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