Neogen Chemicals (NSE:NEOGEN) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the Neogen Chemicals Q2 FY 'twenty seven Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand over the conference to Mr. Nishit Solanki from CDR India. Thank you, and over to you. Thank you. Good evening, everyone, and a warm welcome to Neogen Chemicals Q2 FY 'twenty seven earnings conference call. Joining us today from the senior management team are Mr. Anurag Surana, non executive chairman Doctor.

0:46 Harin Kanani, managing director and Mr. Gopit Vishnu Sarathy, Chief Financial Officer. We will begin the call with opening remarks from the management team, followed by an interactive question and answer session. Before we begin, a standard disclaimer. Certain statements made during today's call may be forward looking in nature. Actual results may vary from these forward looking statements, and a detailed disclaimer is available in our Q2 FY 'twenty seven earnings presentation, which has been uploaded on stock exchange website. With that, I would now like to invite Doctor. Harin Panami to share his opening remarks. Thank you, and over to you, sir. Good evening, everyone, and thank you for joining us to discuss our Q2 and H1 FY 'twenty seven financial performance and business outlook.

1:35 I hope you had an opportunity to review our investor presentation. I will begin with key performance highlights and strategic development during the quarter, along with progress on our growth initiatives. Following this, our CFO, Mr. Gopi Sathi, will cover the financial highlights. To commence, I'm pleased to report that we delivered a robust all round performance during the quarter with consolidated revenue increasing by 42% year on year to INR $2.96 crore and EBITDA improving by 51% year on year to INR 45 crore. Our stand alone profitability is even better as consolidated performance reflects initial fixed cost absorption at NEOGEN IONIQ, while revenue scale up and capacity utilization continue to ramp up. Overall performance highlights the operational agility inherent strength and flexibility of our business model, and we swiftly pivoted towards application with better demand, visibility and higher volumes. This momentum was further reinforced by an accelerated ramp up in our battery chemical business with Q2 FY 'twenty seven revenue reaching INR 37 crore compared to INR 5 crore in the same quarter in FY 'twenty six.

2:50 This was in line with our business plan, and we expect substantial scale up in Q3 and Q4 and beyond, supported by the upcoming ACC battery manufacturing ecosystem being built in India, along with the rapid shift by U. S. Electrolyte manufacturers towards sourcing from non APOC suppliers in India. Importantly, this performance came on the back of a complex macro environment marked by Middle East geopolitical conflict and supply chain friction, feedstock cost inflation and temporary overheads from our Dahesh facility rebuild. I will move to key highlights and progress across our strategic growth initiative. Expansion of Organolithium capacity at Pattanchero, anchored by sustained volume improvement and expanding footprint of Organolithium into high growth emerging applications, our Board has approved the expansion of manufacturing facility at Pattaneshero Telangana.

3:46 Under this, we will be doubling our organolithium capacity from 300 metric tonnes per annum to 600 metric tonnes per annum with an estimated capital outlay of up to INR 45 crores. This strategic expansion is expected to unlock an additional revenue potential of INR 150 crores to INR 200 crores, depending on prevailing lithium prices, further strengthening our leadership position in specialized lithium chemistries. I would also now like to talk about successful fundraise via our maiden QIP. A major strategic landmark during the quarter was the successful completion of our maiden qualified institutional placement, QIP, raising INR 600 crores.

4:33 Demonstrating strong institutional faith in our business, the QIP was oversubscribed 6.5x with broad based participation from leading global and domestic investors. The resounding vote of confidence significantly strengthens our capital structure. We are deploying this proceeds strategically to deleverage our balance sheet as we prepare to fund our next phase of growth in the future. Insurance claim status. Regarding the insurance claims, cumulative recoveries to date stand at INR 164 crore, comprising INR 155 crores in on account payments and including INR 15 crore tranche received in July 2026 and INR 9 crore from Sandwich realization.

5:18 Further on 10/29/2026, the company accepted an additional claim amount of INR 152 crore from the insurance, which will be released in due course. With this, our total on account claims received and receivable now stands at INR $3.16 crores inclusive of accepted claims and scrap sales to debt. Consequently, majority of our recognized claim amount has now been secured and discussions with the insurance for the remaining balance are progressive constructively, and we expect further settlements as the final assessments conclude. On the operational plan, I'm pleased to update that the trial runs of the rebuild Dahesh plant are currently underway, and we expect full to commence commercial production shortly within this current financial year so that next quarter, we'll have we'll be able to fully utilize this facility.

6:17 We would also like to update on the credit rating. Our credit rating was upgraded, reflecting our strengthening balance sheet and improved financial flexibility. Cresyl rating has revised the outlook of Neogen's long term bank facility of A- stable from negative, while reaffirming the short term rating at A2 plus This positive rating action underscores the enhanced capital structure, resulting from our successful fundraise, ongoing operational ramp up and strong balance sheet discipline. Moving to battery chemicals, we are transitioning from capital investment into execution and scale up phase. Our project mechanical completion time lines remain on track for both electrolyte and electrolyte salt. For electrolytes, mechanical assembly is complete, trial runs have begun alongside facility validation and active joint trials of recipes with multiple Giga factories.

7:14 Simultaneously for lithium electrolyte salts, we have secured provisional approvals at our Zahej facility from five major international customers, completed final site audit for three U. S.-based manufacturers and already commenced commercial supplies with two customers two international customers. Further, Neogen Analytics Limited has executed a business transfer agreement to consolidate the lithium ion electrolyte salt in LIPF6, solid LIPF6, undertaking under our step down subsidiary, NEOGEN MOLITA New Materials Limited, NML for short, for a cash consideration of INR $2.45 crores on a going concern basis, which also includes INR 77 crores already infused by Morita through preference allotment recently.

