Neogen Chemicals Limited (NEOGEN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Neogen Chemicals Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you.

Thank you. Good evening, everyone, and welcome to Neogen Chemicals Q3 FY '25 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. Gopi Krishnan Parathi, Chief Financial Officer. We will commence the call with opening thoughts from the management team, post which we shall open the forum for Q&A where the management will be addressing queries of the participants. Before we commence, I would like to share our standard disclaimer. Certain statements made or discussed on the conference call today may be forward-looking statements. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals Q3 FY '25 earnings presentation, which has been uploaded on stock exchange website. I would now like to invite Dr. Harin Kanani to share his perspectives. Thank you, and over to you, Dr. Kanani.

Thank you, Nishid. Good evening, everyone, and welcome to our earnings call for Q3. Before I commence, I would like to wish all of you a very happy new year 2025. I hope you had an opportunity to review our quarterly results presentation. As always, I will start by providing an overview of our performance and strategic direction, followed by our CFO, Mr. Gopi Krishnan, who will detail the financial results. We have delivered impressive performance in the period under review with 22% growth in revenue and 71% improvement in EBITDA. This performance is attributed to the hard work and dedication to the entire team as well as effectiveness of our strategic initiatives, and it came on based on some challenges which we had in the prior year period in the same quarter. The key drivers of this growth are strong ramp-up in BuLi Chem and sustained volume gains in our base business, both in organic products as well as inorganic products. Notably, higher top line was achieved despite the depressed pricing environment and ongoing global headwinds, demonstrating our ability to effectively navigate market and fluctuations. The robust recovery was also fueled by new product launches and a focused pursuit on export opportunities. This success underscores our commitment to innovation and expanding our global footprint. Underlining our business model's responsiveness, we have strategically adapted to the persistent slowdown in the agrochemicals by proactively shifting our focus to other end-use sectors like semiconductors, flavors and fragrance and select industrial custom synthesis manufacturing opportunities, diversifying revenue streams and capitalize on emerging market trends. Now before providing updates on the expansion initiative, let me share some important development. Honorable National Company Law Tribunal has improved the amalgation of BuLi Chemicals India Private Limited with Neogen Chemicals. With this, BuLi Chem stands merged with Neogen Chemicals effective 31st January 2025. Therefore, the stand-alone results you see include BuLi Chem. This is expected to streamline operations, reduce costs and enhance Neogen market position in pharma and agrochemicals. BuLi Chem saw significant progress this quarter. It broadened its product offerings with introduction of new lithium products, further enhancing its profile in the market. In a key strategic move, we expanded our reach by commencing exports to EU, Korea and Japan, opening up new avenues for the growth. Adding to this positive momentum, BuLi Chemical received EC approval for its brownfield expansion, paving the way for increased production capacity and further opportunities after we received final regulatory clearances from the regulatory authorities. I will now provide an update on the expansion initiative. New capacity of 400 metric tons per annum of lithium electrolyte salts and additives at our Dahej and 2,000 metric ton of electrolyte at Dahej. Trial supplies and initial approved materials have been shipped to customers. A phase commissioning strategy is underway to meet India's growing battery materials demand, aligning with incoming battery capacities in India. The Indian ACC battery manufacturing ecosystem is gaining momentum with one major manufacturer already in trial production at a giga scale and several other expected to commence operation at a giga scale within next 2 years. There are also several small megawatt hour level capacities, which have also started and Neogen has actively started working with them on approval. This growth will drive demand for locally sourced electrolyte and lithium salts. In line with this, we are discussing also establishing long-term partnership with battery manufacturers for electrolyte supply. And we continue -- we also submitted our samples for electrolyte salts to our international customers. We have submitted the data based on our production, and now we are awaiting their final approval for the audit, after which we can also commence international salt sales on a more active basis. To give you an update on the greenfield battery material facility using MUIS technology. This project is rapidly advancing, having achieved full financial closure. Civil work is progressing quickly with 70% of the civil work and design work completed. Modular plant development is underway at our international partner and equipment assembly and installation is in progress. Key equipment and machinery are expected from MUIS -- sorry, MEC by the second half of calendar year 2025, after which plant installation will accelerate. So we are on track to have a commercial production before -- in FY '26. We have also from the INR 1,500 crores total CapEx envisag, around INR 419 crores has already been deployed till Q3 FY '25, and we remain on track to start commercial production here by FY '26. Looking ahead, we are particularly excited about the progress of Neogen Ionics and its lithium salts and electrolyte projects. The Indian SCC battery manufacturing landscape is rapidly evolving, and we are also seeing strong government support in policy to support faster adoption of EVs as well as battery storage systems. In order to boost domestic manufacturing, the recent budget also included additional capital goods for EV manufacturing in the list of exempted capital goods, which will further speed up this process. Similarly, the custom duty on many lithium products -- on the lithium carbonate remains nil and also recycling is being encouraged. This will significantly reduce overall production costs and encourage innovation in lithium and battery value chain. Based on our current momentum and promising outlook, we are confident in achieving our FY '26 revenue guidance of INR 950 crores to INR 1,000 crores on the stand-alone business. And beyond FY '26, the rapid scale-up of both lithium salt and electrolyte will be the primary driver of our consolidated performance. In conclusion, Neogen Chemicals remain committed on the long-term growth strategies. We are undeterred by short-term market fluctuations and are focused on capitalizing on emerging opportunities to generate sustained value for all our stakeholders. We are confident that our strategic investment, agile business model and dedicated team will deliver continued success in the years to come. That concludes my opening remarks. I would now request our CFO, Mr. Gopikrishnan Sarathy, to share financial highlights for the period under review.

