Neogen Chemicals Q1 Profit Rise On Lower Tax Rate | NDTV Profit - video Dailymotion

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00:00Welcome back to Earnings Search and company in focus today is Neogen Chemicals.

00:10So, if you see company manufactures bromine and lithium based organic products which are

00:16used in pharmaceutical, agriculture, chemicals and engineering industries.

00:21Company recently came out with its Q1 FY25 numbers wherein revenue was up almost 9 percent

00:28at 180 crores versus 165 crores last year and EBITDA was up almost 9.7 percent at rupees

00:3530 crore versus 28 crore last year and margin was flat at 17 percent.

00:42If you see the net profit, net profit was up 17 percent at rupees 11 crore versus you

00:49know 9 crore last year.

00:51Company is into companies entering into battery chemicals which is the growth prospect for

00:57the company and we are going to speak with the management who is Mr. Harin Karani.

01:04So, if you see the quarter was actually a decent quarter and the company is doing huge

01:13capex when it comes to battery chemicals.

01:16Also their CSM business that is custom synthesis business is also doing really good.

01:21Company has also entered into semiconductor business.

01:25If you see margins are expected, margins are flat at 17 percent, but in FY25 margins

01:31may be around 17 to 18 percent, but by FY26, 27 margin may increase due to the increase

01:37of battery chemical business.

01:39Also companies doing almost 15 crores of capex, we need to see how this company is going to

01:45fund their capex plans and also the battery chemicals is actually very in crucial stage

01:52and lot of discussions are going on, a long term discussions are going on wherein they

01:58are going to enter into long term discussion with many other companies.

02:02Well, to speak about the numbers and the growth outlook for the company, I am here joined

02:08by Dr. Harin Karani who is MD of Neogen Chemicals.

02:13Welcome to the show.

02:14Hi.

02:15Welcome.

02:16Thank you for having me here.

02:17Well, Mr. Karani, how is the quarter, the growth that we are seeing, was the growth

02:22volume driven or as we have seen the prices continue to fall and what's your outlook on

02:28pricing trends going forward?

02:31So the majority of the growth that you have seen is volume driven.

02:35In fact, the growth was even slightly, volume growth was even higher than the value growth

02:41that we are seeing and this is mainly because the lithium prices were still higher one year

02:46ago.

02:47So when we are looking on quarter on quarter performance, the lithium price was still higher.

02:51I think we have seen mostly the lowest prices of lithium.

02:55I mean, now even if there's a correction, it will be like 5%, 10% and then eventually

03:00still in over a two year term, we expect the prices should go higher on a more stable kind

03:07of basis because the prices today we believe are a little bit on the lower side.

03:12Similarly, I think bromine also, it's almost reached its bottom and we have seen the bromine

03:17raw metal prices also increased slightly.

03:20And overall, if we think of our competitors, like especially in the pharma and agro business,

03:26you again see the intermediate prices reach their bottom now stabilized at that level

03:32or slightly improve on that.

03:36In terms of industry, we have seen demand in pharma has recovered quite well.

03:40You also see in other industries like flavor, fragrance, we have a bit of semiconductor.

03:46These also started contributing to our business.

03:50The organolithium compounds contribution has also increased.

03:54We expect by Q2 this year, we will be also hitting full utilization levels there.

03:59And we are also planning some small capacity increase there.

04:02And we just made a start with the battery chemicals revenue.

04:07It was the first quarter where there was some meaningful contribution in single digit crores,

04:12but it started contributing now.

04:14Well, then let's talk about your greenfield battery facility CapEx.

04:18Are we on track on commissioning the facility by FY26 and aligning with the upcoming battery

04:24capacities in India?

04:26Yeah.

04:26So if you think of the capacity increase we are doing, the greenfield which we are doing

04:30in Pakhajan, that can support up to 30 gigawatt hour of electrolyte cell production on the

04:39electrolyte and around 50 odd gigawatt hours of electrolyte salt together, the existing

04:46as well as the new site together.

04:47So that remains on track.

04:49We started construction work there.

04:51And in the second half of FY26, we are expecting that to come online.

04:56In addition to that, in our existing Dahej site, in last quarter, trial productions were

05:03ongoing.

05:04So we slowly phase-wise completed this.

05:07So we started small quantity electrolyte salt, like around 200 metric tons of electrolyte

05:15salt and around 200 metric tons of electrolytes.

05:17So that capacity is already online.

05:19We made trial productions to customers and we are awaiting customer feedbacks.

05:24I think we should get approval in Q2 from some of them.

05:28And from Q3, Q4 onwards, they should start contributing meaningfully.

05:33And based on the projections which several customers have shared with us, this brownfield

05:38capacity also we are increasing, especially on the electrolyte salt for the international

05:42market.

05:43We are increasing from current around 400 metric tons to 1,500 metric tons.

05:51So it's only 2,500 metric tons by, let's say, March or June 2025.

05:57So I think work on that is also ongoing.

06:00And we remain on track to basically deliver that.

06:02Well, have you started getting orders in battery manufacturing considering the battery manufacturers

06:07started production this year?

06:09Are you engaging in some kind of long-term electrolyte supply contract discussions?

06:15The discussions are on.

06:17We are also supplying to them or working closely with them to fine-tune the product because

06:22each electrolyte is customized as per customer need.

06:26So some of the customers have finalized the design.

06:28And based on that, they have taken trial production.

06:31So almost 3 to 4 customers have already taken electrolytes from our commercial plant.