8:06 Going forward, both our stand alone operations and the battery chemicals segment are well positioned for an exciting phase of growth that aligns with India's goal of self reliance in advanced energy storage and materials. Backed by a strong balance sheet and a disciplined execution strategy, we remain fully on track to meet our consolidated annual guidance as we continue creating long term value and sustainable growth for our stakeholders. That concludes my initial remarks, and I will now hand over the call to our CFO, Mr. Gopik Rishan Sarthi, to take you through the key financial performance. Thank you, Doctor. Kannani. Good evening, everyone. I will now walk you through the consolidated financial performance for Q2 FY 'twenty seven. All comparisons are on year on year basis unless specified otherwise.

8:56 Revenue grew by 42% to INR $2.96 crores, fueled by consistent volume expansion across core segments. Strong growth in organolithium and rapid scaling of NEOGEN IONIQs also helped in. We saw the revenue at NEOGEN IONIQs was at INR 37 crores versus INR 5 crores in last quarter last year. And this is equal to the full year sales, which we did in last year. Across our base vertical, organic chemicals generated revenue of INR $2.38 crores, reflecting 29% growth, while inorganic chemicals segment delivered 140% growth at INR 58 crores. Consolidated EBITDA grew by 51% to INR 45 crores, while stand alone EBITDA delivered strong 54% growth to INR 54 crores with a margin of 18.6%.

9:51 Consolidated EBITDA reflected the initial fixed cost absorption at NEOGEN IONIQ as the capacity are yet to ramp up, alongside the temporary expenses related to the rebuild interim tolling arrangement and elevated input cost. As the capacity utilization scales up at NIL, the operating leverage will improve significantly. Consolidated pads grew 144% to INR 8 crores, while stand alone pads surged 127% to INR 21 crores. Patch performance reflects a strong operational momentum, though temporarily impacted by higher interest and depreciation charge tied to ongoing CapEx initiatives. Interest costs are expected to trend downwards moving ahead supported by term debt reduction using the QIP proceeds.

10:38 Lower borrowing costs following our credit rate upgrade and incoming insurance claim disbursement. As of 09/30/2026, we maintained a strong liquidity profile of INR $4.65 crore in liquid investment and fixed deposits, which brings our consolidated net debt to 2,095 crore, while stand alone net debt stood at INR $3.78 crores. With an optimized capital structure, improved credit profile and revenue generating assets scaling rapidly across both core specialty chemicals and battery materials, Neogen is well positioned for a sustainable and a profitable growth. That concludes my remarks. I will now request the moderator to open the floor for Q and A session. Thank you very much. We will now begin the question and answer session.

11:31 Session. We'll take our first question from the line of from HDFC Securities. Please go ahead. Yeah. Fine. Am I audible? Your volume is very low, Neogen. Yes. Can you use your handset mode? Yeah. Am I audible now? Yes. Please go ahead. Yeah. Yeah. So my first question is on the organic lithium expansion. So as Harid mentioned that this 45 crore of investment and expected $1.50 to 200 crore kind of revenue, so can you give us the timeline in terms of a completion of this project and then the revenue taking to $1.50 to 200 crore?

12:29 Thank you, Dinesh. We expect the organic lithium additional capacity to be targeted to be completed by next September by H1. Although we have said it will take a full year, but we expect to complete it by end of next H1. So next year, it will contribute somewhere between INR 50 to INR 75 crore additional. And in the year after, we should be able to fully get INR 150 crores to INR 200 crores revenue from the increased capacity. Okay. Okay. And in your comment, you mentioned that you are getting different types of or used for this argon and lithium. So can you elaborate on that? Yes. So we have seen a very strong increase in approval in the pharma segment.

13:21 But now we also have received international approval, both in pharma as well as we have some application in agro. So we are seeing strong demand. And currently, the increased capacity is running at a full level. So like at a 300 tonnes kind of a run rate. So we would be complete we would be doing 300 tonnes. And maybe if we are able to do some incremental increase in capacity even higher by end of this year. And in addition to that, internationally, we have also found applications which are in the area of semiconductor. So we have and some specialty polymers. So we have already gotten permission like approvals in both semiconductor materials as well as for the specialty polymers, where also there is a strong volume demand.

14:11 So considering the increasing Indian local pharma demand as well as the international pharma demand and like the demand, which is going to come from international market in semiconductor business, semiconductor and specialty polymer application business, we are basically increasing the capacity. Okay. Okay. And my second question on the balance sheet side. You already have a liquid investment, as Gopi mentioned, more than INR 600 crore, and debt is... Net debt is about INR 1,000. And I hope that this insurance claim amount is yet to come... I mean, it it is coming in the Q3, plus the Morita investment will come. So how do you see f y twenty seven or more more precisely, f y twenty eight net debt level?

15:06 Okay. So I will refer to Gopi for the FY 'twenty eight net debt level, but would like to confirm that, yes, we are still awaiting the final disbursement of the insurance. So we are expecting the insurance amount INR 152 crores. That should we have completed all the procedure. We've given the confirmation to the insurer. So in the next few weeks, we are expecting. So that will come in Q3. And of course, you will also have Morita, second installment also. By, let's say, end of Q3 or early Q4, we are expecting. But basically, the second half, the balance Morita investment will also kind of come in. I think overall net debt, rupee, for FY 'twenty eight, if you can comment. Dinesh, the overall net debt are next. We are expecting somewhere in the range of somewhere between INR 1,300 to 1,500 range, depending upon the lithium prices, the other prices during that time.