Thank you, Dr. Harin Kanani. Good evening. Good evening, everyone, and welcome to the Neogen Chemicals Q3 FY '24 Earnings Call. I shall now take you through the key financial highlights. Please note, these are all on a consolidated basis and analysis is based on year-on-year comparison. We are pleased to report a strong recovery in revenue, reaching INR 201 crores, marking a 22% growth. This was boosted by the volume growth in base business and healthy contribution from BuLi Chem, which is now part of the Neogen Chemicals stand-alone. Organic revenue for the quarter stood at INR 177 crores, reflecting an increase of 36%, while inorganic revenue witnessed a 29% decline amounting to INR 24 crores. Both bromine and lithium raw material prices experienced a sharp decline during the quarter on a year-on-year basis. Adjusting for this fall, organic revenue would have been higher by INR 34 crores in Q3 FY '25, while inorganic revenue would have been higher by INR 13 crores during the same period. EBITDA grew significantly by 71%, reaching INR 34.6 crores. This was driven by the improved plant utilization, operational efficiency and lower employee costs. Despite pricing pressure, consolidated margin remained strong at 17.2%. Our profit after tax came in at INR 10 crores -- this was steered by the strong operational results, coupled with favorable base effect due to onetime expenses recognized in Q3 of previous year. Ongoing CapEx in Neogen Ionic led to increased depreciation and higher interest expenses on a consolidated basis. Domestic to export revenue mix for the quarter stood at 65% to 35%. This concludes my initial remarks. I will now request the moderator to open the forum for Q&A session. Thank you.

We will now being the question and answer session. [Operation Instructions] We will take the first question from the line of Arun Prasath from Avendus Spark.

So, you mentioned in your opening remarks that one of the customer is in the trial period of manufacturing electrolyte. So without naming the customer for your salt, can you also give me the status of construction of other key potential customers plant and like what stage of -- and like what stage construction or near construction or -- and within them, what is our stage of qualification with each of these customers?

Sure. So as I said, one of the customers have started manufacturing in their giga factory. And in parallel, the second customer is also likely to start sometime in 2025. And there are at least two more customers who are likely to start by 2026 and another two more by end of '26, early '27. So I think if we take -- like if you think of end of 2026 kind of scenarios, we expect at least 5 giga factories. Let's say, the capacities they are targeting is between 5 giga to 30 giga range, which would be working and maybe first one would be starting by '27. Now these giga scale kind of customers. On top of that, there are smaller companies who currently have planned like 100 mega or 1 giga kind of an ultimate because these are other capacities such as for, let's say, mobile phones, laptops, some drones and some very specific lithium and battery applications, more niche applications, which these guys are targeting. So these customers also remain in contact with us. And many of these customers want to -- like they have just started consuming. Now some of the customers, one of the challenges which they are facing is that they got the technology from an international partner and some of them don't have the electrolyte recipes with them. So at least their initial demand, unfortunately, they are forced to buy from -- with the international supplier at very small quantities. But they are actively -- because they are facing a lot of hurdles because many times the material comes, if they are not able to use quickly, then it degrades, it creates issues with their performance. So they are facing a lot of hurdles. So we are right now working very actively with them to help them give an alternate electrolyte composition. So they can basically -- which is performing at least in our test similar or better so that they can switch over to Neogen. So we feel gradually this switchover should start happening. And these smaller capacity customers will be permanent customers for our 2,000 KTA production in Dahej. And the giga customers, when they are beginning, when they require like a few hundred metric tons, a few 500 metric tons per annum, in the beginning when they are at 1 giga or so, they will start with our Dahej. And as they go to 4 giga, 5 giga, they will move to our Pakhajan facility. So this is how we are looking at it. So we feel as the trial production gets over, maybe towards end of Q3 and early next financial year Q1, the electrolyte volumes on the giga factory starts, let's say, Minimum it requires like 500 to 1,000 metric tons per annum. So that itself, one customer itself can fill 25% to 50% of our capacity. So we feel once that happens, we'll start seeing big jump and each customer starting factory will like give us one additional bump in our sales volume. So I think the way we are right now, just when these first two customers, the Giga customers who are starting in this year, they will be ready for a bigger volume beginning of calendar year 2026. And around that time, basically Q4 of next financial year, we are also targeting our Pakhajan facility to come online. So I think it is matching very nicely and the customers are also very comfortable that they know the electrolyte, they will not get stuck. So the Giga customers are happy. Wherever they need support in terms of figuring out their recipes, improving their recipes, either based on our expertise or using Mitsubishi's expertise, we are providing them. So all the customers remain happy and very actively discussing with Neogen for their requirements.

Very helpful, Dr. Kanani, similarly, can you also help us understand about the salt customers in the export markets?

Yes. So salt customers in the export market, as we had shared earlier that we had started that initial 200 metric tons per annum capacity. And in parallel, like 400 tonnes in which one section of that is like which is making the intermediate and making some salt and additives on a trial basis. So this was currently the quality of -- so that is already commissioned and the remaining is currently getting optimized. So the quality is getting optimized. So now finally, we have received -- like we have achieved like what is one of the toughest quality requirements of international customers. And this data we have recently shared with our customers. They are viewing at it. So once they feel that this production is stable, then they would basically come and do the audit. And in parallel, they might do some sample work. I mean sample work from this commercial stable final optimized process. So once those samples kind of get approved and we pass the audit, hopefully, in -- I mean, in the current financial year or maximum by early Q1, then they would basically start buying. So their demand is much bigger. And once they approve, we can very quickly achieve full utilization level. So therefore, we also continue to keep increasing the capacity from 400 to 2,500. So that also, we are quite confident that majority of it will be online by June 2025 and some balance residual capacity would be ready by September 2025. So by -- let's -- so we'll have the...

