Q1 22/23

Aug 8, 2022

Good day, ladies and gentlemen, and welcome to the Q1 FY23 earnings conference call of Neogen Chemicals Limited. As a reminder, 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 touchtone 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, sir. Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals Q1 FY23 earnings conference call. Joining us today on the call are senior members of the management team, including Dr. Harin Kanani, Managing Director, Mr. Anurag Surana, Director, and Mr. Ketan Vyas, Chief Financial Officer. We will commence the call with opening thoughts from the management team, post which we shall open the forum for Q&A, and the management will be glad to address your questions. Let me leave with the standard disclaimer here. Certain statements made or discussed on the conference call today may be forward-looking in nature. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals' Q1 FY23 earnings PPT, which has been circulated earlier. I would now like to invite Dr. Harin Kanani to share his perspectives. Thank you, and over to you, sir. Thank you, Nishit. Good afternoon, everyone, and welcome to our Q1 FY23 earnings conference call. We have shared our result documents, and I hope you had an opportunity to go through them. I will begin by sharing the performance highlights and growth initiatives, while Mr. Ketan Vyas, our CFO, will take us through the financial insights for the first quarter ended FY23. We have commenced the year on a strong note, despite unprecedented challenges witnessed in the past few months in the form of high input and logistic costs, logistical disruption, as well as severe volatility in exchange rates. Just to share the key financial trends, revenue increased by 75%, while EBITDA improved by 58%, and profit after tax grew by 51%. This time again, we witnessed significant increase in the prices of raw materials linked to lithium, which the company was able to pass on to the customers, resultantly protecting the absolute EBITDA. The EBITDA percentage margin decline is optical as it considers higher revenues and higher RM costs, which preserved absolute earnings. During the quarter under review, our organic chemical segment revenue enhanced by 32% year-on-year, while growth in inorganic chemicals stood at 243%. This was in line with our internal expectations and was supported by incremental gains from the capacity expansion initiatives undertaken across both business segments. The demand profile of products that we manufacture remains upbeat, and we are confident in maintaining this growth momentum going forward. We have several CapEx initiatives lined up this year and next year that will boost our performance trajectory in the existing as well as new business of lithium-ion battery chemical space. These initiatives are getting executed as per earlier stated timelines. Let me share some updates here. Discussions with both domestic and global customers are advancing as expected, and there is continued interest in robust demand. As a process, we have started submitting samples for technical approvals and evaluations are underway to approve Neogen as a vendor at our customer end. Once we get some comfort on that, we will align our large CapEx plans with lithium-ion battery chemical space in H2 of the current financial year. With the CSM and advanced intermediate business, we are excited with the current momentum as we have started witnessing traction from even other sectors that are non-agro and non-pharma, including the traditional pharma and agro segments. Our focus is to increase the revenue contribution from these segments, which is in line with our efforts to expanding the portfolio of value-added products. Separately, post our board approval last quarter, we have started initial work at the Dahej plant to deploy up to INR 150 crore CapEx in this financial year. This will be used for following initiatives: increasing the manufacturing capacity of specialty organic chemicals by 60,000-liter reactor capacity, expanding manufacturing capacity of inorganic salts from 1,200 metric ton to 2,400 metric ton, setting up new capacity in existing inorganic MPP for 400 metric tons per annum for manufacturing specialty lithium salts and additives for electrolyte used in lithium-ion battery advanced chemistry cells, and overall site development at Dahej as well. All this expansion will come on stream by June 2023 and will help significantly elevate our revenue trajectory from the current levels. Our FY 2024 revenue guidance remains unchanged at INR 700 crore to INR 725 crore, while by FY 2025-2026, we will be able to add another INR 250 crore to INR 300 crore at full utilization level, resulting a revenue potential of approximately INR 1,000 crore. Let me clarify that here the incremental revenues as well as the revenue guidance for FY 2024 is estimated based on stable lithium prices. The growth prospects for us are encouraging, and we are very well poised to capitalize on the emerging opportunities unfolding in the Indian chemical space. This along with India's growing position in global chemicals value chain will drive incremental gains. Our focus will be to deliver sustained growth with healthy acceleration to profitability, thereby creating value for all stakeholders. With that, I would now request our CFO, Mr. Ketan Vyas, to share the financial highlights for the quarter under review. Thank you, Dr. Hari. Good afternoon and welcome to everyone. Today, I will cover the financial performance of the company for the first quarter ended June 30, 2023. Please note that all comparisons are on year-on-year basis and refer to standalone financial performance. In Q1 FY23, our revenue stood at INR 177.9 crore, representing a robust growth of 30%, driven by incremental benefits accruing from the expanded capacity and guided by positive demand environment. The company has been able to leverage its existing process chemistries to focus on high-value products with multi-stage processes. We saw an EBITDA of INR 34.7 crore growing by 58% in Q1 FY23. EBITDA margin came in at 16.7% in Q1 FY23. The EBITDA performance was supported by operating leverages gained on account of increased capacity available. Favorable product mix also stayed momentum. The improvement came in despite various pressures seen in the form of higher input and utility costs with added exchange rate volatility. During the quarter, we reported a strong double-digit growth in profit after tax at INR 11.1 crore, higher by 21% in Q1 FY23. This was bolstered by a strong operating performance. During the Q1 FY23, our domestic-export mix stood at 56% and 44% respectively. That ends my opening remarks. I will now request the moderator to open the forum for the discussion with the participants. Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone phone. 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 Saurabh from Asian Markets Securities. Please go ahead. Thank you for the opportunity. First question is on the organic chemicals. If you look at the revenue for organic chemicals from Q3 to Q4 to Q1, there has been a slight decline over the last two quarters. Is this due to seasonality or what is the reason behind this? This is mostly driven by seasonality and slightly soft demand from pharma customers in some specific molecules or APIs, where there is basically inventory correction which is going on, where some of the APIs, there was large inventory worldwide, and now the correction is happening. More, I would say, is because of the seasonality, that generally Q1 demand is a bit lower. Okay. Are these APIs related to ARV segment? No, these are some non-ARV APIs. Okay. Second is on, if you can provide some color on the cash flow from operations or working capital situation at the end of Q1. Our working capital utilization was slightly higher in end of Q1 because, again, we had planned for a higher production and there is a little bit of inventory built up because our capacity utilization was much higher. Although, the organic revenue was a bit lower. There is higher working capital utilization, but more or less in line with what we are expecting for the business increase that we are targeting for this year. Okay. Since we are proceeding with this working capital, we are seeing the commodity price coming down, so do we expect some working capital release from Q2 onwards? We are constantly increasing and trying to increase our utilization levels. As we said that in this year we are hoping by the end of the year, because our idea is to ensure higher utilization of our facilities. So by end of this year, we would be at similar levels at about net working capital in the range of around 120 to 130 in that. By next year, we are hoping that by FY 2024, as we had earlier also guided, our target is that we are somewhere at around 100, 110 days of the net working capital cycle based upon net sales number of days. Okay. Sir, my last question on your comments in the presentation that you mentioned about increasing traction from non-pharma, non-agro. Can you elaborate more in terms of end industry, the size of the molecule or the clients or the base raw material? Is it a domain or the same? Most of these are organic. Both these molecules which we are thinking of are on the organic side, and one of them is for flavors and fragrance kind of segment. We have actually three or four molecules which are now in flavors and fragrance. Another is a very typical industry, which is basically a specialty chemical required for one of our customers in Japan. Okay. Thank you and all the best. Thank you. Thank you. A reminder to all the participants to press star and one to ask a question. The next question is from the line of Manish Gupta from Solidarity Group. Please go ahead. Thank you for the opportunity. Dr. Harin, I have two questions. The first one is that, of all the lithium that is being imported in India right now, without being converted into India for processing, what percentage of that could Neogen be into? Okay. All the lithium which is currently being imported, I would basically, again, divide into two parts. One is lithium, which is used for making specialty intermediates like lithium bromide, lithium chloride, like the salts that we make. And the second big application is for making grease application. What is used for making this grease, which companies like Indian Oil and others who make. That is a very large application, what I would consider as a bulk. Most of this is in the form of lithium hydroxide, and most of the intermediates that we make is in the form of lithium carbonate. We had checked this some time ago. I have not checked the most recent number, but when we had checked, we were importing close to around 60%-75% of the lithium carbonate, which was getting imported into India for the speciality application. Okay. And my second question is that, a lot of these chemistries, I would imagine there is some process knowledge that only comes with experience. Yes. How much of a time advantage would we have over a company that starts deciding they want to pursue lithium salts today? As they try and catch up, I guess our knowledge would have further expanded. How do we think of the advantage we have in terms of time or experience or cost over somebody else who attempts to do this today? I think there are three things which help support our lithium. One is, of course, the understanding. The second is the credibility, because most of the customers in lithium are basically, other than some application in pharma, are non-chemical companies. They rely on Neogen to not only provide the product as per the specification, but they want Neogen, the reliability component is very high, because sometimes they are not even able to test the specifications fully or the impurity profile. From batch to batch, it has to be consistent. So that years of experience which they have, the credibility and the knowledge which you are providing them is also a critical factor here. Third is also the relationship with the lithium companies to be able to ensure that even in a tough time, your lithium supply continues and you are not going dry. I would say this is a combination of these three. What we have seen so far in last 25, 30 years that some, two areas. Some non-critical or non-critical pharma application, where it is generic or non-regulated market application, as well as non-OEM lithium requirements. It's not the people who are making the machines, but the user of the machine. Suppose if they have a repair and maintenance activity and they want a replacement of these materials. This is where other than non-Neogen companies are able to cater. But when it comes to OEM, when it comes to regulated pharma, that's where these three modes which I told you earlier, we've been able to successfully manage and withstand. The main competition that we see is our Chinese, Korean, Japanese, and European competitor, who have a similar track record as Neogen, who have supplied to OEM for years. So that credibility and the experience, and have the ability to source lithium. These are the main competitions