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00:00 [MUSIC PLAYING]
00:03 Good afternoon and welcome.
00:12 You're watching "Earnings Edge" on NDTV Profit.
00:15 I am Harsh Saita.
00:16 PR Seshadri is joining us.
00:18 He's the MD and CEO at South Indian Bank,
00:21 giving us perspective on Q4 numbers
00:23 and what one can expect going forward.
00:25 Welcome to NDTV Profit, sir.
00:28 Thank you very much for having me on the show, Harsh.
00:31 Thank you very much.
00:32 Right.
00:32 Mr. Seshadri, can you talk to us first off with regard
00:35 to loan growth, what one can see and expect from South Indian
00:38 Bank for FY25?
00:42 So last year, we grew assets approximately 11 and 1/2%.
00:48 We expect the same rate of growth going forward,
00:50 11 and 1/2%, 12%, maybe early teens this year.
00:56 But we want to change the mix.
00:58 Growth in the last year has been largely driven by corporate.
01:03 Whereas, as we go forward, we want
01:05 to balance it and grow our MSME and retail books
01:08 a little bit more.
01:10 And that's the intent for this year.
01:13 So I take your point.
01:15 It's still below what the industry is growing at.
01:19 So I want to understand what's holding you back
01:22 in terms of growth.
01:25 We are at this point in time where
01:27 we are realigning our business.
01:30 We are realigning our processes.
01:32 We are ensuring that what we do is best in class as far
01:37 as the industry is concerned.
01:39 So there is a lot of work internally that is taking
01:42 place.
01:43 And whilst we do all of this, what we want to do
01:46 is ensure that the growth is optimal for us.
01:50 So at that level of growth, at this level of growth,
01:54 we think that our cost of money can
01:58 be kept significantly below the marginal cost of money
02:01 for most of our peer banks.
02:03 And consequently, that is the level
02:05 of growth that is most optimal from a P&L point of view.
02:09 And that's why we are at the current juncture,
02:13 looking at growing 12%, maybe early teens, as opposed
02:18 to growing significantly faster.
02:20 Understood.
02:20 Could you elaborate on the process improvement
02:23 that you are doing internally?
02:24 What's the work that's happening?
02:26 And how long will it take?
02:29 So we just launched our first completely automated journey
02:34 for MSME lending.
02:35 So this is a journey that enables
02:37 us to provide customers who want an overdraft
02:41 facility at our branches a yes or no within about half an hour.
02:47 It is completely automated.
02:49 It minimizes the data entry requirement
02:52 at the branch level.
02:54 And that's the first of the journeys that have gone live.
02:57 We have about six other journeys that we are working on.
03:02 So we intend to launch them one every quarter, which
03:08 increases our efficiency at the branch level, which
03:12 will help us next year to grow significantly faster than we
03:15 are growing this year.
03:18 Shash, do you believe that giving up
03:22 on this growth, both on deposits and advances,
03:26 is a bit of a miss at a time when the industry itself is
03:31 doing very well in terms of growth?
03:33 Is this a missed opportunity, given all the internals
03:36 that you're focusing on at this point?
03:41 I think you have to see it in the context
03:43 of the institution.
03:44 I mean, the institution historically
03:46 has grown slower than the market.
03:48 But last year, we had significantly higher growths
03:52 than we've had hitherto.
03:55 So our aim is to ensure that we continue to grow,
03:57 but change the mix.
03:59 And that will enable us to widen our NIMS.
04:03 Last quarter, we widened our NIMS by about 19 basis points.
04:07 We hope that by doing all of this,
04:09 we will be in a position to take this up to about 3 and 1/2
04:12 or so in the medium term.
04:15 And that has a huge impact from a P&L point of view.
04:19 And finally, once we've got all our processes fixed,
04:24 our systems fixed, our ability to grow
04:27 at the rate at which the market grows will be much higher.
04:31 And once we do all of that, we want to grow faster
04:35 than the market, actually.
04:36 Sure.
04:37 Point taken.
04:38 So that would be FY '26?
04:40 That's right.
04:41 OK.
04:42 Understood.