16:03 FY 'twenty '7 or FY 'twenty eight you are referring? 'twenty eight. 'twenty eight. Okay. Okay. Thanks a lot for answering my question, and wish you a happy Diwali. Thank you. Thank you. Next question is from the line of Jason Sons from IDB Capital. Please go ahead. Yes, sir. Thank you for taking my question. Just wanted to know... I wanted to touch upon the battery chemicals guidance, which you're giving, you know, in the previous call, '27 and '28. Any update on that? I mean, you had said INR300 crores for this year and 'twenty eight, I believe, around INR 1,000, INR 1,100 crores. So any update on that? And just related to that, some commentary on how the EV cell plants are coming on the ground and international demand for lithium coils as well?

16:53 Sure. Thank you, Jason. So like in terms of the salt demand, international salt demand, I think we are seeing very strong interest there. Like our Zahesh facility, as we mentioned, is already approved by three out of five. The fourth one also we are expecting quite soon. And the fifth customer already told us, he will directly approve the Patazar site. Already, we have received like good POs in hand where we can see that our Q3 should be even better than Q2. So as you might recall, our Q1 was around INR 15 crores, 17 around 17 crores. In Q2, we were already at INR 37 crores.

17:38 And we can see that Q3 will be significantly better. And Q4 is a year where we will have light of the non China requirement kind of start. So we are expecting even a stronger Q4. So you can keep seeing significant increases like as we go from Q1 to Q2, Q3 to Q4. If you remember in the last call, we had given a breakdown that INR 200 crores we are expecting from the Salt business and INR 100 crores from Electrolyte. And in case if we are short like in Electrolyte because that depends on Indian customer. So there, we will try to make up with the capacity coming online. So even our capacity for the salt also, we expect to get into trial production by December and start producing significant quantities by February, March.

18:31 So although we don't have a number there. So depending on how much contribution comes from Fagazil and as the two of our Indian electrolyte customer, both Ola as well as X Sight. So with Ola, we already have all the approvals with X Sight. We are like undergoing right now some trials. So they have already seen some initial data, which where they see the benefits of using Indian electrolyte, and they are doing further investigation. So if that is succeeded and if they also have announced Q4 commercialization. So depending on how their volumes rack up and how and if at all they are short, how much, we expect still to be like in the range of INR $2.50 crores to INR 300 crores for the current year. I mean we are still trying for INR 300 crores, but it just depends on the electrolyte like volume and like how much we are able to make up from Pakajan based on the approval time it takes.

19:29 So this is for the current financial year. Next year, I think we will have enough. So there's a very strong solid demand and also solid additives as well as even solvents that we are producing. So together, we don't see a challenge in crossing INR 1,000 crore plus revenue. As we have said, how much plus, whether it is INR 1,200 or INR 1,500, that we'll be able to say depending on how the electrolyte business is developing. So I think it's a little bit too early for us, but the INR 1,000 plus kind of remains. And even for this year, we should be INR $2.50 crores, 300 crores. Fortunately, the base business is doing significantly well. So at a console level, we should be maintaining like around close to around INR $13.50 crores, INR 1,400 crores kind of like revenue, more or less in line with our previous guidance or maybe slightly better.

20:24 So I hope this answers your question. Sure. Thank you so much, sir. And sir, just wanted just had a query on the 5,500 metric tons of lithium soils. So just wanted to know on from those that quantity, how much are we expected to use captively and how much is for external sales? So the way we are looking at today is that like depending on so there's a very strong external sales. And like I said, technically, let's say, we can take 80%, 90% utilization in the next year or let's say around 80% at least utilization, and that can be mostly be sold externally. Now depending on local, see, in local, we have two options, and that will depend on the customer choice. So as many of the customers are now requesting us that we would like to make sure that even for electrolytes, please use locally made salt. So one year ago, they were saying you can import from Morita or somebody in China and just formulate here because the prices are lower. But with the gap reducing between China and India, uncertainty of shipments from China, they are telling us to allocate it for electrolyte.

21:39 So we will see. So whatever our customer like request very strongly that please consume internally, so that portion will be allocated locally. My guess is that total gigawatt hour capacity, which is coming online by, let's say, end of this financial year, early next financial year is 60 gigawatt. So that is around 60,000 tonne of electrolyte demand. So I'm estimating next year somewhere between 10% to 20%. So at 10 to 20%, that is around 600, so around 6,000 to 10,000 ton of electrolyte. In that, like, it's around 12% or so somewhere between 500 to 1,000 ton is what can get consumed locally.

22:25 Of course, this depends on the customer choice. So except for whatever is consumed locally, and of course, when we consume locally, there will be electrolyte produced, which will be further value add, right? Because if we consume x dollars of salt, the electrolyte will be almost 2x, that salt contributes around 50 percent, right? So overall, that is the number which we today don't know, whether 500 or seven fifty or 1,000 or the customer asked me to import from China or asked me to consume my own. But if we were to just say, let's say, almost 80% of 5,500 tonnes consumed and sold internationally, Then with today's prices, we should be somewhere around INR 800 to 1,000 crores of revenue already.

23:10 And then whatever we sell it in the form of electrolyte will be further value add. So whether that value add takes us to INR 1,200 or INR 1,500, we'll be able to inform you as we get more clarity from our customers, maybe by Q4 or Q1. But on the cost side, like INR 1,000 crores kind of I mean, close to around INR 1,000 crores revenue for next year seems very strong. Sure, sir. Thank you so much. And the base business, sir, as you already mentioned, probably we stick to our original guidance that we gave last time, which was, I think, around 1,000 crores, INR 1,050 crores for this year and around INR $11.50 crores odd for next year? So our base business last year guidance or last quarter guidance, we had given INR $9.50 crores, INR 2,050 With the way the second quarter has gone and Q3, Q4, we feel we would be INR 50 crores to 100 crores more as compared to what we guided earlier.