Ladies and gentlemen, we've lost the management connection. Kindly stay connected while we rejoin them.

I'm sorry, the call got dropped. So basically, what we feel that the existing 400 metric tons, once they are optimized, once we have the customer approval, they will fully start contributing from, let's say, Q1 maximum by Q2. And by Q2 next year, we would also have the remaining capacity up to 2,500 tonnes coming online in phases. So in the second half of it, we should have that also fully available. And to support our electrolyte production in Pakhajan, additional salt capacity also, which is required to support that. That also will come online by, let's say, March -- in the next financial year by Q4. So like Pakhajan remains on track. In case of Dahej, electrolyte capacities, we are -- like again, the main challenge there is customer demand increasing. And for the electrolyte salt, we have now achieved reasonably stable production, which data we've shared. So once we get customer approval either this quarter or next, then we'll achieve full utilization very fast.

Just one clarification, Dr. Harin. So the export customers with whom we are engaging, have all of them started their side of the plant?

Yes, yes. So these guys are already buying from China. They want to start switching from China to us.

Okay. Understood. And this will be how many customers we are talking?

[indiscernible] demand, just approval and then the demand already exists.

Okay. We are talking about how many such customers, Dr. Harin?

So we have discussed with -- overall, we have engaged with more than 20, 25 customers globally, out of which 4 or 5 are active. For the remaining, we feel just the 4 and 5 like the discussions or the MOUs we have in place can completely take our full capacity. So we are not actively engaging. Our first focus is to focus on these customers. As our capacities come online and once we start regular business with them, then there are other customers also to whom we can approach. But the 4, 5 customers, we are working quite actively.

Understood. And just my final question on the Ionics business. You talked about the formula-based pricing a couple of quarters ago on these products. Is this now fairly accepted by the customers? Or still you are having exposure to the spot open market?

So the long-term contracts or the MOUs we have are all formula based, okay? But those are the customers who will -- like I told you, once the quality approval comes, once the audit comes, that business will kick in there. Till such a time, we are just basically right now trying to sell in the spot market or trying to sell the intermediates, right, who are -- so till now our salt -- so again, finally, our salt as well as additive, everything together in 9 months, at least we were in single digits. Now we are in double digits. So that's a good news. Some of it is like considered trial production, so will be adjusted as part of our CapEx. But still at least in double digits. But most of this is intermediate sales to our competitors in China or like some very -- not very high-quality required kind of markets. the long-term formula-driven market will basically kick in once those contract approvals come in place.

Right. And in a steady state, what kind of a long-term versus spot mix that we are targeting?

Most of it will be long term because the long-term contract we have can basically take care of our entire capacity what we have planned.

[Operator Instructions] We'll take our next question from the line of Abhijit Akella from Kotak Securities.

Just on the battery chemicals business, Dr. Harin, we previously had an expectation of doing somewhere around INR 50 crores to INR 75 crores of revenues this year, followed by somewhere around INR 450 crores, INR 500 crores next year, I believe. So if you could please just update us on whether you think those numbers are still on track? Or could there be a little bit of slippage in terms of time lines?

No. So I think for the current financial year, we expect there will be slippage, both because the electrolyte plant -- the India's electrolyte demand, which was expected by us to pick up in the second half is now going to start only towards end of the year and early next year. That was basically from whatever our battery production or the cell production, which was going to happen in India. And on the salt side, because of this delayed approval, it would be more like 20 -- like somewhere between INR 20 crores to INR 25 crores maximum up to INR 30 crores for the current financial year. And next year, we are still reviewing the upper end still remains INR 500 crores based on the capacity. But depending on when these approvals come in, right, whether we get that in -- whether we get that end of the current financial year or Q1. And second is how fast the electrolyte demand picks up. Depending on that, it would be somewhere -- whether it will be INR 300 crores, INR 400 crores or INR 300 crores, INR 500 crores. That's the range which we'll let you know by next financial year, like May, in the next quarter call, we'll have a better visibility on that.

Okay. Got it. And just the other one was with regard to some of the financials. So one was regarding the other expenses, which seem to have increased quite significantly quarter-on-quarter. So what's driving that? And if you could please also just update us on the debt position at the end of the quarter?

So maybe I'll let Gopi answer this question.

Other expenses compared to last -- on a quarter-on-quarter basis, it's hardly higher side by around INR 7 crores, but this has been largely seasonal. Even last year, on a quarter-on-quarter basis, it was -- it has gone up. The main reason being, one is some Diwali bonuses to the workers. And also, there are some major exhibitions which happened during this part of the year. So these two factors, along with a few one-timers have contributed to this increase. So this is something which is quite seasonal and has been done in every quarter even in the past. Coming to the debt amount, on a stand-alone basis, my debt has been close to INR 450 crores. And on a consolidated basis, it is at INR 570 crores.

Next question is from the line of Rohit Nagraj from B&K Securities.

Congrats on good set of numbers. First question, Dr. Harin is in terms of feedback from the customers and time taken to again rework on the recipes. So generally, how much time does it take for us to again go back to the quality that the customers are asking? And have we seen such kind of quality lapses at least in the initial part when we have been sampling to the customers?

