crore on stable lithium prices. Okay. Okay? With BuLi and with some slightly elevated levels of lithium, it will be somewhere in the INR 800-INR 825 crore range. Okay? Again, if the lithium starts moving up significantly, then it might reach somewhere around INR 850-INR 875 crore, in that range. Okay. Thanks a lot, sir. Basically, on the stable lithium prices, we would estimate a 25%-30% increase on both, on the base revenue of around INR 600 crores, as well as 25%-30% increase on our EBITDA levels. Okay. Thanks, Arun. That is for FY 2024. For FY 2025, again, as we reach full utilization levels by FY 2025, 2026, as we have given a guidance, depending on the price of lithium, we should be somewhere between INR 900 crores to INR 1,050 crores. Of course, this is based on the CapEx which we have committed till now for our regular business and BuLi. Basically, we consider BuLi as very similar to our existing business because the end user industry is pharma, agro, and similar to that. Okay. Just one clarification I need. You mentioned that you will again revise your CapEx for your electrolyte, maybe after two quarters. Is it correct? Yeah, I think maximum within two quarters we should have a clear idea on the CapEx, how we are going to phase to the 30,000. Okay. After that, you require minimum 18 to 24 months to put up the plant and start it up and running? Yeah. After that we would require somewhere around 15 to 18 months. Okay. Thanks, Arun. No problem. Thank you. Ladies and gentlemen, to ask a question please press star and one on your phone now. We have our next question from the line of Sabyasachi Mukerji from Bajaj Finserv AMC. Please go ahead. Yeah, hi. Thanks for the opportunity. Sir, my first question is on the gross margins. If I look at the gross margins for the current quarter, you have been doing 43%, 44% gross margins in Q1, Q2, Q3 but it dropped to 40% levels. The inflated prices were there in Q1, Q2 to Q3 as well. I understand that, the maths, but what is the exact reason for this dip, and how should we look at gross margins going ahead? Sure. One is, the main contributor for this is the peak lithium prices, because lithium has its peak price in December, Jan, which is what the inventory that we consumed by March. That was one of the factors driving that. Historically, as we have said that, previously we used to always say our gross margin is 40% plus or minus 2%. In the last call, what we had said, we see it now more like 42% plus or minus 2%. It kind of moved that 2%. Depending on the year-on-year or quarter-on-quarter, and again, gross margin and the manufacturing cost goes hand in hand. Because depending on the product mix, some product require have slightly better gross margins, but then the processing cost could be higher. Overall, we had said there is a 2% shift on that, and we maintain that. It will be like 42% plus or minus 2% in that range, in a normal case. Barring some large movements in lithium prices or other raw material prices. Okay. There is a comment on the press release as well as in the presentation that you have seen a noticeable shift in the share of value-added products. If I just adjust the revenue of INR 686 to let's say INR 600 or INR 615 that you have been saying, just eliminating the inflationary inflated part because of the lithium prices, your gross profit of INR 298 crores on a base of INR 615 translates to a gross margin of 48% and an EBITDA margin of, again, 112 upon 615 is around 18%. So, on INR 615 crores, this gross margin looks very elevated and the shift of value-added products, the CSM business, if you can guide whether this is sustainable. I mean, 47%-48% gross margin, are we looking at those margins in the near term? No, there are a few molecules which give us that, and ultimately, we will see. I feel this high lithium prices is going to be maybe one or two years more, then it will kind of stabilize. But based on whatever I see now, my guidance would be 42% plus or minus 2% would be the gross margin we should look at in the near term. Till we have a certainty of gross margins better than that, we will let you know. Okay. My next question is on the lithium salt and electrolyte. Just wanted to know about the manufacturing process. I understand that we will start with lithium carbonate that we will import. But if I look at LiPF6, what are the other key raw materials? If fluorine is a raw material, then how is your readiness in terms of having fluorine or a HF plant? Are we thinking of getting a HF plant? Just thought process on that. Yeah. For the other raw materials also, they are domestically, and we would like to work with some of the domestic producers. Sometimes multiple of them, and basically have basic understanding in place for a long-term supply contract or supply security with them. We can get into the final contract just like we can do with lithium once our customers start signing up long-term contracts. But we have already reached an understanding with suppliers of other raw materials of HF and phosphorus raw materials required for making LiPF6. Okay. Lastly, my question on the Livent pills. So, if you can please explain this need of this lithiation reaction and the use