04:42 With regard to margins, 3 and 1/2%,
04:46 probably near-term trajectory, where do you go from there?
04:49 And what's the timeline like?
04:51 What's the thought?
04:53 Once we get the asset mix right, we
04:56 should continue to accelerate beyond 3 and 1/2.
05:00 Our medium term, or should I say slightly longer term,
05:06 view would be that we'd like to get to 400 basis points NIM.
05:11 But that's somewhere in the future.
05:13 Right now, we are focusing on getting to 3 and 1/2.
05:17 And with regard to the shift in the loan mix,
05:20 how will it evolve?
05:22 And where do you wish to take it in terms of the mix?
05:27 Right now, we've got 40% of our book, which is corporate,
05:31 and approximately 40% of the book, which is MSME and retail.
05:35 So we would like to bring the MSME and retail
05:38 book up to about 45%.
05:41 And we would like to take the corporate book down by a touch,
05:47 maybe to 38%, 37%, that range.
05:50 And the balancing will be in agriculture and other areas.
05:53 So that's what the intent is in the near term.
05:57 Sure, sure.
05:59 And when I'm looking at OPEX, it's up 20%.
06:05 In this environment, that's fairly normal.
06:07 The anomaly is, of course, that business
06:09 isn't growing as quickly.
06:11 So with regard to OPEX, therefore, you're
06:14 above probably 65% now, if I'm not wrong, cost to income.
06:18 Where does that go?
06:20 And when does that start to taper?
06:22 And when do you start to get advantage of scale?
06:26 So as you rightly said, OPEX is an area of challenge.
06:30 As an institution, we recognize it.
06:32 And we are working towards reducing it.
06:36 Our controllable expenses are actually fairly small.
06:40 Roughly about a third of our expenses
06:41 are what we can actually have a view on and control,
06:45 which we are doing very aggressively.
06:48 Right now, what we are trying to do
06:49 is to grow our earnings mix in such a fashion
06:52 that revenues grow faster than our expenses.
06:55 And consequently, the revenue expense ratios
06:59 normalize to a level that we'll be comfortable with.
07:03 As you rightly mentioned, last quarter, we
07:05 were at about 64 and 1/2% revenue to expense.
07:09 And for the year, we were at about 61 and 1/2 or so.
07:13 And we want to bring this down by 1,000 basis
07:16 points over a longer term.
07:19 But that is a journey that we are just currently
07:21 embarking on.
07:23 Understood.
07:25 So roughly 3 and 1/2% NIM as early as FY25,
07:29 maybe spilling over into FY26 as well.
07:33 My other key takeaway from here would
07:35 be to try and understand credit costs
07:36 as you shift your loan mix.
07:39 Where would credit costs therefore lie?
07:41 Credit costs for the last quarter,
07:45 our slippages were about 35 basis points,
07:48 not annualized, for the quarter, which
07:51 is amongst the lower reaches, even amongst our peer banks.
07:56 We don't see that materially changing in the near term.
08:01 As our asset mix changes and as we get perhaps a little bit
08:06 more unsecured in our balance sheet,
08:09 perhaps that will go up a touch.
08:11 But right now in the near term, we don't see that changing.
08:15 Only about 5% of our balance sheet is retail unsecured.
08:19 So we do have some headroom to grow, which will also
08:22 help us grow our needs.
08:25 ROAS have also been on a bit of a decline kind of a trajectory.
08:30 When do investors rather start to see a pickup there?
08:34 Because that will hold the other key.
08:38 We were 98 basis points return on assets for the last quarter.
08:44 We don't expect this to increase very materially very quickly.
08:48 I think as our NIMS widen and as revenues grow,
08:55 that's when you will see some increase in ROAS.
08:59 But at this point in time, we are
09:00 more focused on ensuring that our processes are fixed
09:03 and that we become more efficient.
09:05 We think that ROA growth will come automatically
09:08 as a consequence.
09:09 Understood.
09:10 Thank you so much, Mr. Seshadri,
09:12 for all of that insight, perspective with regard
09:15 to all that's happening at South Indian Bank.
09:19 Of course, that's the commentary coming in.
