Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Neogen Chemicals Ltd (BOM:542665, Financial) reported a 10% year-on-year increase in EBITDA for Q4 FY24, reaching INR36 crore.
- The company achieved a profit after tax of INR17 crore for Q4 FY24, marking an 18% year-on-year growth.
- Neogen Chemicals Ltd (BOM:542665) successfully commenced trial production for its 2,000 metric tonne electrolyte plant and 400 metric tonne lithium salts plant.
- The company has secured a licensing agreement with MUIS Japan and raised capital through a preferential offering to support its expansion initiatives.
- Neogen Chemicals Ltd (BOM:542665) has started shipping small batches of lithium electrolyte salts to global customers, with positive feedback on product quality.
Negative Points
- Inorganic revenues declined by 53% in Q4 FY24, primarily due to significant drops in bromine and lithium raw material prices.
- The company faced a tough operating environment characterized by cheap imports, inventory corrections, geopolitical tensions, and logistical disruptions.
- Working capital increased significantly, attributed to unsold inventory at BuLi Chem and longer payment terms in the domestic market.
- High depreciation and interest expenses linked to ongoing capital expenditure within the Battery Material divisions impacted the profit after tax for FY24.
- The company is still awaiting approvals for commercial products from its new facilities, which could delay revenue realization.
Q & A Highlights
Q: The working capital seems to have increased significantly at year-end. Can you explain the reason for this? Is it related to unsold inventory at BuLi Chem or something else?
A: The increase in working capital is due to planning for full utilization of organic production and changes in demand, particularly in the agro sector. Additionally, BuLi Chem had almost zero inventory when acquired, and its business has since grown. The debtor side was affected by a shift from exports to domestic sales, which have longer payment terms. We expect improvement as we achieve full utilization levels and new products gain approval.
Q: There was an announcement about a licensing deal with a NASDAQ-listed company regarding battery separators. Can you elaborate on this and its synergies with your existing lines of chemistry?
A: The company developed a separator technology that, combined with a specific electrolyte, improves battery performance at high temperatures. This is crucial for markets like India. We are offering this combination to Indian customers for trials. If successful, it could lead to joint manufacturing. Currently, there is no revenue guidance as it is in the early stages.
Q: Now that you have commenced shipments of lithium salts, are the realizations in line with expectations? Also, there has been an increase in other financial liabilities and non-current assets. Can you explain?
A: Realizations are in the expected range of $20 to $30 per kilo. The increase in other financial liabilities and non-current assets is partly due to investments related to Neogen Ionics. Detailed financials will provide more clarity.
Q: Are you in discussions with renewable energy companies for their storage requirements, and are they opting for lithium or sodium?
A: Renewable energy storage is part of our plan, estimated at 30-40 gigawatt hours. Most renewable energy storage is still considering lithium. If sodium becomes viable, Neogen can adapt its facilities with minimal modifications.
Q: Under the US Inflation Reduction Act, can you shift the intermediate of the salt to the US for the final step to qualify under the Act?
A: The Act requires local value addition and limits imports from countries of concern. Our imports will still be considered as imports at the final cell level. However, the impact is minimal as electrolyte salt is a small percentage of the cell cost. Our offering remains attractive for IRA compliance.
Q: Based on your latest visibility, can you provide guidance for the battery chemical business in FY25 and FY26?
A: For FY25, we can achieve around INR200 crore to INR250 crore in revenue. Full utilization levels are expected in FY26, with a minimum of INR250 crore to INR300 crore in revenue. Additional capacities coming online will contribute further.
Q: Have you signed any more contracts for downstream value-added projects in your base business?
A: We have initiated early-stage contract manufacturing projects with four or five companies in the agrochem and pharma spaces. These projects will start contributing meaningfully beyond FY26.
Q: What are the current bromine and lithium prices?
A: Lithium prices have touched their lowest and started increasing again but are still below long-term sustainable levels. Bromine prices have also stabilized after reaching their bottom.
Q: Can you provide a breakup of the INR1,500 crore CapEx planned from FY24 to FY26?
A: The CapEx includes investment in land and common infrastructure, 3,000 tonnes of salt capacity, 30,000 tonnes of electrolyte capacity, interest during the period, non-usable GST, and working capital contribution.
Q: What is the expected peak debt in FY26?
A: The peak debt is expected to be around INR1,500 crore, with INR1,150 crore at Neogen Ionics and the remaining at Neogen Chemicals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