case, because if it is one of the few plants just outside China and Neogen has now access to it, why the revenue is so low, just INR 82 crores, and that also I believe because of the inflated lithium prices. What is the kind of revenue potential you see next 2 to 3 years from this? You have to basically remember that the existing plant which was set up, was set up by Livent. Livent had its own plant in U.S. They had a plant in U.K., they had a plant in China, and this was their fourth plant. Originally, they set it up in India as a trial facility with a plan that they will expand it in future, but as India demand picks up. Currently, they basically kept it at the level. When it was Livent, they had multiple locations worldwide which were taking care of the world demand. This was only based upon India demand. Currently, when we start with this plant, with the existing capacity, as I said, depending on the price of the lithium, it can be somewhere between INR 50 crores to INR 125 crores, kind of a revenue potential. Now we are trying to do things to debottleneck, to get additional production permissions, or maybe also in future consider expansion if needed. But at present, with the capacities which are in place, this is the revenue potential. What would be the margin profile of this asset? Again, it goes more a little bit on absolute terms, just because, like I said, price of lithium is one of the key contributors. Lithium metal is even more expensive than lithium carbonate. In a percentage point of view, the percentage varies quite a bit depending on the lithium prices. However, I think we should be able to get existing EBITDA levels or better in that. Also, as we operate this more, we should be able to give you a better guidance on what is the future revenue potential. We are also exploring, as I said, international markets, not just domestic markets. We will also see, it is again a complex commodity to ship worldwide. Let us do some more trials, understand, and then we can give you further better guidance on that. However, the main interest that we also have is, if we can use this for making more complex or more value-added advanced intermediates. Basically, we also hope that a significant portion of this is consumed in-house by our Dahej unit for the lithiation reaction, and that will allow us to increase the contribution of either CSM or advanced intermediates and basically be the touchstone or basically the foundation on which we can plan our future growth. Just as we have been using our expertise in bromination and Grignard, with this, we are becoming better expert of lithiation, and then that will allow us to attract more projects related to lithiation and therefore, have one more long-term growth area where we can base our future expansion and growth in our regular pharma and agro business. Got it. Understood. That is very helpful. That is all from my side, and all the best. Thank you. Thank you. Thank you. We have our next question from the line of Sudarshan Padmanaban from JM Financial PMS. Please go ahead. Yeah, thank you for taking my question. Sir, my question is to understand a little bit more on the organic segment of the business. If you can talk a little bit more on, you talked about the supply-demand scenario being a little challenging post the China issue and the Russia issue. On this side specifically, if you are going through sub-segments of pharma, non-pharma, are we seeing any kind of a weakness in terms of demand in the sub-segments? Second is on the supply-demand scenario. We have actually seen a fair amount of volatility in terms of end prices as well as raw material prices. If I am just taking the kind of guidance of either Albemarle or ICL, they have called out for near-term weakness on, it might not be apple to apple, but believing that the near-term inventory gap would be allayed from a longer-term perspective. Just wanted your thought process on the raw material prices as well as your end products. Yes. We have seen lithium prices, as I mentioned, it reached the peak in December, and then even January was a bit uncertain, but from February, March onwards, we have seen a step-by-step decrease. We even saw at least a near-term bottom in April, and then now again, we are seeing lithium prices and other prices again pick up. But again, we do not know whether that will sustain and if it again goes back because it is very difficult to predict. Mainly what we feel is that, just as India worries a lot about all its imports and especially oil as imports, lithium at those price levels and with the contribution, with the amount of business which happens for lithium and batteries in China's import bill was also going very high because of the high lithium prices. I think the country as a whole seemed to have done collective inventory correction to put pressure on lithium miners, and we believe that is what corrected the price. Whether they can sustain that, because the demand for the EV, the demands in the U.S. for electrification, for energy storage continues to remain high. Ultimately, I feel again, in near term, the prices should again move up for the next two years, and like I said, the next two years is going to be