in my view. Just as a follow-on, that because, for the EV vehicles, the batteries have to be made locally. Yes. Have any of these foreign competitors set up shop in India so far? No, in fact, even the specific competitors who have been making lithium salts, also even in their own countries have not moved to EV. There are some various challenges which they have, limitations which they have. I know at least my Japanese and Chinese competitors, they are still sticking to the traditional lithium application. The players in EV are completely different. We do have competitions in EV, mainly from China and a little bit from Japan. Now maybe Korea also, some new players are coming. Most of these are new players. They are not these existing players. Dr. Harin, if you don't have players who will be able to supply this locally- That means, do you have a chance to almost get 70%-100% of the overall market? So I think, some other Indian companies, at least for electrolyte, have already made some announcements. We do not know. We can target a high market share, but at least when we are doing our models, we are being considerate and not expecting a very high market share. We kind of do three models, like, 30%, 50%, and 20%. This is generally the market share range that we look whenever we look at worst case, best case, and moderate kind of scenarios. But we will see where it lands in. The other thing which can happen is that some of the materials for various reasons, could be imported in the beginning. So like for example, some of the battery producers may decide to import part of it, and eventually some of the players may set up a shop in India. But so far, I have not heard of any announcement of international players setting up a shop in India, either to make electrolyte salts or for electrolyte. Thank you very much. Thank you. The next question is from the line of Yash Shah from Investec India. Please go ahead. Hi, sir. Am I audible? Yes, Yash. Yeah. Hi, sir. My question was regarding lithium prices, sir. From our channel checks what we have done, lithium prices have started easing off, but we can, as you mentioned in your commentary, that the prices had increased. Just wanted to understand, is it similar to what you had mentioned in the previous quarter, that there is some kind of a disconnect between global lithium prices and domestic lithium prices? There is a lag, basically when it comes to India. Just wanted to understand that first. Usually what happens is that mostly what gets reported is the Chinese spot market prices. Okay. We do not buy from the Chinese spot market. Therefore, most of the commentary that you get is a Chinese spot market thing. What generally happens is that when we have this long-term relationship with our South America-based suppliers, they will look at the Chinese spot market prices, and they will base the contract around that. Okay. It can be a bit higher, it can be a bit lower, depending on what is the forward outlook, et cetera. What generally happens is that if I do a contract in this quarter, then by the time they take about a month, a month and a half to start shipping, and then it takes 2 months for it to arrive. So eventually what happens is that we have, let's say, a one and a half to 2 quarter lag between what happens in the Chinese spot market and material when we receive here. Okay? We also try to work with our customers and at least once we get a clarity on the prices, we start booking our next quarter volumes, et cetera. That is how basically, we have been working on this. Yes, from an India point of view, from the material which is arriving, the prices are still kind of on the increasing trend. So the Q1 prices of this quarter, what lithium carbonate we consumed was higher than what was in Q4 of last year. What we will be consuming in Q2 is even higher. The prices have moderated a little bit. So it is not that they have gone down significantly, but they have stopped increasing and maybe correcting by a couple of dollars or something like that. So the impact of that will basically be in Q3. Internationally, if we look, Q1 and Q2 was little bit stable at that peak price. What we expect for Neogen, the Q2, Q3 will be more or less at that kind of peak prices, the visibility that we have so far. Got it. And sir, basically you also mentioned that you were able to pass on the prices. So till what extent have you been able to do that? Up to Q2, we have looked at ourselves and we have been able to pass on whatever price increase we had, on the lithium that we had paid higher. To that extent, we have been able to do that. Now our real challenge is going to be Q2 and Q3, because this is where the peak price is going to hit us. Some of the challenge which my customers are facing is that, at that price, their final molecule is not viable. Some of the customers understand, they do not have an option and, this is the global prices, and even if they buy globally, it is going to be the same price. And where it is used as a catalyst application, where there is not too much contribution in the final RMC, where customers are able to pass on, we are able to pass on a little bit more easily, and we may still be able to pass on. But some customers where this is a significant part of their final end use, this will be the real test whether how their end customers are responding to this kind of a price increase. So that is going to be the challenge in Q2 and Q3. But what is working for us is that we have found more such customers globally, for whom the price is not so critical, but the supply is really important. So, just even in last quarter, almost 25% of the revenue which we had was from completely new customers. That has been the trend for last two quarters. So we are actually adding new customers, new applications for which we have not worked in the last 30 years, but now we are able to do that. Our hope is that there might be slight better demand from our domestic customers, but the global demand we are able to make up and still preserve our volumes and being able to continue to pass on the price increase. But again, whether we do that successfully, how well it works, we will know how Q2, Q3 goes. There is also a view that, is this temporary or is this long-term? There are many analysts internationally or the suppliers who think that this is going to be the new normal for at least couple of quarters. Then maybe some people feel that by 2023 or 2024 is when prices will come more. There will be more significant reduction in this. So anyway, we keep watching this. There