Neogen Chemicals Limited (NEOGEN) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Neogen Chemicals Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and welcome to Neogen Chemicals Q1 FY '26 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. Gopikrishnan Sarathy, Chief Financial Officer. We will commence the call with opening thoughts from the management team, after which we'll open the floor for your questions. Before we begin, a standard disclaimer. Certain statements made or discussed today may be forward-looking. Actual results could vary, and a detailed disclaimer is available in our Q1 FY '26 earnings presentation, which has been shared and uploaded on stock exchange websites. With that, I'd like to invite Dr. Harin Kanani to share his perspectives. Dr. Kanani, over to you.

Thank you, Nishid. Good morning, everyone. Thank you so much for joining our earnings call -- early morning earnings call for Q1 FY '26. We are pleased to have you join us today to review our financial performance and update you on our key strategic initiatives. Beginning with our performance for the quarter, we achieved remarkable resilience, successfully maintaining our momentum. Our diversified business model proved its inherent strength, especially as we navigated the challenge of our Dahej plant unavailability throughout the quarter due to the fire incident. Despite those operational hurdles and a prevailing soft pricing environment, our results were bolstered by sustained volume growth in the base business. Additionally, initial commercial sales from Neogen Ionics for both electrolyte and lithium salts [Technical Difficulty] Hello? Can you hear me?

Ladies and gentlemen, we have the management line reconnected. Harin, sir, please, you can go ahead.

Yes. So despite the operational hurdles and a prevailing soft pricing environment, our results were bolstered by sustained volume growth in the base business. Additionally, initial commercial sales from Neogen Ionics for both electrolyte and lithium electrolyte salts began contributing meaningfully. Our ability to navigate these complexities underscores the remarkable strength and adaptability of our overall operations. Turning your attention to the key updates during the quarter. Our recovery from Dahej fire incident is progressing swiftly. We have secured initial insurance claim with INR 50.55 crores received in the June 2025 and additional INR 30 crores received in July 2025. With this, the net claim receivable is INR 268.27 crores on a consolidated basis. We expect this to be realized in due course. In addition, there will be some additional amount, which we'll realize, which is not determined for reinstatement value difference as well as for the loss on profit. The replacement plant is taking concrete shape at an adjacent location. We have completed the civil foundation work and placed orders for long lead time equipment. The plant remains firmly on track to be operational by next year. In another significant development, our Chairman and Managing Director, Mr. Haridas Kanani, will be retiring from his position effectively September 30, 2025, as he completes 80 years on that date. The entire Neogen family extends its deepest gratitude for his immense contribution since founding the company, his visionary leadership in establishing a strong foundation and his pivotal role in making Neogen a leader in specialty chemicals, while fostering a culture of excellence and innovation. In recognition of his outstanding dedication and invaluable contribution, the Board has conferred upon him the honorary title of Chairman Emeritus effective October 1st, 2025, ensuring we continue to benefit from his invaluable guidance and mentorship. Concurrently, the Board has designated Mr. Anurag Surana, as Chairman and Non-Executive Non-Independent Director effective October 1, 2025. This ensures a seamless transition and strong leadership and guidance for Neogen in the future. Shifting our focus to strategic growth drivers. I will provide updates on expansion initiatives, particularly in battery chemicals segment. Regarding the greenfield facility for electrolyte using MUIS technology in Pakhajan, Dahej PCPIR, piling work is completed, civil work is significantly finished and long lead equipments have already been ordered, and we have started receiving the same. A crucial milestone is the ongoing factory acceptance test of the module manufacturing plant at Mitsubishi Engineering Corporation manufacturing workshop site. Of our total INR 1,500 crore CapEx, we have deployed INR 506 crores to date and remaining amount will be deployed shortly in line with the accelerated project schedule. A major development is the incorporation of Neogen Morita New Materials Limited, NML for short. NML is wholly owned subsidiary of Neogen Ionics Limited and a step-down subsidiary of Neogen Chemicals Limited. This venture aims to leverage Morita Chemical Industries, Japan's proven technology for over 30 years of experience to produce lithium salts. This salts will be used captively for our electrolyte production and for global sales, addressing the growing demand. Accelerating our entry into high-growth lithium-ion battery materials vital for India's EV and energy storage, this project positions Neogen, as a scale domestic manufacturer. We aim to capture significant market share, reduce import dependence and leverage global technology, diversifying revenue and establishing ourselves, as a critical advanced battery supply chain supplier driving future growth and profitability. Despite adjusting our near-term revenue guidance to reflect current operational realities, our long-term trajectory remains robust. Overall, we are confident in our ability to continue delivering value to our shareholders through strategic execution, innovation and unwavering commitment to operational excellence. 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 morning, everyone. Welcome to Neogen Chemicals Q1 FY '26 Earnings Call. Let me walk you through our key highlights -- financial highlights. All numbers are on a consolidated basis, except unless called out specifically. For Q1 FY '26, we achieved a revenue of INR 186.7 crores, higher by 4% despite the nonavailability of Dahej plant for the quarter. As highlighted by Dr. Harin Kanani, the Neogen Ionics contributed INR 5.4 crore revenue in Q1 FY '26, building on its previous year revenue of -- previous year full year revenue of INR 11.95 crores. Organic revenue for the period stood at INR 165 crores, reflecting a 16% increase, while inorganic revenue came at INR 22 crores. EBITDA stood at INR 31.5 crores, up 2% year-on-year. Despite the headwinds, we maintained a steady EBITDA attributed to favorable product mix and our ongoing cost optimization initiatives, which effectively offset the decline in realization. Consequently, our EBITDA margin reached 18.8% on a stand-alone basis and 16.9% on a consolidated basis. Our profit after tax largely reflected our operational performance during the quarter coming at INR 10.3 crores. Moving to other key developments during the quarter. CRISIL has reaffirmed our credit rating at CRISIL A with an outlook negative for long term and CRISIL A1 for short term, with both removed from the rating watch with developing implications. This reconfirms the confidence in our financial stability and strategic direction. Furthermore, our Board has approved raising of INR 200 crores through private placement of fully paid secured listed rated redeemable noncumulative NCD through one or more tranches. This will provide us additional financial flexibility for our growth initiatives. That concludes my remarks. I will now request the moderator to open the forum for Q&A.