volatile, and after that it should stabilize on a long-term new lithium average price. This is my view on lithium. Mm-hmm. On the bromine side, I was referring more on the bromine side since you've already commented on this. On the bromine side, what we have seen is that worldwide the flame retardant market, especially in China, has become weak. As we said earlier in our call, 90% of the bromine gas fuels for the bulk bromine usage. At least from what we can tell or what we've gotten the feedback, that the flame retardant market in China, the demand of flame retardant has reduced significantly. Part of it is because ICL and Albemarle have increased the capacity, and part of it is just a lower demand because less exports are happening in the international market with the weak climate worldwide. Because of this high FR inventories and low FR demand, the bromine prices have corrected significantly. That's been the major reason, in my view, for the correction in the bromine prices. Would we be able to take advantage and lap it up? Because if the inventory correction happens and the demand picks up, it would go up. I would assume a part of the working capital would be towards this aspect. Yeah. Our aim always is to basically pass on the benefits as well as the pains to the customer. In this case also, we will not look at benefiting from it. Historically also, we have been able to pass on, if we have some inventories, majority of this, we are able to pass it on to the customer and make sure we average it out or something. You might have some Q1, Q2, you may see some fluctuation, but overall, when I look at the whole year, we should be more or less okay. On the demand side, on the organic side, given that again, on the non-pharma side, we are seeing some kind of mixed commentary, that there could be lower prices and higher et cetera, different types of things that is going around. How do we see the demand for pharma and the non-pharma part for the year from here onwards? Overall, we do see there is a slight demand weakness. There is more Chinese competition. But this is where, what we have shared with you historically, that at Neogen Chemicals, we always believe in having a visibility for a large number of business and then keep moving from one product to another. If we see slightly weaker demand in one product, we then move on to another. Also we are constantly having a pipeline of new products. Even last year, the completely new products contributed to almost 7%-8% of our revenue, which we made first time, sorry, 7%-8% revenue coming from new customers. These are the customers with whom we did business for the first time. Similarly, completely new products also contributed to more than 10% of the revenue. We keep the fact that we are not dependent on a single molecule and we have multiple products, and we have a pipeline, more products and customer approvals. That basically ensures that we can protect our margins even when demand is a little bit weak or competition is a bit more severe. Thanks, Ashok. Thank you. We have our next question from the line of Rohit Nagraj from Centrum Broking. Please go ahead. Mr. Rohit Nagraj? Ma'am. I am sorry, we cannot hear you. Sorry. No, sir, we cannot hear you. Your voice is sounding muffled. Yeah. Is this better? Yes. Yes. Please go ahead. Yeah. Thanks for the opportunity. I was just taking the earlier questions forward. You mentioned that for next couple of years, we will be having 20%-25% overall growth. So what are the user segments that we are looking at from a growth perspective for both organic as well as inorganic business? In the organic business, we continue to do pharma, agro, and as you mentioned earlier, we are seeing also good traction from flavor and fragrance industry. So we might have some contribution coming in from them also in the future. So these are the three areas for the organic segment. And on the inorganic, we added, as I explained to you, in our non-battery lithium application also, we added several new applications of lithium salts related to ceramics, related to some specialty water treatment applications and others. And also we sold more quantities internationally for the engineering or the vapor absorption industry. So I think this international vapor absorption and the new industries that we added, they will continue to remain a growth driver in the non-battery lithium. And also battery materials will keep adding as our plant for electrolyte salt and electrolyte will come online the current year. This will be some small revenues and some small sales, which we will be doing of this. But the larger increase will come from, let's say, FY 2026 onwards, when the majority of Indian cell plants are likely to start. Right. This 20%-25% growth in legacy business is predominantly volume driven. Yes. I said 25% to 30% in the next year in FY 2024. But yeah, that's from the legacy business. Yeah. Second question is on the MUIS collaboration. Will we be having access to the recipes as well, apart from the technology access? Yes. Actually Mitsubishi, not Mitsui. It's an agreement with MUIS, Mitsubishi Chemical Group company. Yes. Currently the agreement is for manufacturing technology and we