Release Date: August 08, 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 9% year-on-year increase in consolidated revenue, reaching INR180 crores.
- EBITDA rose by 10% to INR31 crores, translating to an EBITDA margin of 17.1%.
- Profit after tax increased by 18%, amounting to INR11.5 crores.
- The company successfully shifted focus to non-agrochemical applications, which offered more stable demand amid weak global agrochemical markets.
- Neogen Chemicals Ltd (BOM:542665) has achieved financial closure for the bulk of its CapEx for the greenfield battery chemicals facility, with favorable terms.
Negative Points
- Inorganic revenues declined by 14% due to significant drops in bromine and lithium raw material prices.
- Despite the revenue growth, the company faced higher employee costs and other expenses, impacting overall profitability.
- The business landscape remains challenging with low China demand, economic uncertainties, and supply chain disruptions.
- The company’s expansion initiatives are still in the early stages, with some capacities yet to be fully commissioned and approved.
- There is a potential risk of delay in achieving full utilization of new battery capacities, depending on the pace of customer approvals and market conditions.
Q & A Highlights
Q: What's our line of sight into the new battery capacities coming up in India over the next 12 to 18 months? How do you see the capacity coming up in India?
A: We expect three major battery manufacturers like Ola, Exide, and Amara Raja to start in the current year and next financial year. Additionally, Reliance and Lucas TVS are expected to start in the next financial year. We feel confident that our target to reach full utilization by FY28 remains on track. We anticipate needing more than 2,000 metric tons of electrolyte capacity by the second half of FY26.
Q: How do we negotiate the pricing with our customers given the current China electrolyte prices?
A: We focus on providing a stable, formula-driven price that accounts for raw material fluctuations. This approach is more favorable than spot buying, especially for critical components like electrolytes. Customers understand the value of a stable pricing model over the long term, even if it means paying slightly higher prices compared to fluctuating Chinese prices.
Q: Any feelers from global customers regarding changes in plans in the event of a Trump presidency?
A: Customers are looking at Neogen as a decoupling option from China, not just for IRA compliance but also for supply chain security. We have signed agreements with customers that focus on stable, formula-driven pricing. We have not seen any reduction in demand or interest from customers due to potential political changes.
Q: Could you provide finer details on the funding for the battery chemicals business?
A: We have secured funding from SBI for our greenfield site with a two-year moratorium and a 10-year repayment plan. Another INR1 billion term loan has been secured, with INR1.5 billion under discussion. The repayment terms are structured to align with our capacity ramp-up and operational timelines.
Q: How far are we from signing concrete long-term contracts with battery manufacturers?
A: We are engaging closely with customers like Ola, Exide, and Amara Raja. We expect to sign long-term agreements within the next 18 months as we complete trials and ramp up production. We aim to secure commitments from at least two out of three major customers by then.
Q: What is the rationale behind incorporating a subsidiary in Japan?
A: We hired a senior-level person with extensive experience in the Japanese market. The subsidiary will help us develop a dedicated Japan team to work closely with customers, speeding up interactions and building confidence. This will support our battery materials, CSM business, and other initiatives.
Q: How are you addressing the potential slowdown in EV sales and the rise of hybrids?
A: We see strong demand for energy storage in renewable energy projects, which will drive battery demand. While EV penetration is still low, we expect growth in two-wheelers, three-wheelers, and energy storage to offset any slowdown in EV sales. We are optimistic about the long-term demand for batteries in India.
Q: Could you provide broad revenue numbers for BuLi Chem for FY24 and the outlook going forward?
A: BuLi Chem has stabilized and is performing well. We expect it to contribute between INR50 crores and INR100 crores at full utilization levels. We are also exploring capacity expansion through debottlenecking to meet growing demand.
Q: How is the supply chain for renewable energy storage batteries working out given the lack of local battery manufacturers?
A: Currently, cells are imported and assembled into batteries locally. Companies like Exide, Amara Raja, and Reliance are planning to enter the energy storage market. As local cell manufacturing picks up, we expect to see more domestic production of energy storage batteries.
Q: How has the net working capital situation evolved since the last quarter?
A: Our net working capital situation has been improving, and we have been operating cash flow positive in the first quarter. We are on a stable and improving track.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