09:22 With regard to both Q4 as well as FY25 and beyond,
09:26 the growth not looking extremely impressive.
09:29 But there's plenty of internal rejig that Mr. Seshadri spoke
09:34 and give us context to.
09:35 Neogen Chemicals is in focus today.
09:37 If you see, company has posted Q4 FY24 numbers and revenues
09:42 were down 2%.
09:44 But we did see uptick in margins.
09:45 To talk more about this, I'm here
09:48 joined by Dr. Harin Kanani, who is MD of Neogen Chemicals.
09:53 Welcome to the show, Mr. Kanani.
09:56 Thank you.
09:56 Good morning to all.
09:57 Good morning.
09:58 So talking about the numbers, prices of key raw materials
10:02 like bromine and lithium, if you see,
10:05 had declined significantly.
10:06 But we did manage revenue, which was just down 2%.
10:11 Was there uptick in volume, which
10:14 balanced out things for us?
10:17 So last year, we have seen dramatic changes
10:20 in the raw material prices, especially lithium,
10:23 which was dramatically down.
10:24 So while you can see on quarter on quarter,
10:27 our lithium sales have reduced significantly.
10:31 But that's mainly just because of the price.
10:32 And in terms of volume, there was a 5% to 6% increase there.
10:36 And where we saw biggest increase
10:38 was in our organic, where we see both volume as well as revenue
10:41 growth.
10:42 The revenue growth was almost close to around 20%.
10:45 And the volume growth was around 25% to 30%.
10:48 This was aided also by the acquisition
10:51 that we did for making organolithium compounds,
10:55 buly chemicals.
10:56 So that also was about done 3/4 ago.
10:59 And this quarter, it also contributed significantly.
11:02 So that also aided in increasing our organic revenue.
11:05 So overall, if we speak, in terms of volume growth
11:09 for the whole year also, there was almost a 30% increase,
11:13 25% to 30% increase in the organic production,
11:17 and around 5% increase volume growth in the lithium,
11:22 overall giving us the increase in this quarter of around 20%.
11:26 OK, so good volume growth here.
11:28 And we did see uptick in our margins also.
11:31 What were the levers for the margin uptick?
11:36 Just better volumes.
11:37 And again, before, the percentage margins
11:40 looked lower because lithium was a high price which
11:42 was getting passed on.
11:44 And now that was not getting--
11:47 now that lithium prices are lower, in terms of percentage,
11:49 it looks slightly higher.
11:51 So that's why we basically request our investors
11:55 to basically focus on more absolute EBITDA as compared
11:58 to percentage EBITDA when lithium is very volatile.
12:02 So basically, now the lithium prices are staggered.
12:06 And they are close to one of the lowest prices which
12:09 we've seen in recent times.
12:11 So that's what gives a view that the margins have improved.
12:14 OK.
12:16 Yeah, please go ahead.
12:18 No, and the other part is the volumes growth
12:20 which we had, which has improved the margins.
12:22 OK.
12:23 And also, is there any seasonality in your business?
12:26 Because if I see your numbers, every time your H2
12:29 seems to be good as compared to H1.
12:34 So we are a company which are always trying to grow.
12:36 We are doing new molecules.
12:38 So that's one of the factors that some of the initiatives
12:41 that we take start giving results
12:44 towards the end of the year.
12:45 That's one of the factors.
12:46 The second factor usually is that our lithium business
12:50 generally does well in the last quarter
12:52 where there are some tax benefits to customers or users
12:56 of the machines.
12:57 So generally, our customers have a higher demand there.
13:00 And we also expect exports to be a little bit higher
13:04 in the second half of the year normally,
13:08 both agro and the pharma segment.
13:10 So that's the reason why our Q4 is usually higher.
13:13 And the same thing is also there for our pharma customers
13:16 who are in the international market, where they also
13:18 see higher demand in Q4.
13:20 So consequently, we also have slightly higher demand.
13:23 And there's a very detailed statement in our investor
13:26 presentation on our website which
13:28 explains the seasonality.
13:30 Also now, let's talk about your battery material,
13:35 wherein all the investors are more--
13:39 what do you say--
13:40 focused on considering the growth prospects
13:43 that you have on that segment.