also have access to the recipes, but the recipe agreement will be combined because the customer has to choose it. It will be Neogen customer, and MUIS will work together, that which recipe is beneficial for that particular customer's design, and if the customer so chooses, in that case, we can use the recipes in the new plant. Yeah. My apologies for mentioning Mitsui instead of Mitsubishi. Just one clarification. Effectively, in this case, they will have some royalty payment. When we use the recipe, there will be a royalty payment. Fair enough. That answers my question. Thanks a lot, and best of luck, sir. Yes. Thank you. We have our next question from the line of Aman Vij from Astute Investment Management. Please go ahead. Good evening, sir. My questions are on the electrolytes business only. If you can talk about where are we at this stage, are we through the lab testing stage, are we through the validation stage, or are we at the qualification stage? If you can also talk about what is the number of customers we have, say, given the samples and all those things. Sure. We currently have, like in the past, as I've shared, we work with 15 to 20 potential cell producers who want to produce or who plan to sell, who plan to manufacture cells in India. Many of them who have an ability to test the samples have taken our samples and have started approvals. Some customers have completed first chemical evaluation and then moved on to electrochemical evaluation. Now some customers have even initiated a small actual line trial. So instead of just testing in a lab, they're actually going to make let's say a few thousand cells with it and do the trials on that. So that also is some, again, in actual is a capacity of what cells they can make today. So more or less, our electrolyte production scale is happening to match as our customer gets ready. We are ready before the customer demand exists. In fact, our September, what we are planning the electrolyte plant to start 1,000 metric ton, so that can also support 1 gigawatt hour kind of a cell, 1 to 2 gigawatt hour of cell production. So even that also will be ready much before the customer demo plant starts. Yeah. I wanted to understand that part only, because if you want to sell 10,000 tons or eventually 30,000 tons, you will require Indian cell plants production capacities of somewhere between 10 gigawatt to 30 gigawatt hours. Are you saying this kind of capacity will be present in India in the next one to two years, or maximum three years? Yes. As I explained to you, in our answer to previous question, that we already had a plan, and we already have a plan to reach up to 10,000 metric ton, which was announced before MUIS agreement. The license that we have with MUIS, we can increase up to 30,000. So already 1,000 was already put in motion. So 1,000 we are not stopping, and we are going ahead and completing that on track. But we have some time to decide or fine tune our 5,000, 10,000, and 30,000 ultimate what we want to reach answer. So that is what we are currently fine tuning, that when the 10,000 will happen, when the 30,000 will happen, and that is what we said we will share in next two quarters. As our previous question when I answered, it is two quarters for finalizing the plan. After that it is around 15-18 months maximum of build time. So within next two years, technically we can be even ready with 30,000 metric ton. Sure, sir. On this agreement which we have with MUIS, I think you had mentioned clearly last time that there is some kind of restriction for us to export outside India or we have to take permission. Yes. I just wanted to understand your thoughts, because if we already had some kind of technology, and my understanding is export opportunities in U.S. and there's a lot of big opportunities coming, which want to look at China plus one. Why are we leaving out such a big opportunity and only domestic is obviously good and it will also grow, but why leaving out a much bigger business outside India? Neogen's strategy was very clear that lithium salts was an international opportunity because that's an investment which we can do internationally anywhere. That's something which we are still looking, and we feel that once our trial facility starts, there are many international companies with whom we have discussed, including MUIS, who are electrolyte producers and to whom we can basically supply electrolyte salts. Now, electrolyte business, Neogen always felt that we wanted to do it domestically, because there's a good domestic opportunity, and this business is historically done always localized because of the need for special tanks and logistical complexities. Therefore, since our focus for electrolyte was only for India, and electrolyte salt was international, and this agreement in any way did not stop us from both our focuses. That's why we are okay with that term. Final question on this part, sir. The pricing of this electrolyte has gone up a lot and then from $50, $70 to almost $15, $20 now, and maybe it's going up and down a lot. Are we thinking of entering into some long-term contracts so that our margins get protected? Otherwise, these kind of fluctuations might result in, I don't know