[Operator Instructions] The first question is from the line of Ankur from Axis.

First question on the salt bit. What's the status on the product approvals here, given that we were waiting for the exports revenue ramp-up there. So just wanted to check.

From our side, we are all ready. We are still waiting for the customer to schedule and audit. There were -- like with whatever is happening in the U.S. currently, there were some delays from the customer side. They've not yet fixed the date. But again, we remain connected with them, and it should happen sometime soon. Also, as you are aware, our Dahej capacity ramp-up is also happening. So I think in Q2 for around 15 days, we are also going to take a break to connect the existing plant to the increased capacity, which is likely to come by September and October. But from our side, we are ready for the salt. We are just waiting for customer approvals. And in the meantime, whatever small revenue we generate in the salt, we are basically selling it to nonregulated markets. I mean, basically not nonregulated, but in, let's say, China market, where we are actually going against very strong competitors, who are already present there, but that's the small revenue [Technical Difficulty] currently generating. So from our side, we are ready. Our capacity increase is also coming online because, as you know, Dahej capacity is going to go up to 2,500 metric tons by March. So ramp-up of that and connection to the -- like that connection to the existing facilities is also going on there.

Yes, sure. Just a follow-up there. So from a key end user market perspective, U.S. will be bigger or Europe? And secondly, how -- is there any change in demand or slight softness because of the tariff-led sort of uncertainty there? And how do you put your, yes, go ahead, first. I'll add that the question later. Yes.

Yes. So for your first question, U.S. or Europe, U.S. is the larger market, which is because there's already a lot of established battery manufacturing activities, which are already happening in the U.S. Also, while there is a change in IRA, there is a follow -- so there was also -- so there were 2 subsidies available in the U.S. One IRA was for the EV maker and there's another subsidy, I think, called as 45X credits, which are basically available to the cell makers. So that is still available to the battery makers, and that is also significant, like between 25% to 35% of the total battery manufacturing cost. And that also has a requirement of localization and China-free supply chain. So what we have seen is the interest is actually even growing stronger because people didn't have a clarity that post the big beautiful bill, what changes are going to happen. But those were maintained and to some extent, even the non-China provision were made stricter. So I think that we have seen interest from the international market actually increase. So the combination of that as well as Neogen forming JV, we have seen more newer companies, who were kind of sitting on a fence waiting for this clarity to now join -- and now one by one, they have started visiting Neogen. So before we had 1 or 2 potential customers, now we have 4, 5 different customers, who have started approaching. They are battery makers, electrolyte makers, as well as even EV makers. So all of these guys are now approaching Neogen and having some visits have already happened and some more are happening during this quarter.