24:09 But so any shortfall which will happen from the battery business, we feel either that or even more than that will be made up by the base business. So overall, we should be in a stronger position. And for the next year also, we can enhance our guidance because we would also have the organic lithium capacity, which we just announced, which was not taken into consideration. So next year, we would look somewhere closer to around INR 1,200 crores. And this year, the way we are because we are already at INR $5.50 crores plus in the first six months. Usually, the second six months are like is stronger. Also with our Pakhajar sorry, our Zahesh plant coming online during this quarter and then available for next quarter, many of my new CSM projects, which were on hold, will also start contributing once Zahej comes online.

25:02 So together, we feel next year also should be stronger than our original idea. So we would be somewhere between, let's say INR 1,200 crores to INR 1,300 crores for next year. And this year, it should be INR 1,100 crores plus kind of revenue is what I'm expecting. Sure. Thank you so much, sir. Those are all my questions. Thank you so much. Thank you. Thank you. Next question is from the line of Abhijit Akela from Kotak Institutional Liquidity. Please go ahead. Yes. Hi. Good evening. Thank you so much for taking my questions. Just first on the battery revenues that you booked in 2Q and 1H maybe, would it possible to just split it out between salts and electrolyte? Most of it is salt. I mean electrolyte is hardly less than 5%, 10% of that.

25:53 Okay. Okay. Harinder, if I heard you correctly a few moments ago, you mentioned something like 60 gigawatt hours of capacity coming in, in India, battery side by early next financial year. How much line of sight do we have at this point? I mean, this all like confirmed that this capacity is on the verge of getting completed? Or could there be some slippages to this time line? See, I think, like, honestly speaking, we have a feedback from our customers where some of these are confidential in nature. So what I can share with you is mostly the public information, right? And what we have seen is Ola is on track to increase capacity. X Sight already has an installed capacity of six giga.

26:39 Tata and Reliance both have targeted that I think by Q4 current financial year, Q1 next financial year, their capacity should come online. And Amar Raja has also guided to starting in Q2, Q1, Q2 of the next financial year. And Wari also either Q4 by Q4 capacity coming online. So I don't think there's a challenge in the capacities coming online. So I think the capacities will come online by Q4, Q1, like this year Q4 or next year Q1. Is there a ramp up and trial production, whether it takes one year. So as we said, like historically also that we feel normally by two years, our battery plant should be fully be stabilized.

27:27 So what our expectation is that by FY 'twenty nine, even if this is at a 50% utilization level overall, and let's say, in the third year, the 60 giga is at 80%, 90% utilization. So therefore, by FY 'twenty nine, we feel like there's a very strong possibility that our 30,000 metric tons gets fully utilized. And hopefully, by FY 'thirty, we should be already falling short of capacity, for which we have to plan some more CapEx in FY 'twenty nine. So I think majority of these customers are on track. And as we have explained, almost five of the customers, we already have the recipe, we are at different stages where customer is already convinced, like two of the customers have already used our electrolyte in their pilot line or commercial line.

28:17 Two of them are right now already sorry, three of them are already testing our electrolytes either in their R and D or in our external lab comparing against the Chinese electrolytes. So those things are also in progress. And we've also made good progress with the fixed customer, wherein their international team came and they were very happy to see our Pokhajan site. So they were very, very happy. They feel this is our interaction scale. They give very positive remarks. Only just for their immediate requirement, we need to just work on how the recipe can be shared with us. But otherwise, all six of them are very keen to work with Neogen. So we have a very good line of sight only I think the only question is in the next two financial years, how fast stabilization happens?

29:04 Do they take six months? Do they take one year? Do they take two years to stabilize and achieve 50%, 80%? That's the only question which is difficult to answer. Got it. Thank you. Just one clarification on the numbers. The difference between stand alone and console revenues this quarter is only about INR 7 crores or so, INR $2.95 crores versus INR $2.88 crores. Yet you've mentioned that the subsidiary did about INR 37 crores of revenues. So exactly how is it being accounted for? Why didn't it show up in the full consolidated manner? Yes. So I think the main reason is that some of the raw materials, which is required for the subsidiary actually comes into NEOGEN Chemicals because that is where we are buying lithium and we have all the permissions.

29:54 So like as we ramp up NEOGENIAL, slowly, some of the raw materials can come directly in NEOGENIAL, where we need to buy NEOGENIAL NEOGENIAL and transfer. Therefore, there are some inter unit transfers between NEOGEN and NEOGENIAL, which is why this number difference comes. And in fact, if you basically account for that, then actually, NEOGEN Chemicals gross margins also should be significantly better because the sub portion around INR 18 crores, 20 crores worth of material is just basically bought by Neogen Chemicals and transferred to Neogen. Okay. Got it. And the last one I had was just on the inventories situation. It does seem to have increased quite a bit in the first half. What exactly is this due to? And where do you see this heading over the rest of the year?

30:48 So this is a situation where our Dahesh plant is coming online. At the same time, it's not fully come online. So therefore, we still have to continue with our outsourcing or toll manufacturing arrangement. And at the same time, the customer demand is also increasing significantly. So what we expect that by end of the current financial year, like Q4, once kind of the head start, we will be improved. So we would be somewhere, let's say, around one hundred eighty days is what we are targeting by around one hundred eighty days by end of the current financial year. And by next financial year, where we'll have full utilization at all the sites, we are targeting to go back to historical best, which was around one hundred forty to one hundred sixty days in the next financial year, which is FY 'twenty eight and beyond and this is just for the stand alone. And beyond that, like some of the CSM business, which is coming in and some larger molecules which are coming in, we are able to execute those strategies.