are too many factors which are determining this price. What is going to be the EV demand? How is the new capacity expansions of the miners working? So it is a combination of all of that, and we wait and watch. Right. But, sir, we maintain inventory, right? Basically, we maintain such higher level of inventories only to mitigate such volatility in the prices. Now, in this quarter also, sir, we have seen pressure on the margins like we have had the lowest pressure since, lowest margin since Q4 of FY 2019. So, and as you mentioned that Q2 and Q3 is going to be further challenging. Yes. Do you think, sir, we will be able to maintain the broad level margins which we broad level guidance which we provide for our margins, which is between 17.5%-19.5% till FY 2024? Will we be able to maintain the same, sir, even for the current fiscal year? Yeah. I am glad you asked this question so I can explain this a little bit more. Let us say we have guided for a INR 600 crore revenue, and we have said that INR 600 crore revenue with about 18.5% kind of EBITDA, which basically comes somewhere around INR 100 crore-INR 110 crore kind of a EBITDA number. We are fairly confident that we will be able to get this INR 100 crore-INR 110 crore EBITDA number. But because of the rising lithium prices, we will overshoot our INR 600 crores. Instead of INR 600 crore, the way things are going now, looking at the lithium prices, we might be anywhere between INR 650 crore-INR 700 crore. We will be able to protect our absolute EBITDA numbers, which is like INR 100 crore-INR 110 crores. But on a percentage basis, whatever this overshoot that happens in lithium, there we might not still be able to get that percentage. I mean, we will try to do as best as possible, which will then result in I am quite confident that the top line will definitely get the overshot. That INR 600 crore will be INR 650 crore or INR 700 crore. That is the range which I am currently looking at. But again, it depends on how lithium behaves for the remaining quarters. The absolute EBITDA also should be in the range of INR 100 crore-INR 110 crore. But, as a percentage, it will most likely not be 18.5% because of this very high lithium prices. I mean, lithium prices in our Q2 are going to be four, five times what is the stable lithium price. At this point in time, if we not only pass on the benefit but expect customer to also give us a higher margin, which is at, on an absolute terms, is five times, that is going to be very difficult for long-term customers' point. Got it. That is Even the numbers which you have seen in last quarter and this quarter, if this additional lithium prices, when we correct, they fall in that same 18%-19% range of what we are doing. Okay. Will we not change our margin for FY 2024, sorry, our guidance for FY 2024 in terms of revenue? Will we still maintain about INR 700-INR 725 crores, given that this year itself we are on the verge of going around INR 700 crores? For FY 2024, no changes in the guidance in terms of revenue? This is INR 700-INR 725 crores is the revenue guidance on a stable lithium price. Okay? If by FY 2024, lithium prices come back to stable lithium price, then that will be the guidance. If they remain high, then similar situation that we will basically overshoot that number. Okay? But again, ensure that at EBITDA level, we are at 18%, 19% of INR 700-INR 725. Got it, sir. Got it. That was really helpful. Sir, one last bookkeeping question which I had was, our tax rate, sir, for this quarter has been significantly high, but for the whole year, we should be around 25%-26%, right? That was all I wanted to confirm. Yeah. Okay. Sorry, I will ask Ketan to answer. Yeah, yeah. On the tax rate, we should be about 26% plus something, because previous had a higher depreciation and mat. This year we should be around 26% plus, approximately. Got it. Last one question, sir, which I had was, we can see our MFI costs and other expenses have also increased. Is it primarily because of the ongoing CapEx which we have undertaken for new projects, which will basically with the increase in the revenue, we will get operating leverage, say, in FY 2025 onwards? I think no, the revenue cost which we are seeing is just even to support as thoughtful utilization of Dahej, because we had also staggered our employee base coming that way. This does not keep into account what additional people which we will require for INR 150 crore, and we have not started hiring them as yet. But yes, as we get to full utilization level, as a percentage, these numbers will kind of taper off. Got it, sir. Thank you. That is all from my end. Thank you, Sanjeev sir. Thank you. Anyone who wishes to ask a question may press star and one now. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead. Yeah. Thanks, sir, and thanks for the opportunity. My question was largely to understand the situation that we are seeing in Europe in both the businesses that we have, be it the organic or the inorganic side. Sir, being a larger player to the pharmaceutical and chemical market and also picking up cues from what we saw during COVID, that healthcare and food security was given the highest importance, and that is why a lot of contract manufacturing players in India benefited, not just in agro and pharma also. Now that the European companies or the multi-nationals that we might be catering to, would you, in your organic business, say that they might have a confusion or a dilemma with respect to making something on their own or outsourcing more because of the higher cost? This is largely on the organic side of the business. At the same time, because the power and fuel costs are going through the roof and on the inorganic side, we are catering to the HVAC market, and we are looking at the second half of 2023 to be a stronger half in terms of revenue and growth. Do you see any ramification of this entire regime turning out to be negative for the European economy? If you can articulate this for both our businesses. If this is an opportunity for organic chemicals, organic bromines or bromides or the advanced intermediates or the CSM business that we have and on the inorganic side as well. Thank you. For the organic chemicals, when it comes to, like you asked specifically Europe, but what I've seen in general, not only Europe, Japan, as well as U.S. customers, they are trying to still find reliable manufacturers in India. There is a strong interest to keep finding alternates to China. As well as if there are some new molecules happening, sometimes their preference is that right