how as a company we manage all those things. If you can talk about our thinking in terms of long-term contracts with our potential customers. Yeah. We have seen that historically also, most large volume users would basically do a long-term contract, or at least a long-term kind of a price model. We also worked on a similar, not similar, I would say a little bit less complex business on lithium bromide, and which we've done for the last 30 years with engineering companies who basically want to use this as, let's say, 10% of their cost contributor. Just as in the cell production, electrolyte is also 10% cost contributor. In some sense, it's a very similar business, and even that also worked basically on a cost-plus basis and with long-term understandings, where we did not insist on a long-term contract. But we feel because here we have to put significant capacity, so as our customers get more ready with their plant, we will enter one by one long-term contracts with these customers. And most of them should be such that our at least ROEs and ROCEs are basically protected. Sure, sir. That helps. Thank you for answering the question. Thank you. We have our next question from the line of Yash Shah from Investec. Please go ahead. Hello. Hi, Harin, sir. Thank you for the opportunity. Sir, my first question was regarding our electrolyte capacity. Since we are already going to add 1,000 tons of capacity using our indigenous technology, will it be safe to assume that the rest 9,000, which we had formerly announced, or whatever the changes will be, the rest of the capacity will be from the new technology which we have acquired, given that we have acquired a global technology, we have the license for a global technology and will not really require the indigenous technology anymore? Just wanted to know your views on that. Again, exactly how we are going beyond 1,000 is something that has to be done based upon the timelines for implementing the international technology versus the timelines of my customer requirements and what solutions, if at all, intermediate is required. This is what Yash will share a little bit more clearly over the next one or two quarters, that how we are going from 1,000 to 30,000. Got it, sir. Sir, my second question was again regarding the same tie-up which we had with MUIS. This has given us a significant advantage, as compared to our peers or the new entrants who might want to enter into the segment. Sir, just one question was that, what was the reason we did not enter into an exclusive contract with them? What were the bottlenecks on that front? The reason I am asking is because maybe the peers could also enter into some kind of a similar agreement with the other players, not the same ones, with the other players, say number three or number four. About that. It was basically the first time ever where MUIS basically decided to open and share their technology with anybody outside of their group. So convincing them for that itself was a very huge task. But as a Japanese company and whatever we have seen whenever we worked with Japan, whenever they give technology, they are very reluctant to get into an exclusive contract because there is always a fear that in case if there is a non-execution on the side of the technology recipient, then they kind of get bogged down. This was something which was basically more like a Japanese wish, or MUIS' wish, which we had to agree on. Although there is a very clear, there is a strong understanding that they will always work in such a way that Neogen's interests are protected and their intention is that Neogen becomes successful and hopefully we together can convince our customers to use MUIS recipes also, and they can have a future revenue source coming in from that. Got it, sir. Sir, another question which I had was on the salt front. Even though we have mentioned in our presentation that we do not really intend to basically sell the salt outside, but then it is one of the options which we have. Wanted to understand your views on how we basically expect to compete with the Chinese and the Korean prices for the LiPF6 or LiFSI salts. In the presentation, we never said we don't intend to sell the salt internationally. We just said that the capacities that we have planned are mostly keeping in mind our Indian internal requirements because we don't have a number yet on the international demand. Our efforts are always to make sure to try to sell the salt internationally because that's a bigger market in general. In terms of competition against China and Korea, majority of this is really China. There's very limited capacity in Korea and there's very limited capacity in Japan, and they are planning to expand very limited volume, which will not take care of the rest of the world's demand, especially in Europe and U.S. Therefore, there is going to be additional electrolyte salts required. Now, some of that may come from new plants in Europe, new plant in U.S., although they will take longer than us because we have moved earlier. Our demo plants are getting readier, so we would have the early mover advantage as well as lower cost advantage as compared to if at all any plants are set up in Europe and