31:54 Also, again, Olysium also as it contributes more, there the working capital cycle requirement is also less. So then we can improve and get to a region between one hundred and ten to one hundred and forty days as we go forward in FY 'twenty nine, FY 'thirteen. So this is our target. And of course, battery business, we are targeting close to around ninety days of working capital cycle, which we should be able to achieve. So this is just the age is ramping up starting as well as still job work and still there's a very strong demand. So it's kind of combination of all of that. But we are confident that by end of the current financial year, at least at one hundred eighty days working one hundred eighty days inventory. And in the future, one hundred forty, one hundred sixty for next year and then one hundred and ten to 140 in FY '9, 'thirty.

32:49 Right. Just one last final thing, if I may just squeeze in. On the use of the QIP proceeds, will those be used to deleverage for the time being? Or could we consider some expansion as well in the battery scheme of things? No. So as per the end use, are committed that we the main purpose will be to deleverage the balance sheet. So we have already I mean, unfortunately, we had to give certain notices to our like top loan lenders as well as for bonds. And as you can see, we have completed the task. So we have already passed the resolution to repay INR 200 crores of bond. So some of these will be repaid and we'll be deleveraging the balance sheet. For future investment, like as we said, if there is no special requirement by Indian customers to for us to contribute salt. So for our FY 'twenty eight, salt and electrolyte, we have enough capacity.

33:51 What we are watching is FY 'twenty nine. So I think by Q4 of the current year, as we will see the base business kind of the electrolyte salt business will kind of start stabilizing by, let's say, Q4 or Q1 next financial year. We are also expecting some government policy clarity and even Indian electrolyte customer clarity about use of local salt or imported salt by Q4, Q1. So that is a time where if at all we have to take care of both India and The U. S. And if the demand of both is strong, then FY 'twenty nine, we will be short. So sometime in FY 'twenty eight, we need to add our salt capacity. So that decision will be taken maybe towards end of Q4 or Q1 after taking care of what is happening in The U. S, how the business in The U.

34:45 S. Is developing, how India electrolyte is developing and policy. So it's a combination of all Understood. Thank you so much and wish you all the best. Thank you. Thank you. We'll take our next question from the line of Arjit Zoshi from Numama. Please go ahead. Hi. Good evening, everyone. Thanks a lot for the opportunity. So first question, rather a clarification from something that was called out in the last one call on the non Chinese demand getting created for soils. Was something that I couldn't really understand as we had said that in 2027 calendar year, the salt usage, which was already, let's say, a part of electrolyte formulations, which was coming in from China, will now get displaced by a non Chinese source.

35:38 I couldn't really figure out how would that equation work. And who are these players at this point in time for exporting electrolytes or salts in both separate ways? So if you can just clarify how that mechanism can help us in the next calendar year? Sure. So as part of one big beautiful bill, which was passed, there is a the tax credit, which is receivable by companies which are producing like advanced chemistry cells in lithium ion battery cells in U. S. A. So this is called a 45x tax credit, which is as high as, I think, some $35 per kilowatt hour.

36:29 But to be eligible for this, you have to reduce your dependency on foreign entities of concern, FEOC, and they call it non FEOC supply. So this is so based on that requirement 2027, the customers have to shift from FeoT to non FeoT supplies, which basically includes Neogen and like a few four or five other salt manufacturers internationally. So this is the clarification on your first. And this is the reason why we've said that our salt demand is increasing quarter on quarter, and we are confident that our next year full capacity should get like fully utilized for The U. S. Market because, one, we have a non FPOC or physically fortified compliant supply as well as we have a Morita stable technology. So that combination makes us very strong.

37:27 At present today, the majority of this is currently going from China as so electrolyte is already being made in The U. S. It's only the electrolyte salt and additives, which are currently mostly being supplied from China, and there's one Japanese and one Korean. And now NEOGEN and one more Indian company, two more are getting qualified. So these four will be the major suppliers. And there's one more Korean company who's trying to come online maybe sometime next year. So these will be the major suppliers for the FUC compliant. Is it that... Let's say that there are there are... Might be Chinese companies who are also exporting the entire formulation. And because they are already backward integrated, the salt usage is captive for them.

38:16 And that salt usage, which is a part of the electrolyte, isn't being traced by The US authorities, which also can create an opportunity that the the salt part of what is captively consumed in China also comes to NEOGEN. Is that a possibility, or the whole American ecosystem creates electrolyte formulation by themselves and they don't import any electrolyte formulation? So I just wanted to understand that aspect as well. Yeah. So as we stand today, like historically, there was a little bit of electrolyte getting imported, but those volumes have gone down significantly already. And majority of the electrolyte is produced by five electrolyte producers in The U. S. So earlier in my call, I said there are five entities, which are making electrolytes in The U. S.

39:08 And out of that, four of them have already approved our Zahe site, three of them as I explained, have already completed all audits also. And two, we have started commercial supplies. So we are in fact with all the five of them. And the fifth one also, once happens, we'll come online. So, basically, by June, we would have access to the entire ecosystem of the unit. Noted, sir. Got it. Sir, any update on any relationships that you're developing on the energy storage side in the domestic arena? So I think in the earlier reference, I talked of all cell manufacturers saying that, like, Wari Energy and Reliance, they both are like mostly targeting energy storage.

40:02 And even XSide and Ola, we have some, which is basically for energy storage. So all the 60 gigawatt hour capacity is coming as both EV as well as energy storage. In fact, the capacity for energy storage at present, the way it stands is higher than you are required for the EV application. Got it. Sir, just one last bit, circling back to the whole China US story. Just wanted to understand a couple of Chinese companies who are also planning to set up their own manufacturing plants in US, so specifically for toys. Don't really understand how that would work out for them as they will continue to be Chinese companies in corporation wise.