from the beginning, let's work with a non-Chinese supplier. There is also a trend that they wanted to look back in Europe. But the general feeling is that in Europe, there's a very under capacity. If Europe wanted to make a lot of things in-house, they still don't have capacity, and it takes a very long time for European companies to set up CapEx. I think still India and other non-Chinese companies remain the place where they want to go for. I believe, the trend for interest into India as a manufacturing for advanced intermediates, for CSM continues. As I mentioned earlier, that not only agro and pharma, but other specialty chemical companies also more and more are approaching us if we can do molecules for them. I think that is on the organic side. As I mentioned in lithium, more than this HVAC and energy prices, the bigger driver is what is happening is the lithium availability. So companies which are able to get lithium, prices of lithium and how they will impact supply and demand. Again, so far, as I mentioned earlier in my call, that we found more customers who are able to make up for slightly reduced demand in India and instead are able to still buy at the higher prices. But the next two quarters will tell us whether either in absolute terms or whether we will be able to keep increasing our capacity with the lithium prices which they are. So, I know Q2 and Q3, there might be some time because some customers, the prices which we will have in Q3 are historically highest. They are 3 times, 4 times what we had. Therefore, we will have to check which customer can still continue to buy at this price. I think that is going to be a bigger driver as compared to energy prices and other factors which you mentioned on the lithium side of it. Understood, sir. I was asking, so in this environment where European companies are facing problems on the energy side, and the fact that you still haven't got a clear indication as to how they are working their things around in terms of their own manufacturing capability. And, sir, the trend on China Plus One story is pretty strong. But my question was largely different, and this presents another, especially from a supply chain diversification perspective, that European companies already were grappling with higher cost on labor or power or environmental front. Now that things are snowballing on those same things because of unavailability of gas and power costs going up. Does that present a significant opportunity for Indian companies or Neogen Chemicals because we have also ventured into advanced intermediates? I think, firstly. So that was the other thing that I wanted to understand from you. So, if you think hypothetically, then you can say that, yes, when they wanted an alternate to China, they can either go to Europe or go to India, one of the two options. And since our cost and outlook there is a bit vague or higher cost, maybe they would prefer and India would get preferred. So yes, if we talk hypothetically, it looks like that this can be an opportunity. But so far, I have not seen any customer making a call that, "Oh, because the energy cost in Europe is very high, I am going to shift this production to India." So I have not actually seen any discussion around that. So I think still Europe is basically figuring out how they will ensure that enough fuel is available for most of their needs. And I don't see so far a very strong trend, at least in our business, where customers are shifting because of higher energy prices in Europe. Understood, sir. Thanks. Just one last question. I think we were having some issues with respect to managing our inventory. Yes. Our production planning was also done in a way which was reflecting a higher working capital. Now we are talking about some of the new products we might get an approval into, be it flavors and fragrances or specialty chemicals. Yes. Does that become part of an elevated pressure on our working capital, given that the earlier molecules themselves have not been enough from our multiple plants to garner volumes so that they can have plants of their own, where volumes could be significantly higher. Just to understand from a product addition perspective, how would you look at the organic chemicals business going for us individually from the new products that we are taking and from the ones that we were doing business for some of our customers earlier? Mr. Joshi, the dynamics of any new product is that while they are getting scaled up there will be lower volumes and then eventually they will increase. But the main point, the improvement which we are expecting from FY 2024 onwards, is saying that on an average, Neogen's average molecules are of a larger size, so there are less changeovers. As well as, going forward from FY 2024 onwards, we will have more molecules which are on the dedicated as compared to what we had earlier, which is what should give us the improvement. So whether it is a pharma new molecule versus, let us say, a non-pharma new molecule, the dynamics remain more or less similar. Overall Neogen's average molecule size will increase or more number of molecules will be dedicated, which we are hoping will start from FY 2024 once all our new molecules start stabilizing, and then FY 2024 onwards we can start seeing benefits of that. Thank you, sir. Thanks. Just one clarification something that I didn't understand from one of the comments that you made earlier. We buy around 60%-70% of India's total import volume from lithium carbonate. Yes. There's something I was curious to know was, is it more economical or makes more viable sense to import lithium carbonate directly or is there any way wherein your crude lithium can be brought in India and then it can be processed into lithium carbonate by a converter. Is that also an option or just easy enough to buy the lithium carbonate form? So, even at that high percentage of imports, we are importing, let's say between 500 to 1,000 metric tons of this lithium carbonate hydroxide kind of molecules. Whereas internationally, the plants which do this conversion from crude from the mine are usually of the capacity of 20,000 tons. So it would not make sense for us because the scale difference will be so huge. And also most of the countries like Chile and Argentina say you can only ship finished product. So they don't want them to become just a mining place where things are mined, crude is sent out. Australia still has that option where they just send concentrated ore, let's say to China and China processes that or maybe in future U.S. will also do