Sure. So Rohit, for electrolytes, we don't have any quality issues. So whatever electrolytes we've been supplied, we are doing well there. There is no challenge on the electrolyte side. Electrolyte, as you know, is basically mixing the salt along with solvents, along with additives. What I referred to earlier was that some of the customers, they import the technology, let's say, from a Chinese, Japanese or a Korean cell maker. But sometimes the cell makers, they also don't know what is the recipe of the electrolyte. So till they don't know what is the recipe, we are actually helping them figure that out to find an electrolyte composition, which is giving as good as what they are getting or even better. So that is what I'm referring to. Now that process and approval like depends on the customer and stringency can take any time from 2 to 3 months to even 6 months, 7 months. But so far, whenever we have submitted our electrolytes to all the customers, the quality has been good and has been well appreciated. In fact, some of them found our quality is better as compared to even some of the Korean or the Chinese electrolytes, which they imported. And again, they are all very keen to localize this in India, either because of their PLI benefit issues or because like it's just very difficult to import electrolytes even at small volumes from internationally. Coming to the electrolyte salt, again, electrolyte salts, we are able to achieve the quality which is required internationally, but we are trying to reach the highest quality, which is required, which is the most stringent one. which is required for some of the best customers in the world. Now that has already been achieved. We've already shown this data to our customers and our customer is currently evaluating. And based on that, they will further proceed. So this was something which was expected. It was just something which took a little bit longer for us to achieve as compared to -- this is the first time we were doing it, and there were some small learnings. But we've now incorporated those and now we are able to achieve the quality which is required. So we are now waiting for the final customer go ahead where the customer will come to evaluate the final modified because any change has to be validated by them. So the final modified process or the improved process, they'll come and validate and then the commercial sales can start.

This is helpful. Second question is in terms of the overall capacity. So the 400 MTPA electrolyte salt additives plus 2,000 metric tons of electrolyte how much of this capacity will be utilized for domestic market? And how much of this capacity is likely to be there for the exports market? And as I understand MUIS electrolyte, the entire capacity is supposed to be for domestic market because I think the electrolyte, it does not make sense to export to any other geographies because of the composition.

Yes, you are absolutely right. So the electrolyte capacity of 2,000 and 30,000 is largely targeted for the domestic -- for the domestic market. Maybe some small quantity in geographies where there is no niche electrolyte producer where like small niche guys don't have an option. That's where we might export a little bit. But I would say 95% would be domestic, only 5% if at all would be exports in case of electrolyte. When it comes to electrolyte salt, look, we are the electrolyte maker, so we will be the internal consumers and rest of all will be exports for the international market. So like we are having 400 now, which is going to become 2,500 by, let's say, next financial year. And then it is going to become 5,500 by end of next financial year. So all of this, except for whatever is the electrolyte internal consumption will be sold in the international market. And between 4, 5 customers, which we mentioned, they can pick up this entire quantity. So their consumption is there for this entire quantity. So that's where -- so it will be mostly exports. And then as our electrolyte demand in India continues, most likely in the future, we'll have to add capacity both to keep meeting the increasing demand of the international customers as well as our increasing international internal consumption.

We'll take our next question from the line of Jason from IDBI Capital.

My first question is, I mean, some time back, you had -- you did mention that steady-state realizations for electrolyte, I believe, was around $8 to $9 per kg and lithium salt from $28 to $35 per kg. I understand that, but what's happened in the interim is battery-grade lithium carbonate has witnessed a steep decline. It's gone from around $15,000 per tonne to around $10,500 around in that range itself. So I just wanted to know with the raw material price seeing such a sharp decline, what would the steady-state realizations for both these products be?

So I still believe that -- and even recently also when I talk to lithium companies, the lithium companies expect the stable lithium price to be between [ $15 ] to [ $25 ]. What you mean as a steady state? -- current price is not sustainable because majority of the new miners are not able to make money. So if the situation doesn't change, they will stop production and then you will have another supply side shock. So steady state, people expect to be between $15 to $25, $20 being like the average lithium carbonate or lithium hydroxide price. And the ranges what we had given is keeping in mind $15 to $25 lithium carbonate kind of price range. So all the guidances we had given, we had given based on steady state, not based on large numbers. right? So they continue. And yes, I mean, if the price remains what it is today, then let's say, maybe electrolyte could be cheaper by about $1, $1.5, depending on the raw material -- like not only -- not only lithium, but other salt and solvent and other additive demands are also prices are also lower. So depending on that, we again don't worry too much about that because we are more focused on the absolute EBITDA or absolute ROCE, what we are basically focusing on. So that remains what we have guided, and that remains our main focus. So depending on the price fluctuation, EBITDA percentage or those numbers can change. But our CapEx doesn't change because of that, except slightly for working capital adjustment. But otherwise, majority of the investment remains the same. And therefore, the absolute like EBITDA margins that we are targeting also remains the same.

Yes, sure, sir. Sir, actually, my question was just emanating from the fact that if the raw mat decreases, then the absolute EBITDA also -- if the realization comes down, the absolute EBITDA also goes down, that could hamper some of our position. But you are saying that probably you expect the lithium carbonate prices to revert back to mean levels going ahead. And so fair, fair thing.

But also the contract is such that the raw material price increase or decreases are pass-through. So while the percentage will change, but let's say, per kg or per dollar, like whatever our contribution that we are looking for, that does not change. It only changes that we have projected that when we do 30 KTA plant, what will be my operating cost, like what will be my utilization levels. So as long as I'm able to achieve those operational numbers, the absolute EBITDA will not change.

Yes. Sure, sir. Okay. So my next question is, I mean, we have again spoken about it. I understand that electrolytes, they need to be domestically procured as it's not feasible to transport being voluminous in nature. But again, just from this perspective that raw mat prices, lithium carbonate, they have seen such a sharp decline. So do you see a significant risk from China import of predatory pricing for this -- for the electrolytes?