Sure. That's helpful. And just the follow-up there. So what is the typical time lag required at your end if you want to, let's say, increase your salt capacity given there is so much demand and interest coming in?

So Dahej, at present, we will be at 2,500 what we are targeting. And if I have to increase a little bit, I can increase 1,000 metric tons more, and that will mostly be focused on the additives because -- I mean, the lithium additives part -- let's say lithium salt has 2 parts, the main electrolyte salt as well as the additive. So we are basically keeping right now additive facility increase is all planned at Dahej. And the main electrolyte salt capacity is like as you are aware, is coming out at Pakhajan. So we have kept a room to add 1 KTA in Pakhajan very -- sorry, in our Dahej facility for the additive, and we have kept 2 additional KTA in Pakhajan. So when we complete the CapEx and we have 5.5 KTA, at least 3 KTA can come in relatively quickly within like 6 to 9 months kind of a period. And then beyond that, we'll have to plan because it will be a new manufacturing block either at our Dahej or our Pakhajan site. So 3 KTA can be added from 5.5 KTA to 8.5 KTA. But beyond 8.5 KTA, we will have to wait and maybe around 12 months to 15 months if we have to set something now.

Sure, sir. That's very helpful. And just a second bit on the battery plants coming in India. There are some delays. But if you can highlight the time lines on which all plants are coming and what could be the time frame that we can look at?

So from our view, we are seeing our customer like Ola, like they've announced a time line that by September, October, they want to have commercial operations like ramp-up. And then another ramp-up, which is expected by next March or April. So we are on track of that. I think we've also heard like publicly that Exide is also starting relatively very soon in the second half. I think the announced date was 15th August for some trials to start. So I think they are -- they both are on track, as we had predicted in 2024. And the remaining customers like Reliance, Tata, Waaree and Amara Raja, so they all are targeting what they have publicly announced by 2026. So that time line remains.

[Operator Instructions] The next question is from the line of Abhijit Akella from Kotak Institutional Equities.

So possible to share the volume growth number for the first quarter, please, across the businesses?

I would say on the bromine derivatives side -- sorry, on the organic side, the volume growth would be around 10% to 15%. And on the lithium side, there's been a little bit of a degrowth in this particular quarter. So last quarter, we had pushed a little bit and Q1 is generally softer. But this time, it was a little bit more softer than normal. But overall, in the demand, there is not too much of a challenge. The demand still continues. And I think by the end of the year, lithium will also make up. We will have the same volumes or slightly better.

Okay. And just to clarify, the Neogen Ionics business is included within inorganic itself, right, the INR 5 crores odd?

That's right, yes.

Okay. Okay. The other one was just the thought process behind this NCD issuance. So what exactly is the purpose we are looking for here? Is it working capital or something else, right? Yes.

So basically, we still have around INR 250 crores odd amount, which is to be received from the insurance. And there can be sometimes mismatch in the timing versus we want to ensure that our CapEx plans and everything doesn't get affected. So I think there was a small interest delta. So we thought that is worth having, but ensuring that there's a smoothness CapEx happening, and we are not fully dependent on the insurance only. So overall, once we receive all the insurance money as well as this debt considering -- I mean, this is basically some additional liquidity that we want to have in the system so that no -- like we have like so many CapExes, which are ongoing so that there is no delay or anywhere because of cash flow-related front. So it's just basically liquidity to be keep in the system, any mismatch in insurance received or any other funds, which we need to be used with so many CapExes, which are ongoing. Overall, there is no additional need per se. It's just that just to keep the liquidity and just to keep the flexibility and reduce the dependence in case there's a timing mismatch with the insurance.

Got it. So by when do we expect to close this? That was one, the NCD issuance, time line for this? And number two, then once this is done, we have basically all our lines of financing tied up. So for whatever CapEx we plan plus working capital requirements, is everything in place now with this?