that. But in India, maybe once the battery volumes pick up really large, maybe by 2026, 2027, by that time it will make sense. But today's India's demand, it wouldn't make sense to set up a processing plant for the immediate need. For the future you can consider. Understood, sir. Thanks for that very elaborate answer. All the best. Thank you. Ladies and gentlemen, in order to ensure that the management will be able to answer questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Mihir Damania from Ambit Asset Management. Please go ahead. Yeah. Hello. Hope I'm audible. So I have just one question. So you have revenue guided projects for FY 2023 and FY 2024. Do you also have cash from operations guidance for the company? So this is on an EBITDA of around INR 100 crores for FY 2023 and INR 130 crores of FY 2024. Where do you see Neogen generating cash from operations? What's the broad-based amount or any internal targets you have for CFO to that conversion. Yeah. I think I mentioned the cash flow targets in terms of net working capital limits that we want to have. For FY 2023, as I mentioned, the target is to be between 120 to 130 days of net sales. Let's say to improve this more closer to 110 by FY 2022. I've not done the math, but I think we can do the math and see what it translates into net operating margins based on the numbers which I just mentioned. Fair. Based on the long term, let's say five years out, where do you see the net working capital? Do you see any material improvement to the 110 days target that you mentioned? Or do you see that because your business model is structured such that it will be very difficult to get incremental benefit out from the 110 days? I think my understanding or let's say wish list, whenever we have discussed five years down or where we should ultimately be in the most efficient sense, but again, it requires a lot of changes in business model, way we deal with the customers, et cetera. I would say maybe between 90 to 100, but with lot of dependency on imports, with so many multi-products and having molecules which are very long, sometimes processes. I see very difficult going below 90 days. Got it. Thank you. Thank you. Next question is from the line of Dhavan Shah from ICICI Securities Limited. Please go ahead. Yeah. Thank you. I have a question on the organic chemical side. Given that you mentioned that Q3 con call, that the phase 1 and phase 2 both will be optimum utilized maybe by September 2022. Given that, if we look at the last three quarters rendered, it is around INR 100 odd crore. I think we did somewhat INR 60 crore plus INR 55 crore approximately, INR 15 crore CapEx for both phase 1, phase 2. The peak revenue should be roughly INR 250 odd crore. Including this phase 1, phase 2, organic chemical should reach to roughly INR 500 odd crore, which itself gives you INR 150 crore, INR 150 crore plus year hundred. My question is on that front. I mean, by when do you foresee that this organic chemical can inch up to around INR 120 crore to INR 130 odd crore? By Q3, Q4, we should be there. That's the only way we can achieve our next year target there. Because next year, we have to almost run at that full utilization level throughout to be able to reach that INR 700 crore, INR 725 crore. Okay. You mentioned that because of some seasonal factor and some high inventory for one molecule, there was some lower revenue. Can you give some numbers, I mean, how much revenues is contributed by that particular molecule in organic chemicals front? What do you foresee maybe two, three quarters down the line? I mean, is there major concern in terms of the organic chemicals or not? In pharma, basically these molecules going down for a while happens many a times. This time it has been a bit longer. What happens is when we see that if this is going to be a more permanent trend, our current reading of this is that this is just an inventory buildup. Once we know and we have a better clarity on that, we start planning some other molecules in that place. We already have plans around that, so it will not be a concern. We have a plan B that, okay, if this continues and if there is no correction, then by Q3 or Q4, there will be some other molecules which will start replacing that. Okay. My second question is on, given that this 250 odd crore, this new CapEx at Dahej will be completed by next year, around 2023. After this CapEx, how much excess land will be available at Dahej? When we acquired the Baroda plant, I think we were having some approvals in place for few of the molecules. What are the plans for the Baroda plant? I think, right now, after Dahej, we will still have space for two MPPs at least. Two MPPs meaning, let us say a revenue of additional around INR 500 crore-INR 750 crore, depending on the product mix, et cetera, is something that we can still get out of Dahej side. In addition to that, yes, Dahej, in Karakhadi, the idea is that right now, since we have SEZ benefits, which is for the 10-year period, and many of the demand which we are having is related to deemed export or export region. Therefore, our focus of the investment will be in Dahej. When we have the domestic business, basically we will be focusing on using the Baroda lab. Thank you. The next question is from the line of Duresh from White Oak Capital. Please go ahead. Yeah. Thank you for the opportunity. Just on this, the electrolyte salt, lithium salt, electrolyte and the rentals. I just want to understand which 250 metric ton is operational by FY 2023, which relates to the salt capacity or the electrolyte capacity, or is it a combination? Can you just explain that and the balance 400 metric ton which you said? Can you just explain the capacity that you have and how much have you spent in this capacity? Yeah. I think the 250 metric ton per annum was basically the electrolyte, so the formulation plant which we are going to make. Those are pilot facility which we want to do, with which we can start supplying to our customers. We have even a smaller facility which can produce couple of metric ton. I mean, for, let's say less than 5 to 10 metric tons per annum. That has already been made operational, and from that, we have started giving samples to our customer. What we are targeting, that by FY 2023, that 250 metric ton will happen. So that will be more like a industrial scale to give our customers higher confidence. Also, the intention is for us also to experience that, okay, what we made at a 5 liter, 10 liter scale, how does it get made at 1,000 liter scale? So that's the main idea behind that 