U.S. Now, as compared to China, historically what we have seen, that between China and Japan, the price difference when lithium prices and everything else was stable, was roughly around 20%. We feel if a Japanese company also could make with a 20% higher cost as compared to China, maybe with our cost advantages, we should be somewhere around 10% or so more costlier, worst case scenario, as compared to the Chinese at a comparable volumes and levels. We are basically banking on that, and we are also hoping that there's enough interest for a non-Chinese source from a de-risking point of view, to basically get this 10% higher cost offsetted. If we are able to do some process improvement or efficiency or give comfort on better quality, just as we do in our pharma intermediates and other intermediates. Similarly, we can justify the higher cost or with a process improvement, reduce the cost and match whatever is the Chinese price. This is the long-term view. But again, we have to start making salt first. First target would be to match the global expectations on quality and then, we would try to meet the other targets so that we can establish a good interaction demand for this electrolyte salt as well. Got it, sir. Final question from my end. This was regarding our organic business. From the last two quarters we have been mentioning, witnessing strong traction on the F&F front of flavors and fragrances. Now with the return of China, have we been facing any kind of pressure on that front? Also, we had mentioned that we had five customers. We had added five new customers in flavors and fragrances and agrochemicals and engineering segment. How many new customers have we added in F&F space throughout the year in FY 2023? How do you see the mix moving in the coming year? How much contribution do you expect from F&F? We don't have a number for you yet. The only thing we've seen good number of projects and many are in the CSM space and many are in the advanced intermediate space. Basically some places where they are transferring technology and some places where they are asking us to develop the molecule for them and then with a keen interest to buy these molecules. All these projects are moving. So far we are at a trial volumes like 500 kg, one ton level. But we feel in FY 2024 it will move significantly. Although I would still say it will be clubbed in our other segment. I'm not expecting like a 10%, 15% because regularly our top line is growing. Yes, we are building new partnerships and over next two, three years, whenever we do our next MPP plan or a major expansion in organic area, this is one more area which we can bank on to provide further growth, beyond, let's say FY 2025, FY 2026 kind of revenues. Got it, sir. Thank you. Thank you for answering all my questions and all the best. Thank you, Yash. Thank you. We have our next question from the line of Omkar Kamtekar from Bonanza Portfolio. Please go ahead. Hello, am I audible? Yeah. Sir, firstly I needed some granularities on the results. In the revenue breakup we can see that 45% are exports and 25% as domestic. Can you give us a region-wise breakup of how much of export is in specific areas? We have not shared that, I think since IPO days. But majority of our exports are consisting in Japan, Europe, some to U.S.A. and some is deemed export, which is basically to SEZ and EOUs in India. Okay. And in the revenue breakup of the inorganic organic segment, could you give user-wise breakup? How much is for pharma, how much for agri? Is that possible? Usually pharma is between 50%-60%, in that range. It has been like that. And the agro business has been between 15%-25% revenue contribution, and the engineering around 10%-15%, and the remaining industries is about 5%-10%. Okay. Thank you. Nextly, sir, I wanted to know, what would be the approximate expenditure, CapEx, that you would incur for the battery businesses. We have told in the previous announcements also that we are setting up a wholly owned subsidiary and we will be focusing on the battery business as one of the driving force for the growth. So approximate, what would be the expenditure and over what timeline? We had shared in our investor presentation, you will get a little bit more detail from there. But we had shared a revenue, a CapEx of approximately INR 450 crores in our lithium-ion battery over a period starting from, let's say, we already have started and going up to, let's say, FY 2026. So over next two years period of time. Okay. But again, this is a number for 10,000 metric ton per annum capacity. So we will again review this as we review our plans for a 30,000 metric ton. Okay. Actually, my actual point was I got the impression that maybe the INR 450 crores was to the full 30,000 metric tons. So I got the clarification for that as well. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to management for closing comments. Over to you. 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 relation team and we will address them. Thank you once again. Stay safe, and we look forward to connecting with all of you again in the next quarter. Thank you. On behalf of Neogen Chemicals Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.