So like I said, like even some of the customers who are also currently getting small volumes from China or Korea because of the reasons I explained to you earlier, right? They are all very actively having -- like even if they are getting -- even if they are like running a 10-megawatt or a 50-megawatt hour plant, still it's such a big headache that they are just actively working with us to basically localize it. So it is a big pain. Also, there are many hidden calls when you bring it and suppose if the material has gone bad. So either your performance of the cell goes bad or you have to discard that electrolyte, which is also not very easy to do, by the way. So because of that, like people do want to change. And so that remains a very clear view. Already China is doing predatory pricing. But when we look at our 30 K -- 30 KTA and we look at China, then we look at further logistic cost in bringing those containers, sending it back. And then if you further factor in custom duties, which are expected to come in beyond 2026. So I think when you factor all of that in, most customers can clearly see value in a local supplier.

Okay. Sure, sir. And finally, sir, I just wanted to ask from a related standpoint only. Now in the 2-wheelers and the Olas of the bikes, et cetera, I believe this full imported battery packs are being -- they are being imported from various players like LG, Panasonic, -- so the fully imported battery packs are being imported from China or from whichever geographies, more so from China. So could that be a risk? I mean, if they continue to be imported at a cost-effective price or fully imported battery pack, could that be a risk to our -- I mean, to our battery chemicals business by any chance?

Sure. So just a clarification. So most of the companies like Ola, et cetera, they are not importing full battery packs. They are basically importing the cells. And the battery pack is mostly made internally, like some of them might be importing the battery pack, but most of the battery packs get made in India, only the cells get basically imported. Any case, I mean, in most of the cases, the main issue is would these companies directly import cells and not make it in India. So there are two parts, right? One is there is a PLI. So moment -- so that was the whole reason for a PLI where at least there is Ola and there is Reliance, 2 of whom basically have very large 20, 20 giga kind of support from the government. So this is one aspect. Then in the past, the government was very clear that once cell production will start in India, there will be custom duties, there will be BIS standard. So those kind of things will come. Right now, they are not there because there are no like manufacturers to basically take care of the requirement. So I think that is what is something which is very clear to all cell producers that government definitely wants localization. On top of that, for many of India customers, if you look like, for example, Tata has internal consumption, they have planted Tata Agratas, right? Ola has planted its own like Ola Gigafactory. So many of these have internal consumption, right? So even from a strategic point of view, batteries are the new engines of vehicle, like that is where your performance from one car to another car changes. I mean one of the key factors. So most of this, even from a strategic, from innovation, from design point of view, they want to internalize it. So that's the reason why, as I mentioned, there are at least six or seven companies actively working to set up capacities ranging from like minimum like 12, 13 giga to 30 giga in the next 3 to 4 years. And I think none of them are worried about cells coming from China at very low cost. Of course, they want to reduce the gap. They want to be as competitive as possible. But at the same time, they know this is something required local production. There's a very clear government policy and mandate and also their own requirement to localize it.

We'll take our next question from the line of Bhargav from Ambit Asset Management. We have lost the current participant. We'll move on to the next question from Archit Joshi from Nuvama Institutional Equities.

Sir, earlier, we said that over the next maybe 2, 3 years, we do expect gigafactories in the range of, let's say, somewhere around 5 to 30 gigawatt hours. I just wanted to understand why these gigafactories are being set up for the first time in India by most of them. I think some of them already have it, but a large part of this will be by newer companies and new capacities. So while they put up the capacity, how is their own ramp-up time? I'm sure there's going to be a learning curve involved in that. And whilst they ramp up their capacities, how does it affect our own demand dynamics, including the ones that you mentioned before, the ones maybe you are importing already and are unable to figure out what kind of recipes to use in the existing set of battery cells, and we are trying to figure out how to replace them or to create an equivalent grade of what they are using. What challenges do we foresee in the OEMs who wish to ramp up the capacities over the period of, let's say, 3 to 4 years?

So see, each battery maker will have their own learning. And like I said, one of the approaches that when they are learning in the initial smaller volumes, we can take care from Dahej -- and as their volumes stabilize and become bigger, we can take it to Pakhajan. So kind of Dahej becomes a more flexible start-up plant. But Pakhajan, hopefully, the newer site that we have is kind of fully ramped up and is basically working with customers where we have very strong clarity of demand and basically can work with a lot of clarity and with good operational efficiencies. See, each customer is aware of these challenges. They keep some time, they keep some learning time for that. And of course, when the first factory happens in India and after that, when the second, third happens, within country also a lot of knowledge and the learning which keeps coming in, which helps make the second one better than the first, third one better than the second and so on and so forth. So I'm sure we will do a better job there. Of course, each customer has their own strategy, like one of the customers is going to have a whole set of team who will be running their plant for 6 months. So the experienced guys will come and they will run the team here for 6 months. So there are many such strategies to basically reduce the time lag. And I feel -- yes, I mean, the way I see it, like 2025, like the demand will depend on that, maybe 2026 in the first half. But after 2026 second half, there will be ramp-up happening from existing guys, which will be more predicted, right? Because when, let's say, somebody starts with 1 giga, maybe the first giga is tough, but then 1 giga to 5 giga is smoother and 5 to 20 is even smooth is even more smoother. So I think there will be ramp-up which will be happening, which will be more predictable. So I think, yes, we'll have some pain in '25 and '26. But I think second half of '26, '27 onwards, we should be good. And with the giga factories which are coming and the position in which Neogen is, we are quite confident to achieve like FY '28 or FY '29, the guidance which we have given for full utilization of our electrolyte plant because you can appreciate, right? I mean it's only going to be able to serve only 30 giga. So like all these customers, six or seven customers are coming at 10 giga plus kind of volume, that is something which will be very easy to fill, let's say, by FY '28, worst case FY '29, the way we had predicted.