06:37So this was as per the finalized recipe which they wanted.

06:41And now they are doing the trials at a larger scale at their end.

06:45Once these trials are successful, we can discuss on a long-term contract with them,

06:49as well as there are other 2-3 manufacturers who are planning to come online

06:54little later in the year or next year.

06:56With them also, we are discussing on their requirement, first understanding their requirement,

07:01developing a product which meets that.

07:03And then in parallel, also discuss commercial.

07:07So during our conference call, as we indicated that we hope in the next 1-1.5 years,

07:13so in the current and next financial year,

07:15we should start seeing long-term contracts for electrolyte supplies come in.

07:19And they will be the basis on the electrolyte,

07:24the bigger greenfield electrolyte plant which is coming online.

07:28So we will look forward to that.

07:30And let's say if everything goes well as per projection,

07:35the contracts that we sign will basically also determine

07:39if we need to increase capacity beyond what we have.

07:42Well, how will your margin picture look like

07:44considering your battery chemical business and your base business?

07:50In the battery chemical business,

07:54the prices of lithium and many raw materials are fluctuating a lot.

07:58So this is a business that we expect to do based on ROC concept.

08:01So we feel with the amount of risk and the knowledge

08:05and the complexity of the molecules what we are making,

08:08we are expecting a 20% ROC.

08:11On an EBITDA basis, on a stable lithium price, it comes down to around 16-17%.

08:17It will also depend on the mix that how much is coming from salt

08:20and how much is coming from electrolyte.

08:22But more or less, let's say around 16 odd percent EBITDA margin

08:26and around 20% ROC is what we are expecting on the battery business.

08:32On the fine chemical, the agro and fine agro pharma,

08:38organic and our non-battery lithium business,

08:41that business traditionally we had said is 18.5% plus or minus 1% EBITDA business.

08:47And as we get more into CSM, as we do more innovation in the complex molecule,

08:55then we can hope to increase this beyond 20%.

08:58So currently, because of the market challenge,

09:01even this business will do around 16-17%.

09:04But long term, once a little bit business and demand has recovered,

09:08we expect it to be between 18-20% at least in the short term.

09:12And then if you're able to do a good job, add value to customers,

09:16then we'll earn the right to have EBITDAs beyond 20%.

09:21Well, in FY25, can we see EBITDA margin between 16-18% only in FY25?

09:29That's the hope.

09:29So we started at a 17% quarter and everything,

09:33the prices, even if there's a correction, it will be on an increase.

09:37We don't expect sudden decrease.

09:38So raw material-based corrections also not much.

09:41So we hope with the increasing demand, increasing utilization,

09:45more positive contribution coming from batteries

09:49will basically target a 16-18% EBITDA margins for the current quarter.

09:55Well, you mentioned that you're going to do around 900 crores,

10:012000 crores by FY26 in the press release.

10:04Now, I'm assuming this is on the standalone basis.

10:07So overall, considering your battery business, your base business,

10:12what is the expectations in FY25?

10:14What number you are targeting in terms of revenue in FY25?

10:19So FY25, for our base business, we had said last year, we did around 680 crores.

10:26Like we expect around 750-800 crores on the base business

10:30and around 750 to around 100 crores for our battery business.

10:37So together, let's say somewhere closer to around 800 odd crores

10:41is what we would target.

10:43Again, it will be more heavy on the second half

10:46when we'll see some more of this recovery's help

10:50as well as the battery business contribution also will be more in the second half.

10:53So that's what we are looking at 800 crores around that,

10:58at least from what we can see today.

11:00If the agrochemical industry improves,

11:02we can have better performance than that in the current year.

11:05And for the next year, as we indicated,

11:08952,000 crores just coming from the base business,

11:12plus the battery business,

11:13the existing capacities itself would contribute 250 crores.

11:17So we are looking at somewhere around 1200 odd crores at minimum,

11:22plus as the new capacities in Dahej come online,

11:26as well as the Greenfield will come online in second half.

11:29So depending on exactly when these capacities come online

11:32and the customer approvals of these facilities,

11:36we can expect additional business on top of this 1250 for FY26.

11:43Well, last question from my side is,

11:45you are entering into semiconductor business also, I believe.

11:49So what are their project products exactly?

11:52And is it an export opportunity or domestic one?

11:57Yeah, so currently it's an export opportunity.

11:59And what we can say,

12:00we are a tier two supplier to the semiconductor industry,

12:04wherein we will make some chemicals,

12:05which will then be used by some other chemical companies in Japan and Korea

12:11and US, who will then make the final chemical going to the semiconductor makers.

12:17So 2-3, we have seen some application of the organolithium compound,

12:22then we have done some specialty gas,

12:25and some of our existing Bromo derivative,

12:27but a much higher purity of these will also find applications in this.

12:31So we've found like 4-5 molecules already.

12:34We are also working with our customers

12:40for the approvals and then slowly increase the quantity of this.

12:45I think we have already made a start.

12:49In current year, it will be about a few 10s of crores kind of a business.

12:54But let's say as we go into FY26, FY27,

12:58we will basically be able to explore more properly

13:03the revenue contribution which can come from this business.

13:06Well, thank you so much, Mr. Kanhani for answering our questions

13:09and all the best for the future.

13:11Thank you so much for having me.

13:13Have a great day.

13:14Well, that's all the time we have on the show.

13:16Stay tuned to NTB Profit.

Neogen Chemicals Q1 Profit Rise On Lower Tax Rate | NDTV Profit

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