250 metric tons per annum, more like a trial plant for us. So in that, you are making the salt, LiPF6. You're buying the solvent and you're making the additive. No. When we said that 250 metric ton per annum is the electrolyte, the formulation capacity. The 400 metric tons per annum which we have mentioned, is where we are going to make the salt, which can be like LiF, LiPF6, LiFSI, or other salt additives which we are planning to make there. So that is the salt additive capacity. Generally, 400 metric ton, again, so this is where the salt will be made, and that can support a much larger electrolyte production as well. 8 times, right? So its ratio is 1 is to 8 or something like that, right? So you're looking 400 ton of salt, you can make 3,200 tons of Huh? It depends on each customer's formulation. And part of it is also intermediate. So, I would not like to put exactly how much it will support electrolyte, but this is basically salt. And our intention here is to basically also use this to explore international market for this, because as we stated in our previous calls, international market exists for Neogen for the salts, because this is a market which is already existing, and the current electrolyte producer, or let's say even the salt producers would like Neogen to support with some lithium salt, the basic lithium salt or LiPF6 or other such electrolyte salts. That is what we are targeting with this. And yeah, initial requirement of India also, internally we can support. The main purpose of this is to test the international market and be ready for the initial India demand. Again, the same logic as the 250 metric ton per annum, test the facility so that when we are setting up a much bigger facility, we are more confident on the design, and we can further optimize it based on the experience we have here. Certainly. Just to help you, what I really wanted to understand was the vertical integration. My understanding, and correct me if this is wrong, is that the edge is really making the salt, which is LiPF6. In order to make LiPF6, how backward integrated are we? Like the PF5 gas, are we going to make that also? Just trying to understand the level of vertical integration, because when you say we make the electrolyte, my understanding is the edge is in making the salt, because solvent we'll probably buy from outside. In making the salt, which let's say right now is LiPF6, there could be other salts later on. In that LiPF6, how vertically integrated would we be? We will be only importing lithium carbonate, which comes out of mine, and then the remaining chemistry will be done by me. Okay. Solvent we'll be buying from outside? This is- Solvent will be bought from outside. To make the electrolyte. Yes. Solvent and non-lithium additives also we may buy from outside. There are some additives which are lithium-based additives, and there are some non-lithium based additives. These additives we will buy from outside, but the salt will be made in-house. That salt can be sold outside also, or it can be used for internally to make the own electrolyte also. Okay. Second question, sir, is that this market, the LiPF6 prices are very cyclical. They were $10 a kg, then they went up to 50, 60. They cycled again, is my understanding. The market seems to be, if you look at the other players, it seems to be heavily oversupplied will be the perception that has been coming up. What is the confidence that LiPF6 will not be oversupplied and will make reasonable spreads? It was oversupplied for a while, and today if you ask, most of the people think it is undersupplied. One of the indication for us also was that when the lithium prices corrected or changed, LiPF6 corrected much higher than what the lithium price is corrected. This is based on our understanding, okay? The second thing is, non-Chinese LiPF6 is definitely undersupplied, because 90%, 95% of LiPF6 is produced in China. For various reasons. I mean, in India, partly it is driven by the PLI scheme. Let's say where it's not driven by PLI schemes also, countries are very worried that dependency which they have it on China. Worldwide, the way the demand is expected to grow, when we look at that number, there's a lot of new capacity which needs to get added over the next 5 to 7 years. Most of the countries outside China are trying to make sure that that capacity gets added outside of China. So people are trying in Japan, they are trying in Korea, we are trying in India. Ultimately, our feeling also is that, let's say if we are able to make it efficiently, we can partake in the global business, right? And supply lithium salt there. If not, and if we feel, no, Chinese is still very competitive and we are not able to match because the scale is very higher, or China, there is over capacity, we are quite confident that at least when it comes to India, it will be part of the overall package of our formulation and the LiPF6 contribution into that will be relatively lower. So the knowledge, the comfort, the benefit of local transport, the PLI scheme benefits will basically trump and at least at our electrolyte selling level, we will not have a challenge even if it is oversupplied in China. So this is our understanding or reading of things. Also, unless you make LiPF6, I mean, for the electrolyte, you make it from scratch, starting from lithium carbonate, it will be very difficult to meet the PLI guidelines also. So I think that will also be one of the factors which will support production of LiPF6 locally. Okay. Thank you so much. Thank you. The next question is from the line of Sabyasachi Mukherjee from Centrum PMS. Please go ahead. Yeah, hi. Thanks for the opportunity, Dr. Hari. Firstly, two clarifications. The INR 700 crore-INR 725 crore revenue guidance for FY 2024 and the INR 1,000 crore revenue guidance by FY 2025-2026 does not consider the incremental revenue that will flow from lithium salts and electrolytes, right? Yes. It does consider the lithium salt because it is part of the INR 150 crore CapEx. We said that the journey from INR 700 crore-INR 725 crore to INR 1,000 crore is based upon the INR 150 crore CapEx which we are doing, and that INR 150 crore CapEx has three parts. One is traditional lithium salts, second is the lithium salts for electrolyte, and third is the organic. Therefore, whatever revenue we get out of that 400 metric ton is part of that INR 1,000 crore. But what it is not part is the bigger electrolyte business which we are targeting in India. That is still being discussed and determined. That is independent of this. Okay. No, but this