Sure, sir. I've got a few more, sir. Second one on the long-term contracts. I mean, that at least envisage as on date, with the kind of movements that we have seen in lithium carbonate and lithium hydroxide, while they are stable probably now, we have seen a haywire cycle of that maybe in the past during COVID. Of course, it might be completely abnormal at that point in time due to various reasons. But these contracts, I think ideally, I think the endeavor will obviously be to have our per kg or per tonne margin protected. How do we foresee these kind of challenges while we speak to our customers for a higher volume sale to a particular OEM? How do we have any understanding of this particular design with the long-term contracts?

No. So I think most of the -- at least customers, especially the ones which are OEMs, which have self-consumption internally, they prefer this model because they know lithium price and commodity prices are going to go up and down. And just think if you are an automaker or something, you have seen steel prices also fluctuate. And this is what they like when they work with their Tier 1, Tier 2 vendors, they want those vendors to have a pass-through on the material cost and basically focus on like efficiency in the conversion cost or things like that. So I think that's a model, especially where you have internal consumption of the cells. Those customers really appreciate that and they are okay with it. So I think we've not seen so far challenges. So some we have already signed MOU. -- while we've not started getting the POs, but the MOUs or even contracts that we have signed in those contracts, the price raw material prices are pass-through. And with others, while we have not signed the contract yet because the customer demand is crystallizing. But as a principle, they also expect a pass-through pricing. We've also shown data that if you go back 4 years and you have a pass-through price versus you have a spot price, actually, the pass-through price, the customer saves money because in the spot, you go with crazy lows and then you go with crazy highs. So the crazy highs more than make up for the crazy lows. So on a stable basis, the pass-through is good for the customer because they have seen that they can get more value out of it and they save money over a 3-year, 5-year kind of period of time. And that's what most of the OEMs are looking for. So should not -- we have had success so far in whatever two, three contracts we've done. And the other people are not a to that logic. So I don't see a big challenge there.

Sure, sir. I've got two very short ones. I'll squeeze both of them into one question. So first, your thoughts on IRA. Is the narrative coming under threat by any chance, given the incumbent precedents and import tariffs that we are hearing. Second, this INR 300 crores to INR 500 crore revenue band that you are speaking of on the Neogen Ionics business for next financial year, how would that split be in terms of salts and electrolyte? That's it for me.

So I think on the IRA side, see, again, please...

Ladies and gentlemen, we have lost the management. [Operator Instructions].

Sorry again for the drop. So I think on the IRA side, look, each government will decide on their own what is best. So like if you look at from a policy on one side, there is a discussion about IRA getting changed, modified. And on the other side, there's also a threat to put more custom duties on China than what are already in place. We basically asked our customers view what do you feel about it? And they said, an IRA or no IRA, and I'm talking of the international customers. Just from a supply security point of view, also, we want to have an alternate because we can't depend 95% on China. And many customers are even 100% dependent on China. So they definitely want an alternate. My view is that considering the consumption which my customers have and the contracts which they have done, none of them have said that I'm going to require less. So I think whether it's IRA like whatever modified out of that or like once the dust settles after whatever custom duty modifications, et cetera, happen, the customers definitely want it. Depending on how finally when the dust settles, how the IRA looks like and how the custom duties look like, that will just mean how fast we need to grow our salt capacity for the international market. So the speed and how much more is a question. What we are planning today is, in my view, not a question irrespective. And that's what the customers, like even just like in our pharma agro, we kept using China Plus One kind of tone. Just that China Plus One, our existing capacity is like where minimum required, maybe even on China Plus One, you would need more. If there is a stringent IRA, then you would need much more. So that's my view on that. It's a little bit difficult. So the [ 300 to 500 ], the range of how much will be salt and how much will be electrolyte. It depends, again, like as I said, one of the variables is how much electrolyte will be needed from India. We have a model where it can be 50-50, 50% domestic 50%. But most likely, I expect salt will be heavier. We'll have more contribution from salt. But again, let me give you more color on this in our next call once I have more clarity from my [indiscernible].

Next question is from the line of Bhargav from Ambit Asset Management.

Am I audible?

Yes. Sorry, last time you dropped out.

Yes. Sorry. Sir, I was just looking at your PPT, which says that in electrolytes, you started supplying this 200 tonnes to four customers. But as against that, the electrolyte salt capacity commissioned is also 200 tonnes. So is it fair to say that we are using external salt or everything is captive when we are supplying this electrolyte?

No. So the salt that we have of 200 tonnes will require only like 40 tonnes of the salt. So I mean -- and again, we are also not using 200 tonnes fully, right? So yes, we are selling the salt capacity is still additional -- so if you basically say in terms of giga ton, the 200 metric ton electrolyte is 0.2 gigawatt hours of LFP, NMC kind of mix and 200 tonnes of salt is approximately close to around -- sorry, around 2 giga. So we still have extra salt capacity. And that is how we will be in this year and next year because this salt -- additional salt capacity is targeted for the international market.

So this 100% electrolyte, which we are supplying, we are using our own salt, right? Is that fair to assume? As of now?

We are still using some international salt, but that is mostly for like one customer wants to have a backup. Second, we also retain the flexibility that if the international salt demand is much more, we can use for India purpose where there is still not IRA. So I think we are approving some other international sources as well. But yes, I mean our intent is to use maximum internally, internal consumption. And then only if there is additional required, we will import.

And in this trials which we are giving to four customers, so you mentioned that we need four to five customers to fill our capacity for electrolytes. So these four customers to whom we are supplying, is that part of the four, five potential customers you are looking to supply for filling our full capacity?