40:51 What is your take on that, sir? So I think, as you very correctly said, they will not be like just PSP or non SEOC compliant. So therefore, they are maybe hoping that maybe they will capture some customers for whatever reason who are not able to meet the requirements or who don't who are not so strongly required. But if anybody wants a 45 credit, the way things stand today, they cannot buy. So I think some of these are announcements, but actually very limited things are getting done on the ground in the hope to just tell U. S. Policymakers that this is also an option available that we are willing to invest in The U. S. So I think it's more posturing and more hope of a policy change. But the waiting time today, very few customers would be interested in a facility which is owned by Chinese or controlled by Chinese in The U.

41:52 Got it, sir. Very clear. You, and wishing a very happy Duwadhi. Thanks. Same to you. Happy to you all. Next question is from the line of Diraj Bajaratkar from Kotak M. C. Please go ahead. Yeah. Hi. So just two small questions. So one is basically the, you know, the proceeds of the QAP that went for the working capital increase. That is mainly for The US salt shipments, correct, which was supposed to have started November, December this year. Is that interpretation fair? So I think... Little confusing. So I think QIP proceeds are many of the QIP proceeding because by the time we received it, we were not able to fully. So most of them were sitting as cash as on September 30.

42:46 And basically, QIP proceeds would be used the way we have originally said, like for repayment of long term loan for some working capital reduction, like working capital dependency reduction and the third would be for general corporate purpose. And just one last. So basically, net debt guidance of 1,300 to 1,500 for FY '28 versus the current $10.95. So I... What I... So I was just trying to see. So 45 crore is coming next... I mean, it is coming from organic lithium CapEx fresh, and there is $1.50 crore roughly... Oh, sorry. Not $1.50. Around $2.63 crore more coming for the battery CapEx. 1,800 minus the $15.37, that's $2.63. So $2.63 and 45, so total 308 crore of requirement. Any other investments till FY '28, do you see?

43:46 So we still have some balance investments left to complete the project in our Pahajan and Zahed because few capacities are still remaining, right? And also, we will require the working capital as FY '28 will target INR 1,000 crores revenue INR 1,000 crores revenue for 1,000 crores plus revenue for the battery business. Okay. Okay. And just, if you could help for the the cash moment also. So net debt is fine, but the cash moment also, like, from this one zero nine five, how much is the current cash in one in FY 'twenty eight, how would you end with that roughly? I think it will be very difficult to describe all this over a call right now.

44:34 Because there are many more people here. So I think maybe, you know, if you can just use our existing projections, and after that, if you have some questions, it will be better if you send an email to our investor, and we'll try to answer based on whatever guidance is we have. Sure. Sure. Thank you. Thank you. Ladies and gentlemen, we request you to restrict to two questions at a time, please. Next question is from the line of from Asian Market Securities. Please go ahead. Good evening. Thank you for the opportunity. My first question was on the qualification guidelines for the electrolyte formulation plant. You indicated earlier that we are already supplying recipes to multiple domestic manufacturers from our beverage plant.

45:22 So once our facade unit with a newer technology sort of comes online, how do we see the qualification timeline for electrolyte formulation which are produced from the new plant? So as we said during trial production, for out of the six gigafactories for five gigafactories, we already have received the recipe. So we will jointly produce this materials to our customers. And using this material, they can do the qualification. For some of them, it will be a shift of size. So whoever we have given samples from the so two of them who have already approved and received material, it will be kind of a transfer from the to Pahajan.

46:07 And that will be relatively shorter, two months, three months. For the rest, it will be, again, either we have given them samples, as I explained, they are already testing samples from like against the Chinese, Chinese electrolyte. So they will also just test this that it gives the same performance as our previous samples from R and D. But overall, what we feel that most of these customers are coming by Q4, Q1. So we feel we have enough time to make sure that by the time they start, they can complete all the approvals. And like instead of first importing from China, then changing over, they should be ready to start buying from us from day one once they've generated sufficient data. So hopefully, for the electrolyte, we should not have approvals as a constraint because it's coming online and then it takes between, let's say, for somebody two months, maximum six months. So by March, like it is kind of fully approved.

47:07 Then it just depends on how the demand levels, depending on their self production ramp up. Okay. Understood. One more small question. I kind of joined late on the call. Would it possible to sort of disclose how much of the revenues from the organic lithium business in Q2 and H1 and H1 H1 you said it? So because, know, organic lithium is a single molecule. So it's, as you said earlier, I mean, one molecule is a major portion of that. So for competitive reason, we don't want to break it down of how much revenue came from there. But I can tell you that our capacity of 300 tonnes, which is 300 tonnes of active, which was earlier expanded, which is like a monthly capacity of almost 25 tonnes per month.

47:57 So we are on track to like we're already exceeding or very close to the 25 tonnes per month kind of utilization or like above. So we are fully utilizing the facility. And like the demand is very strong Okay. Got it. That's all from my side, and happy Diwali to the entire team. Thank you so much. Happy Diwali to you also. Thank you. Next question is from the line of Rohit Nadraj from three sixty one Capital. Please go ahead. First question is beyond FY 'twenty nine. You alluded that if our plans go through as per our expectation, we'll have to plan for the next leg of CapEx, sometimes towards the end of FY 'twenty eight, early 'twenty nine.

48:49 So in terms of optimal size of plant for electrolyte salt, what are we looking at? And in terms of the time lines or lead times, what could be the lead time to put up additional facility, given that most of the infrastructure is ready, but we'll have to put up more reactors to it? Sure. Yes. So I think the minimum size for the salt is between 3,000 to 5,000 tonnes for the electrolyte salt. For any additive, it is about 1,000 tonnes. And lead time in the existing setup, like I would have to push myself for twelve months. But ideally, if you want to give a safe time, eighteen months is a good time for the incremental CapEx. It's not just putting reactors.