Everything is already in place. Like this is only additional just in case the insurance timing mismatch. And yes, this also is likely to happen in the current year -- current month, sorry, within August -- before August end. Again, we have received confirmations from investors, who want to participate in that. There's even request for more, but we are capping it at the INR 200 crore limit, which we have kept. And yes, and all the other working capital CapEx for Phase 1, Phase 2, everything is already there.

Got it. And just on the CapEx at Pakhajan, out of INR 1,500 crores, I guess, INR [ 500-odd crore ] is done so far. The amount spent in 1Q was only about INR 36 crores. So is that the normal phasing you expect the CapEx to pick up significantly in the next 2, 3 quarters to meet your deadline of March '26 for commissioning?

Yes. So there are 2 things. This module plant, once it ships, so that's going to be one big expense. So once we complete the FAT and post FAT, we have given some modification. So as they complete and ship that, so that's going to be one large CapEx item, which is going to add significant chunk. The second point is that for our salt, as you know, our JV discussions are progressing well, our JV partner also made an official announcement in Japan with the intention of forming the JV. Our discussions have progressed well. We are mostly aligned the technology and like some of the only finer points are now getting aligned. So we expect that to happen in 2, 3 months. So what has happened is the equipment, which we were -- the long lead time equipment are already ordered by my JV partner in Japan. And I mean, they've already ordered from their existing suppliers. They are kept ready. So as soon as we conclude the JV, a large chunk of equipment will be ordered from there. So more or less, we are on track to complete by March. Electrolyte is 100% sure. On the salt side, we are just reviewing. Once we have the final alignment, we will know. It will be just a couple of months here or there. It depends on like how the exact alignment happens, and we have clarity after alignment. But overall, CapEx will happen more or less in time. Maybe some slight change on the salt side, we are watching. Once we have the final JV alignment, we'll be able to give you the right picture on that.

And that was actually my next question. On the JV. Any further details that you might be able to share in terms of the stakes of the 2 partners or the total CapEx amount and the split between the 2 of you, something like that?

So I would request to share this one with the JV agreement. I know the numbers and we have agreed on that. But I think we would wait for the JV agreement to get concluded. And after that, we will do.

Okay. Okay. Got it. Just one final thing from my side. While these auto battery capacities are still awaited in the Indian market, in the meantime, there seems to be quite a significant amount of development around energy storage, around solar, et cetera. So how sizable could that opportunity be? How are you seeing things unfolding on that front?

No. So this was something, which in the past also, we had alluded that energy storage can surprise us. And what we are seeing is, and I think you can also track that more and more people are requesting almost now all new solar projects, which are coming, they are coming with an energy storage kind of capacity, which has to come online. What I have seen is the percentage. So if you are setting up like 100 -- 1 giga kind of a facility or 500-megawatt kind of a facility, I've seen like around 25% to 50% of that requested as an energy storage backup so that you can utilize the maximum of the solar energy, which can happen. So I think if you look at that and if you think of 500 gigawatt hour of solar capacity, which India wants to put by 2030, and economically also, it's making such a strong sense. This number, in my view, can be like 30, 40 giga or even higher per year basis because we are going to go to the 500 giga by, let's say, 2030, and you can have around 100 to 150 giga kind of like a battery storage requirement over the next 4 to 5 years. So it can be somewhere between 30 to 40 giga kind of just for energy storage over the next 3 to 4 years. At present, if I -- I have the last year number, there were around 10 to 12 gigawatt hours of energy storage projects, which were already tendered, which will come, let's say, over a 2-year kind of period. So around 5 to 6 giga is like on an average consumption for energy storage is already there.

Okay. Okay. So sorry, just to clarify, out of the total capacity that we'll have in terms of electrolytes, would you expect a significant portion of it to go towards energy storage? Any rough estimates over there?

So if you just think of the 6 people, who have announced the 6 people I mentioned earlier, right, who have a giga factory starting till end of the next year, you have Reliance and Waaree Energy, which are completely basically from energy storage, solar point of view. And both Exide and Amar a Raja, partly solar and partly for auto. So you can say at least like 40%, 50% of the capacity in terms of just number of people, who are coming online is actually for energy storage. And if you actually put their giga capacities and divide, maybe 50% or even more is for giga storage -- energy storage sorry.