No, that four to five is like for our completing our 30 KTA plant, right? So we don't need four, five maybe, but yes, but those are different because some of them have not yet started.

Okay. So these four customers essentially are sort of fairly small customers?

Yes, and the trial requirements of Gigafactory.

Okay. Because then I was just wondering how do we scale that up to in FY '26 because if we are still not supplying trials, then confident that we'll reach that INR 300 crores to INR 500 crores of revenue, which we are guiding for '26.

Yes. So again, we'll give more details. But like I said, the Gigafactory is likely to start regular production by end of this quarter, early next quarter. And also like more customers are approving us. Then in the second half of the year, you'll have a second gigafactory also expected to start. So all this will basically help us the electrolyte demand. And on the salt side, as we keep adding the 200 metric tons will become 400 and then will become 2,500 by next year. So that will allow us to add more salt capacity. And in Q4, like the existing giga customer will also start ramping up as well as the new gigafactory also may have started or would be ramping up. So together, we expect between 300 to 500.

And lastly, the gestation from trial to commercial sale would be how long, sir. Broadly?

So in case of electrolytes like we are already working with some of the customers from the beginning. So then it's very smooth because when they are at kg level, they approve us kg, when they are at tens of kg, 10, then 100 and 1,000. So then as their capacity is ramping up right from the beginning, they are using us. So then it's very smooth. And most of the customers we are working in this way. So for electrolyte, we don't see like a separate gestation period for approval. Sometimes they do tell us that send it to my partner internationally, then it will depending upon the cell between 3 months to 6 months for the approval.

We'll take our next question from the line of Shashi Mukerji from Bajaj Finserv AMC.

Dr. Harin, first question...

Can you use your handset mode, please? Your audio is not very clear.

Am I audible?

Yes. Go ahead.

The first question is on the international customers. I believe in the last call itself, you mentioned that we have already supplied the trial samples. Is there -- I believe that there is a slight delay probably in the approval process. By when we can expect the commercials to commence?

As I explained earlier answer, so we expect maybe in Q4 or early Q1, we should start getting approval, then the commercials can start. So let's say, next Q1 or maximum by Q2, you can see the salt volumes to start increasing.

Okay. And any specific reason for this delay or I mean, because of the change in administration in the U.S. or something like that? Or is it -- I mean...

No. So like I said, just we had to achieve stable production when I say stable means continuous batches with uniform quality for the electrolyte salt. So we had met for like normal international customers, but what we wanted or our customers who have the most stringent demand, those we have just started meeting. So those -- like we had to optimize our production processes also a little bit. And now with the data, the customer will restart the qualification process with this modified because any change you do in the process, they have to audit, approve everything again. So that's what we are currently undergoing.

Got it. And whenever this Pad facility comes online, will there be fresh again approval process? Or how does it work?

Yes, the approval process will be again. So that also needs to get approved. So -- but that's basically factored in, in the time when we said we will start by end of '26. So we expect that trial production will happen. Electrolyte I think might be a bit faster because, like I said, existing customers in India will graduate from here to there. And -- but for the salt, we will have to again see. Of course, we are now more aware of the quality, the modification in the processes have already happened. But again, it's a new site. So currently, we estimate that we would have approval -- trial production and approval, let's say, by end of next financial year.

Got it. Second, on the domestic electrolyte in the presentation and the commentary, I see that you have mentioned the major ACC battery manufacturer has already started trial production. Any color on the time lines with your interaction with this specific customer that when probably they will ramp up and they will take our electrolyte. Any time lines you can...

No, they are already taking our electrolyte. They need to take more of it. And as I explained earlier that we expect maybe end of current quarter, early next quarter, their ramp-up should happen to more closer to like a giga scale. So when that happens, then the volume of the electrolyte being sold to them will increase.

Got it. Lastly, Dr. Harin, on the base business, when do we expect the next set of CapEx both on the BuLi and as well as the legacy part of the business?

So we'll be presenting our budget proposal to the Board in some time. So once the Board approves, we can share more numbers. We are seeing -- we are seeing in July good demand. So I think that's one area which we are going to discuss on. By the way, it's no longer July. So it's technically now Neogen Patancheru plant. So in Neogen Patancheru plant, we will -- we are considering CapEx for increasing the capacity. But I think we are discussing internally with our customers. And once the Board approves, we'll duly update on the same. And similarly, I think in our Dahej and Pakhajan facility, we are just doing some debottlenecking or for some different molecules, some specific equipment needed, but no major CapEx or capacity increases are aligned. Currently at Dahej.

Gopi, sir, if you can just disclose the 9 month cash flow from operations number, that would be helpful.

Generally, cash flow is not given in this December quarter. But only thing I can just say it substantially improved from what you saw in the September quarter -- in the September results. So it's almost equal to -- or how do I say? It's close to [indiscernible] improvement plan.

Yes. So we are maintaining the improvement you saw in the 6 months. That has continued...

Higher accelerated rate. So it's continued in 9 months also. So...

I mean on the inventory thing, I mean the elevated inventory level that we saw last year, those things are in place. That's the one concern that I had. Hopefully, that...

Basically, since we have not disclosed the balance sheet in this quarter, it will be difficult for me to tell you on those things. One thing I can tell you is working capital days has substantially improved. It is very much in line with the guidance which we had told last. There is a substantial improvement in the working capital days.

We'll take our next question from the line of Nilesh from HDFC Securities.

See, my question is on your stand-alone revenue guidance. You mentioned that you will rech to about INR 950 crores to INR 1,000 crores in FY '26. If I look at the current run rate of 9 months. So that means about 25% to 28% Y-o-Y growth in FY '26 in stand-alone business. So can you just tell me which end user industry you see the demand? Because I hope this number is based on the normalized lithium and bromine prices.