49:38 Like we have a situation like that for the additive where for another, let's say, 100,000 tonnes, we just have to put reactors. But for the it would be we'll have to create a building and then put the reactor. But yes, the common infra like utilities and everything would already be there. So ideally, I would say fifteen months to eighteen months is a good time for a salt or electrolyte plant. And just one small clarification here. In terms of cash flow availability, will we have decent amount of cash flows to fund the CapEx through a mix of debt and equity? Yes. We believe like if we want to if by FY 'twenty nine, if we are already generating like INR 2,000 let's say INR 500 crores to INR 3,000 crores kind of revenue, right?

50:31 So at a 20% ROCE that we have said earlier, we should be getting somewhere around 500 crores, INR 600 crores of EBITDA. So at those kind of numbers, like we should be able to fund it internally. Perfect. The second question... We always want to because one thing which we have to also think that if I look at like a ten year kind of a picture, right? So if within ten years, India reaches where China is today. So today, China is like at somewhere around 1,000, 1,200 kind of gigawatt hour. And let's say, today, if you look at China's top one or two electrolyte makers, they still able to command around 25%, 30% kind of market cap market share.

51:27 So if we think of India reaching and India's own demand also as per MHI report is expected to be somewhere around 600,700 giga internally. With some exports, we can imagine India can be 900,000. So then NEOGEN and if, let's say, Neogen also has a 30% kind of a market share based on just looking at a China model, no other logic. That also requires a 300 Kt kind of electrolyte capacity and 30 Kt salt capacity, approximately 10x of what we have today. So I think once India's cell production is proven, once India's ability and in the global supply chain will be accepted, in the next seven or eight years, we have to increase capacity eight, 9x of what we have today.

52:19 So we will have the Board will have to look at the situation and plan. But yes, the earliest that we see the next capacity increase to happen would be somewhere around FY 'twenty nine, unless like I said, Salt Capability, we may have to take a decision in FY 'twenty eight, if both we need for India as well as The U. S. Market. And both U. S. Market shift from China to non China is going smoothly and India electrolyte is also ramping up, so subject to that. Okay. This is very helpful. Second question in terms of salt, the three molecules that we require, we have import dependencies. So how are the general contracts structured in terms of pricing in case there is a volatility, is it quarterly reset or a half yearly reset or anything on that line? Thank you.

53:14 Yes. So I think lithium is like a completely pass through. And currently, what we have is a quarterly reset with our long term customers, like with whom we have a long term supply agreement. Other than that, we are also nowadays supplying it to people with whom we don't have long term contracts. And with this customer, either we are going on a monthly reset model or a fixed for a six month period or something, whereas but with an advance or something, which assures the price. And then we also kind of view a back to back lithium coverage. So like a back to back lithium coverage and a fixed price for a three month, six month, nine month period with advanced kind of the situation or a monthly reset is what we are talking to new customers.

54:02 With the old customer, what we have the existing long term contract, supply contract, that's a quarterly reset. Okay. Thanks a lot. All the best and the one who sits at IT. Thank you. Next question is from the line of Anukul Arora from Sagun Capital. Please go ahead. Yeah. Hi. Thanks for the question. Anukul, your audio is not clear. Can you use your handset mode, please? Hello? Is it better now? Yes. Please go ahead. Yeah. Sir, thanks for the opportunity. Most of my questions have been answered. Just wanted to understand, like, we are seeing good demand from US for LID stakes.

54:47 So are we... Are there any plans to expand our capacities further going forward? So Ankul, yes, as we said, we are just waiting for this to develop, how it develops in Q4 and Q1 next financial year. And we are also hoping that by Q1 next financial year, we would have almost all The U. S. Customers who are already approved. And then we are also looking at India government policy, how they are supporting localization and like customers approach, both from a government policy as well as from security of supply. So based on that, by Q4 current financial year, Q1 next financial year, we would like to take a call on additional capacity of the salt, like where we'll have more clarity, both from U. S. And India point of view. And as we discussed that sometime in FY 'twenty nine, we would have to again take a call for increasing capacity, both for the electrolyte and electrolyte salt. So like if everything goes well over the next seven to eight years, we would have to increase capacity 7x, 8x. So next like almost like eight, nine years, we would be almost like we'll have some breaks in between, but then we'll always be constantly undergoing CapEx.

56:10 Okay. Okay. Got it, sir. So my other question is like in terms of offtake for battery sales in India, are we still seeing that the ramp up is still slower? Or how is it? No. I think today, the battery requirement this year will even exceed. And I think if you look at MHI, Ministry of Energy has come out with a report, wherein they said next year, the demand for the batteries will be almost close to 95 to 100 giga. So the demand is very strong. It's just the production and the first initial production, which is a struggle, wherein as on today, let's say, for example, 60 gigawatt, our capacity is coming online. And so as we said, it may take one or two years for them to fully get utilized. So they are like they will be fully be available, let's say, by FY 'twenty nine or FY 'thirty.

57:05 But the demand for once again produce in FY 'twenty nine, 'thirty is already there in 'twenty eight. In fact, by FY 'thirty, the expected India demand is going to be 160 giga against the 60 giga, which will be fully be able to use. So I think the demand is very strong. We don't have to worry about the demand in India, Only the ramp up of self production is what we need to watch carefully. Next question is from the line of Raghu Anghra from Money Stories. Please go ahead. Hi. Am I audible? Yes. Please go ahead. Yes. Thank you for the opportunity.

57:50 So could you please clarify how much of the planned electrolyte and lithium salt capacity is backed by confirmed customer demand versus customers still undergoing trials and approvals? Also, what is the expected commercial ramp up schedule for each product, particularly the time required to move from approval to regular commercial supply and ultimately the full utilization? So for the electrolyte source, you know, as we said earlier, by next year itself, we expect full utilization because I mean close to around 70%, 80% kind of utilization. And for the electrolyte salt, our estimate is that by FY 'twenty nine, we have we achieved full utilization.