The next question is from the line of Karthik Srinivas from Unifi Mutual Fund.

I just had 2 questions. One is on achieving the revenue run rate of about INR 300 crores, which we have guided the market in terms of Neogen Ionics. So we have done about -- we are currently running at about INR 5 crores for this quarter. So how do we -- so is this going to be a quick ramp-up over the next 3 quarters to achieve the INR 300 crores run rate?

Yes. So we had guided earlier also that majority of this will come in the second half of the year. That remains still true. I mean, in the second quarter, it's not going to be like a INR 100 crore kind of number. But third and fourth quarters will be very strong. It again depends on 2 points, like how fast the electrolyte companies come up and -- sorry, the cell production comes up, which will drive the electrolyte demand. And the second is how fast -- once we approve how fast the international customers will ramp up the electrolyte salt and additive purchase. So again, both of these based on whatever customer guidance is in the second half. So we are expecting this to largely come in the second half.

Got it. So for this INR 300 crores, we have the orders tied up, right, with -- so on a steady-state basis, how much will be exports. Now given that the BESS demand is picking up even in India and a lot of battery manufacturers are coming up and inquiries are lining. So how will be the split of exports and domestic on a steady-state basis?

So Karthik, ji, actually, if you think of like the capacity, which we are ultimately setting up, which is 30 KTA of electrolyte and 5.5 KTA of the salt. What we believe is in the beginning around -- like out of the 5.5 KTA around 3.5 KTA to 4 KTA will be for the international market and then the balance will be for our local consumption and then for our internal consumption. And then as we basically ramp up the capacity like of the electrolyte, we will have to most likely add more capacity for the salt. So it will depend on like how that happens. But in the beginning, it will be more export heavy, let's say, if we're talking of next financial year. But then as we go, maybe they will balance out. And this also depends on how international market, like how strong policies will be put for non-China policies because everybody wants to have Neogen, as a backup, like even if there is no -- so some of the customers I had recently interaction with, they said, okay, even if there is no incentive, they can't depend only on China because of what they did in anode and rare earth. So they definitely want to have a backup supplier. But will we be the backup supplier or will be the main supplier also depends on all the policy frameworks, which are getting set up across geographies. So I think it's a little bit early to say, okay, 3 years down the line, 5 years down the line. But in the current year and in the next year, exports will be the main drivers. And once India picks up electrolyte, so we are talking of, let's say, 2027, 2028, whether Indian electrolyte will be more or salt will be more will depend on like how much market share we get in India for the electrolyte and like how the international view is about non-China suppliers.

Got it. And who will be our competitor in India for the same electrolyte and this one, salts capacity. There is...

So till now, I think Gujarat Fluoro is one of the companies, which has announced electrolyte capacities, but we don't have the exact clear volumes on that. And also for electrolyte salt, they have announced capacities and intention to increase capacities in the future. This is in India. But basically, when you are thinking of electrolyte salts, you are thinking of a global market. So if you look at a non-China global market, you have one company, which has started in Japan, one company in Korea. And after that, Neogen and GFL are #3, #4. So there are only 4 people at present outside China, who can give you electrolyte salts and additives the way we are [ giving ].

Yes. So at a world level, what will be the total capacity as it stands today? And so we are at about 5.5 KTA after 2 years, say? And what will be the global capacity today and by FY '28, say, what will be the -- how will it ramp up?

So today, the world capacity is somewhere between 50 KTA to 100 KTA of the salt. And we are 5.5 KTA. So we'll be somewhere between 2.5% to 5% -- sorry, around 5% to 10% depending on that -- depending on the consumption. And I think if you go to our investor presentations, we have given some numbers already for 2030 for the international expected demand, assuming 3,000 gigawatt hour kind of battery -- battery requirement by that time. The main point is out of this -- so if you look at non-China demand, the total non-China demand -- sorry, capacity which is available today is around 7 KTA, 8 KTA. So what we are adding is significant of that because today, 90%, 95% of the capacity is -- 90%, 95% of the capacity is basically China.

Got it. And my last question is on the tariffs. Given that the new tariffs have been announced. So is there any impact for you or it's just status quo?