Yes. So yes, so currently, the lithium and the bromine prices are a little bit on a lower side. So we expect by next financial year, these prices will come back a little bit -- I mean, even if they become normal, so there will be some contribution, which is coming from there because as we showed like as compared to last year, of course, -- last year, if you look at 9 months, lithium price still in the 9 months was elevated. So there is still like a delta from there. But I think some will come. But majorly, we expect -- so we are seeing good demand. What we have said so pharma has improved significantly. We are seeing good demand for organo lithium. We are seeing bromine derivatives also do well. Agro has just started. So in Q4, our contribution into agro -- sorry, in Q3, there was some agro contribution, some more we are expecting. So we feel agro will also recover. And as we said earlier, we have taken several steps in F&F and some other projects as well as CSM business for flavor and fragrance and some industrial. So overall, with that, we expect that we'll be able to target INR 950 to INR 1,000 crores. Of course, if the lithium prices and bromine prices remain what they are today, maybe they will be INR 900 crores to INR 950 crores. But like on an absolute EBITDA basis, on INR 950, whatever we say 18% plus/minus 1%, 1.5% is what we are expecting. Now depending on lithium and bromine prices going up and down, it can be slightly lower, slightly higher.

Okay. And my second question is on your CSM business. So what was the CSM business contribution in 9 months FY '25? And how is the traction in this business? And if you can talk about the long-term contract with the Japanese and U.S.-based pharmaceutical and [indiscernible].

Yes. So I think the loss -- so again, the PSM business is at around like close to around 14% of our overall revenue. On a quarter-on-quarter basis, it's fluctuated between 12% to 15% in the current financial year. Again, we are targeting that in the next year, we can take it between 15% to 20%. This is actually contract manufacturing business. So in line with what we are only depending on how agro improves, whether it will be agro heavy or whether -- I mean we still have right now agro, pharma, flavor and fragrance as well as some industrial and semiconductor. So all five categories are contributing in that 12% to 15% business. But many of these are just trial productions which we did this year and the previous year. So I think next year, maybe some of them will start stabilizing. And even year after, we should see even further growth in that. But right now, we are focused on next year. We will be like above 15%, 15% to 20% would be the CSM contribution is what we are expecting. I think the bromo derivatives will -- like it today is at around 50% and as a percentage may remain between 40% to 50%. Advanced Intermediate is a little bit of a weak area, which might be 15 -- like ideal target is 20%, but right now, it's more closer to 10%, 12%. So we'll see, that depends on how China situation changes because right now, there's a lot of dumping happening both at the API level, which reduces the generic API demand, API production in India and also some intermediates also just sell very low. So I think that's something which we need to watch on the advanced intermediate side. But we are taking steps how actively BuLi, so the organo lithium business can do slightly more than -- like we had said INR 50 crores to INR 100 crores. With the current run rate, we might be able to do slightly better than that. So that might contribute slightly more than 10% to make up for it. And the inorganic lithium will be between 15% to 20%, what we expected. So I think more or less the only area, a little bit of a concern is the advanced intermediates, mostly because of low Chinese prices of API and intermediates, which they are dumping in China -- in India. I think that remains the only area of concern. I think that everybody -- all other segments should be doing well. And as an industry-wise, pharma is doing good. We are seeing growth in the semiconductor applications, flavor and fragrance. Agro, we are seeing slight improvement, started a little bit, but we still have to wait a little bit more to figure out how strong the recovery will be in the next year.

We will take our next question from the line of Abhijit Akella from Kotak Securities.

Just a couple of quick follow-ups. One is on BuLi Chemicals, would it be possible to share some metrics regarding the performance this quarter? I believe there has been some improvement.

Yes. So I think in Buy also, we have seen growth. This year's particular quarter, even EBITDA was slightly better. But overall, if you see it's in -- like I said, it's still that 18% plus or minus 1%, 1.5% range, which I keep telling you, which depends on lithium price and other factors. So I think BuLi is now already reaching like full utilization levels. Like in Q3, even Q4 is expected also full. And as we said, we've already gotten like the central formation EC has been received. We are just awaiting local approvals. So if that happens, we are on track to double our capacity with very small CapEx, and that will allow us to grow this even further in the next financial year.

So would it be possible to just share the revenues for this quarter and the YTD?

So ideally, -- by has only one or two molecules. So like if I say revenue of that, it's almost revenue of that molecule. So we'd like to keep it as a mixed basket if it's okay, because it becomes direct information on how much exactly we are selling. But whatever we have said at full utilization will be between INR 50 crores to INR 100 crores. So we remain in that range even for the current financial year. And next year, we will be more closer to INR 100 crores or even exceed the INR 100 crores if the approvals and everything comes.

Got it. And just the other one was on the battery chemicals business. Would it be possible to share the YTD revenues from battery chemicals we've got?

So together, now we are into double digits like in the YTD numbers, so more than INR 10 crores. And we've guided overall at around INR 20 crores to INR 30 crores in the current financial year. So that's what remains target for the current financial year. By the way, some of this revenue is from trial production, so might not be recognized as a revenue. So the actual final balance sheet number could be a little bit lesser. But if I look at the actual sales which have happened, they are in that range.

Ladies and gentlemen, we'll take that as the last question for today. I would now like to hand the conference over to management for closing comments. Over to you, sir.

Thank you all for participating today. We hope we were able to answer your questions. Our Investor Relations team is available for any further questions you may have. We appreciate your time and look forward to speaking with you again next quarter. Thank you.

Thank you. On behalf of Neogen Chemicals, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.