58:43 For the electrolyte salt, we have some long term contracts and we also have some discussions with non contracted customers based on which we are confident that next year we can achieve full utilization. Of course, the long term contract doesn't have a take or pay. So that's why we are also discussing with others and ensure that but the demand is quite strong so that in the Salt, we can achieve 70%, 80% utilization levels by next year. And in terms of electrolyte, we don't have long term contracts with anyone because as we discussed earlier, the cell production is coming online, they need to get stabilized. So they need to be clear on the volumes only post stabilization. So therefore, we don't have, but we have had commercial discussions.

59:30 We have had like pricing models, which have been agreed upon that this is how we would kind of lose our pricing and that is accepted by the customer. Only thing with some time changes that use locally produced like CF6 and our additives or import them depending on the price differential. That is something that the customers will still finalize as the volumes ramp up. But the utilization by FY 'twenty nine is guided by the fact that if the total six plants which come online, they are at 60 giga, require 50,000 tonnes. And today, 30,000 tonnes is what we have installed capacity. There's very limited capacity available other than NEOGEN capacity. So majority of the demand should come to NEOGEN and that will ensure full utilization, especially because electrolyte is very difficult to import.

1:00:23 So therefore, majority of the customers are likely to purchase this locally. Got it. Thank you for that. Thank you. Ragha, I request you to rejoin the queue, please, as we are participants waiting for their turn. Thank you. Ladies and gentlemen, we request you to restrict to one question at a time, please. Next question is from the line of Akshay Satish from Alpha Invesco. Please go ahead. Hi. Thank you so much for the opportunity, and congratulations on a great set of numbers. Sir, I wanted to understand on X-ray, as we've not been approved yet, how complicated is it for someone like a Balaji of Mines who manufactures DMC? Could the import at IPF6 from China blended with their DMC and supply to players like or any other players?

1:01:15 So, like, you know, I think, like, know, for somebody, it's a journey. You have to first make it in your R and D, then you have to set up, like, at scale kind of a plan. So, like, you know, we feel right now, there are very few people who have the ability even to make electrolyte in lab in India. And the fact is that so you'd have to first learn that ability, make that. If you set up a plant also, it's minimum two years' time. Residual solvent by value contributes only 15%, 20%, right? So you also have to secure efficient IPF6. So I'm not saying you can't do it, but I feel very difficult for somebody to do, let's say, within next two years to come up with a new facility, get all the approvals and get the confidence from the customer and give a more competitive price as compared to a proven technology, which Neogen already has and already established player.

1:02:15 And of course, maybe something like that can happen over a ten year period. And depending on how much of that happens, we discussed earlier the number that at 30% market share also, Neogen has to grow 10x. So depending on how successfully the remaining 70% comes, the question is, Neogen has to grow 10x or more. That depends, and that is something that we are doing. Also the advantage which you have a first mover advantage, one is the approvals that you have. Then once it's approved, very rare for customers to change. And the second advantage that you have is that when we do the next round of 30,000 tonne CapEx, we would be basically doing incremental CapEx, which is 60%, 70% as compared to somebody setting up a first 30,000 tonne plant.

1:03:03 So I think these are the advantages which we have, which we have to kind of use over next seven, eight years as we go beyond our existing capacity. You. Akshay, request you to rejoin the queue, please. You. Question is from the line of Dhrishil Zaveri from Crown Capital. Please go ahead. Sorry, audio is not clear. Can you use your handset mode, please? Hello. Is this better right now? Yes. Please go ahead. Yes. Yes. Yes. Hi. Thank you so much for taking my question, sir. Sir, I just wanted to know in terms of margin, sir, for this year, what would be the outlook for consolidated margins? Because Q2, we had a dip and we also had a higher interest cost, right?

1:03:51 So could you just help us guide for that, So on the base Neogen Chemicals business, like we are at an 18% plus kind of EBITDA level. We hope that as the hedge plant comes online and some of the additional cost of working outside improves, then the margin kind of gets better beyond Q4. And definitely next year, we purposefully want to like tailor our product, like do work with a better product mix to improve our margins. So I will continue to guide like Neogen Chemicals margins at 18% to 20%. See, in case of Neogen, I think on a quarter on quarter, sometimes what happens, capacity comes online, expenses happen, but the utilization happens in the next quarter.

1:04:42 So it's a little bit like difficult to predict exact margins. Although we expect that once we have significant volumes coming from Q4, Q1, at least hopefully, we are EBITDA positive and like depending on how the experts come, become PPT positive also very soon sometime in the next financial year. But overall, like once we have a full utilization of all, currently, the contracts are in a place so that we can have 20% plus kind of a return on capital in terms of the investment in the like around INR 1,800 to INR 2,000 crore investment plus ninety days working capital cycle. So roughly around INR 2,500 to INR 3,000 crore will be the total investment, which should generate like close to around INR 500 crore plus EBITDA on full utilization by, let's say, 2000 FY 'twenty nine.

1:05:36 So this is what we are currently focusing and targeting and the basis of the guidance that we have given. I know in the beginning this year and next year, the margins, there will be some volatility. But again, you can focus on that or you can focus on the opportunity that we have for the next ten years. So as the entire ecosystem and business stabilizes, we request our investors to be a little bit more patient. Like and then once we achieve full utilization, we'll have more clarity, more predictable margins that we can plan. Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand over the call to management for closing comments. Over to you, sir.

1:06:26 Thank you all for your time, engaging questions and ongoing support. For any additional queries, please reach out to our Investor Relations team, CDR India. We look forward to speaking with all of you next quarter. I wish all everybody happy Diwali, festival greetings to each one of you. Have a wonderful day ahead. Thank you. Thank you, members of the management team. On behalf of Neogen Chemicals, that concludes this conference. Thank you all for joining us today. You may now disconnect your lines.