Neogen Chemicals - Q1FY23 Result Overview

Neogen Chemicals - Q1FY23 Result Overview

Neogen Chemicals Limited (Neogen) reported robust financial performance during the quarter ended 30th June, 2022. The Company delivered revenues of Rs. 147.9 crore in Q1 FY23, depicting a growth of 75%. The strong topline performance was driven by incremental benefits accruing from the expanded capacity. This was supported by continued positive demand across key products.

Profit after tax (PAT) stood at Rs. 11.1 crore during the quarter as compared to Rs. 7.4 crore in Q1 FY22. Strong double-digit growth in PAT was aided by good operating performance.

During the period under review, the Company witnessed significant increase in the prices of Lithium raw materials which Company was able to pass on to the customers, resultantly protecting the absolute EBITDA. The EBITDA percentage margin decline is optical as it considers higher revenues and higher RM costs with preserved absolute earnings.

Neogen Chemical Investor Presentation

Developments 

An estimated capital expenditure of upto Rs. 150 crore has been planned – this will be deployed in FY23 at Dahej SEZ Plant for: 

• Expanding manufacturing capacity of specialty organic chemicals by 60,000 litres – to support new molecules developed in-house and enhancing ability to do multiple chemistries.

• Increasing the capacity for manufacturing inorganic salts from 1,200 MT to 2,400 MT in existing Inorganic MPP – this is to cater to demand from new approvals received from international customers for regular lithium based products recently and expected growth in their demand in domestic market. 

• Setting up new capacity in existing Inorganic MPP for 400 MTPA for manufacturing Specialty Lithium Salts and additives for Electrolyte used in Lithium-Ion batteries advance chemistry cells – targeted for trial approvals in international markets and captive consumption for manufacturing of electrolyte.

• Dahej site development

Expected outcome

• Estimated timeline for completing this brown field capex by June 2023 

• FY24 guidance of Rs. 700-725 crore remains unchanged 

• Once commissioned, the overall incremental revenues to be around Rs. 250 – 300 crore per annum. Out of this, revenues from Inorganic Chemicals is estimated based on stable lithium prices 

• The Company expects full utilization by FY25/ FY26

Focus on Lithium Battery Sector

After inviting global bids for giga-scale Advanced Chemistry Cell (ACC) production units, the GoI selected four bidders from ten for allotment of 50 GWh of battery capacity which include Reliance New Energy Solar Ltd., Ola Electric Mobility Pvt. Ltd., Rajesh Exports Ltd. and *Hyundai Global Motors Company Ltd. 

• They will receive incentives under India’s Rs. 18,100 crore programmed to boost local battery cell production. The battery manufacturers would have to set-up ACC capacities under PLI scheme within a period of two years. This will lead to direct investment of around Rs. 45,000 crore in ACC Battery storage manufacturing projects o PLI scheme is expected to accelerate EV adoption.

• Will translate into net savings of Rs. 2,00,000 crore to Rs. 2,50,000 crore on account of oil import bill and increase the share of renewable energy at the national grid level.

Portfolio of battery application products at quality/efficiency optimization stage, prior to commercial scale up o Positive demand evaluation discussions with >15 potential cell manufacturers, including overseas players for electrolyte and >10 international customers/ distributors based out of Europe, Japan, Taiwan and Korea interested in electrolyte salt,

Revenue Growth

Revenues grew by 75%, while EBITDA and PAT improved by 58% and 51% respectively. Robust revenue trajectory for Q1 FY23 was driven by incremental benefits accruing from the expanded capacity. This was supported by continued positive demand across key products. EBITDA performance was supported by operating leverage gains due to increased production at various plants. Improved product mix also steered the earnings momentum.

Overall, discussions with both domestic and international players are advancing as expected, and there is continued interest with robust demand. Company has also started submitting samples for technical approvals with several customers. Discussions for approval of Neogen, as a vendor are progressing well although slightly delayed from our original timelines. Based on final approvals, company will align their larger CAPEX plans within lithium-ion battery chemicals space in H2 of current financial year which will start contributing materially earliest from FY25.

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