13:46 You are doing a greenfield project
13:48 when it comes to your battery material.
13:50 So can you just give us the key details of that project?
13:54 Sure.
13:55 Actually, we have two parts of the project.
13:58 Well, there's actually a brownfield.
13:59 In our existing lithium plant, we have converted
14:02 and we have set up in our [INAUDIBLE] unit capacity,
14:06 which can start lithium carbonate, which
14:08 comes from the mine, do the purification,
14:11 make the intermediate, and make the final electrolyte salt,
14:14 and do the final formulation, which
14:16 will directly go to batteries.
14:18 So we start from something which comes out of mine
14:21 and then take it to a very high purity level, which will
14:24 be ready to go to the batteries.
14:26 So the phase one of this is in our existing unit,
14:28 which is brownfield.
14:29 And the first commercial plant of this
14:33 basically has started coming online stage by stage.
14:36 Part of the electrolyte salt capacity
14:38 is already online.
14:39 We also made some initial trial production
14:42 sales for customer approvals.
14:44 And the final electrolyte also, the trial production
14:47 for the rest also has started.
14:49 So this is starting now, which has a total revenue
14:52 potential of around 200 to 50 crores, of which this year,
14:56 we feel that the salt, which is targeted
14:59 for the international customers, will start
15:01 contributing from Q2 and Q3.
15:04 And the electrolyte, which is targeted more for the India
15:07 market, the final formulation, that
15:09 will come online in Q3, Q4.
15:11 So this is capacity coming now.
15:13 This capacity is also further getting
15:15 enhanced from 400 to 2,500 metric ton revenue
15:23 by end of this year.
15:24 And we've already started the capex of that.
15:26 And we are on target to do this.
15:28 And then we have also started construction
15:31 of a separate greenfield, which will
15:33 be the permanent home of our neogen ionic subsidiary,
15:37 the battery material subsidiary, where we have 65 acres of land.
15:41 The land we have there is more than all our existing
15:44 four sites combined.
15:45 And there we are coming up with electrolyte salt
15:48 and electrolytes, which can support up to 30 gigawatt
15:52 hour of battery production.
15:53 And that is coming online in the second half of FY26.
15:57 So together, we will be spending around 1,500 crore capex.
16:01 And both these sites together will give us a revenue
16:03 potential of around 2,500 to 2,700 crores
16:08 kind of revenue, which will basically--
16:11 we expect full utilization of this by FY28 or FY29.
16:17 So that's the new greenfield, as well as the brownfield,
16:20 which is coming online.
16:21 And the main target of the salts,
16:25 which is one stage before the final electrolyte,
16:28 is the international market.
16:30 So we are talking to OEMs, battery makers, as well as
16:35 electrolyte makers, and supplying them
16:37 the electrolyte, lithium electrolyte salt.
16:40 And the formulation is basically targeted for India,
16:44 to the battery makers, because electrolyte always
16:46 have to be local.
16:48 So we are one of the very rare companies,
16:50 maybe second or third in the world,
16:52 which has a capability to start from the mine
16:55 and go all the way up to the final electrolyte.
16:58 And also for the final electrolyte making,
17:01 we also have a technology license
17:03 from Mitsubishi Japan, which is world's biggest and oldest
17:08 electrolyte producer for the last three decades.
17:11 So 2,500 peak revenue by FY28 or FY29.
17:18 But how much revenue are you expecting
17:21 from these battery chemicals, say, in FY25 and FY26?
17:27 So as I said, the capacity which has come online
17:29 can already contribute to around 250 crore.
17:32 Depending on the speed of the approval,
17:34 we feel at least we should be getting
17:36 100 crore plus something in the current FY25.
17:40 The whole 250 crore will be available for next year.
17:42 So it will be at least this 250 crore,
17:44 plus the salt capacity increase, which we are doing from 400
17:48 to 2,500.
17:50 That will be available for the whole of the next year.
17:53 So it's a little bit early to say, but on top of 250 crore,
17:57 there will be international salt from that additional 2,000
18:00 metric ton, which is coming online.
18:02 And in the second half of the year,
18:04 the greenfield is also coming online.