lithium salt CapEx, which is part of that INR 150 crore, that will get completed by June 2023, right? So some portion will flow in FY 2024 as well. It would be limited. I am right now not confident enough to say, "Okay, it starts in June 2023, then how much revenue we will get in that?" But yeah, we have not yet revised that contribution of this. Technically, everything will be ready by June 2023. So we will contribute to some extent, let us say, higher in FY 2024, but so far, we have not accounted exactly how much additional we will get in FY 2024. Got it. Maybe by Q4 of this year, once we are closer to the completion of the timeline of the CapEx and we start committing to our customer based on that capacity, then we can give you a more clarification on what will be FY 2024 upward guidance we have based on this INR 150 crore investment. Got it. And by then, by probably Q3 or Q4, when you have a better clarity on the electrolyte CapEx as well, you will be able to probably guide for a much better clarity on the FY 2025 or 2026 revenue as well. Yes. Incremental one. Yes. So that you are right. So the electrolyte business, the large electrolyte business in India, as per the PLI guidance, the Indian companies have to start in 2024. If they are starting, they have two years' time, and maybe government can give them some extension. But if we think this issue that then in 2024, the production of battery cells have to happen. So, we will have to make the decision by the second half, set up the plant so that the bigger plant becomes ready by 2024. So they will start contributing in FY 2025 a bit. Most of the customers are also going step by step. So their first plant would be, let's say, a 1 gigawatt-hour, then they will increase it to 5 or 10, et cetera. FY 2025 will be their initial trials for which we will start supplying, but commercial level trials. And then FY 2026, where the major ramp-up will come from the India's electrolyte demand. Got it. Very clear. Next question is, on the volume growth in organic and inorganic, I understand that the absolute EBITDA per ton you have kind of maintained and due to the high revenue base, the margins look optically lower. Yes. What has been the volume growth in organic and inorganic, if you can just throw some light on that? So I think, in case of organic, other than slight increase in bromine, there is no major price increase driven factor which has given us the increase. What you see basically is the higher utilization levels which are allowing. And like I said, we were also able to make little bit more organic, which we've kept it as an inventory, but because of our customer demand being low, like I mentioned in pharma, and Q1 always is a case where Q1, Q2, we generally always build up inventory and Q3, Q4, unless new capacity comes online, we basically pare down that inventory. So it's more that's the trend we've seen. So utilization levels have also improved in terms of volume. And then I think Q3, Q4, you will see more closer to the INR 100 crore plus of quarterly run rate on the organic side. In case of lithium, I think the number which we had was approximately. Again, if you are comparing with the same quarter, which was INR 17 crore versus what we did around this quarter, it was significantly higher because like I said, there was this non-Indian demand also which grew, which itself contributed to almost 25%, and the Indian demand also was significant. I'm sorry I don't have the exact number, but I would say we see the difference between 51%, 58% is the EBITDA or PAT growth, and the revenue growth is around 25%. So there's a difference between that 58% and 75%, which is basically largely coming from the lithium prices. No, right. So you have been doing this INR 58 crore for the last two quarters? Sorry to interrupt, Mr. Mukerji. Yeah. I am going to join now. She has rejoined us. Thank you. Just last bit. Last follow-up question. Last year, INR 58 crore, last quarter INR 58 crore, and this year INR 58 crore. So between last Q4 and Q1, volumes are lower because the prices of lithium have increased. So as compared to Q4 of last year, we have done lower volumes. But as compared to Q1 of last year, we have done significantly higher volumes. Got it. Understood. Yeah. Thank you. Thank you. The next question is from the line of Rohit Nagraj from Centrum Broking. Please go ahead. Yeah. Thanks for the opportunity. My apologies if the question is repetitive, but what is the scenario for bromine in terms of availability and pricing currently? Thank you. I think there is no major change in the bromine availability scenarios. There are seasonal factors that during monsoon season, sometimes the bromine availability goes down in India a little bit. But we always prepare for that, and that is why we also import part of our bromine internationally. But overall, if we are talking of 2-year, 3-year trend, less and less bromine is available from China and India, and Israel and Jordan are basically making up for it. So that trend continues to remain and no major change from what we have seen in last one or 2 years. Right. Second question is, any update on the pharma CRAMS segment that we are targeting, particularly from the capacity and market perspective? CRAMS business or what we call CSM business, we are targeting both pharma and agro, and as we said, recently, we also added some non-pharma, non-agro customers in that also. So we have some traditional pharma CSM business with Europe, which has been going for quite some time. That continues. Similarly, our other CRAMS business with traditional customers continue, and they are ramping up also. As well as every quarter, some molecules move from pilot to first commercial, then from first commercial to main commercial. So that trend also continues. So there's no major update on that, except maybe post-COVID, some of the new customers we were targeting from U.S., from Japan, from Europe, were able to visit the site, and they got a better understanding, and now based on that, our discussions are going forward, of which new molecules or projects which Neogen can do. Sure. Thank you. Thank you so much. I understood it, sir. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Thank you all the participants for joining the call. I hope we were able to respond to all your questions. If you have any further questions, please feel free to 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 you again in the next quarter. Thank you. On behalf of Neogen Chemicals Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your line.