18:06 So again, that is 10 times the capacity
18:08 of what we already have.
18:10 So how much it will contribute in the second half,
18:13 how long it will take.
18:14 So those will be significant increases.
18:17 But what we can clearly see today
18:19 is at least 100 crores this year and 250 crores next year.
18:23 That's something just from the existing capacity.
18:25 And as the additional capacities come online,
18:28 which are significant increase, like a five time increase
18:31 and a 10 time increase, contribution
18:33 will start coming from them also.
18:35 So that maybe will guide towards the end of the year,
18:38 current financial year, or beginning of the next year,
18:40 depending on how this year is going.
18:42 OK.
18:43 And my last question to you is on your base business,
18:46 that is your bromine business.
18:48 So have you signed any new contracts?
18:50 And if yes, in your base business,
18:53 how much revenue are you expecting in FY25 and 26?
18:59 So last year in the base business, we did 700 crore.
19:02 We expect-- and we had given a very clear guidance
19:05 that by FY26, we will be reaching close to around 1,000
19:09 crores.
19:11 Still, our pharma segment has increased,
19:13 and our agro is not yet fully recovered.
19:16 So we don't know exactly how much contribution
19:18 will come from there.
19:20 So this year, we are targeting about close to around 775,
19:23 800 crores.
19:25 But for the next year, we are targeting 1,000 crores
19:28 just from the base business.
19:29 And in terms of contracts, yeah, I
19:32 mean, we have not signed new long-term supply contracts.
19:36 But we have onboarded some of the customers
19:40 where we have started early stage evaluation.
19:43 And we also have some customers in the agro space
19:45 with whom we are already doing this for the last two years.
19:48 It's just that the demand is not there.
19:50 So I think as the demand in agro picks up,
19:53 we think this will start contributing
19:54 to reach our 1,000 crore.
19:56 But any which case, like for 1,000 crores,
19:59 we also made like plan B, plan C,
20:01 where we started working with flavors and fragrance.
20:04 And we started working on molecules
20:05 using the organolithium facility that we acquired.
20:09 So in any case, we have several plans in place
20:13 so that by FY26, in the base business,
20:16 we can reach 1,000 crores revenue
20:17 at full utilization level.
20:19 That will improve significantly our profitability as well
20:24 as our cash flows.
20:25 So by the time battery is ready to take off,
20:27 the base business is very strong and stable.
20:30 And to be able to support the growth in the battery business
20:34 for FY27-28.
20:36 Well, my last question before I let you go.
20:38 Your receivable days and inventory days
20:41 are under pressure.
20:43 So anything on that?
20:46 So mostly for the inventory, it's
20:47 just that before in the beginning of the year,
20:50 we had some plans to have full utilization
20:53 of our organic facilities.
20:55 But because of the pharma and agro slowdown,
20:58 we had to modify that.
20:59 And some of the molecules, we had
21:01 to shift from molecule one to another molecule.
21:03 So because of the industry turmoil,
21:06 our inventories were higher.
21:07 And our agro business is mostly international,
21:10 as well as overall in Europe also, in pharma also,
21:14 there was lesser demand.
21:15 So less revenue came from exports.
21:18 Normally, our exports are 50%, where
21:21 we have lower receivable days.
21:23 As against that, more revenue came
21:26 from generic pharma business, where
21:28 the receivable days are higher.
21:30 So because of that, overall receivable days are higher.
21:33 But I think as basically our business stabilizes,
21:39 we do the course correction in current and next year.
21:42 And also as agro and our exports recover,
21:45 we feel again they will be back to what we have targeted earlier.
21:49 Our target is again to have around 110, 120 days
21:53 of inventory, between 60 to 90 days of debtors,
21:58 and maybe creditors also of the same level,
22:01 to the same proportion.
22:02 And we hope by FY26, we can basically reach that.
22:05 OK.
22:06 All right.
22:07 Thank you so much, Mr. Kanani, for speaking with us.
22:10 And I wish you all the best for your business.
22:13 Thank you so much.
22:14 Thank you.
22:16 [MUSIC PLAYING]
22:19 you