Neogen Chemicals Limited (NEOGEN) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Neogen Chemicals Ltd. Q1 FY27 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. Should you need assistance during the call, please signal an operator by pressing star, then zero on your touchtone phone. I now hand the conference over to Mr. Nishish Sulankhi from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals Q1 FY27 earnings conference call. Joining us today from the senior management team are Mr. Anurag Sorana, non-executive chairman, Dr. Harin Kanani, managing director, and Mr. Gopi Krishnan Sarapi, 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, actual results could differ, and a detailed disclaimer is available in our Q1 FY27 earnings presentation, which has been uploaded on stock exchange websites. With that, I would now like to invite Dr. Harin Kanani to share his opening remarks. Thank you, and over to you, sir.

Good afternoon, everyone, and thank you for joining us to discuss our Q1 FY27 financial results and outlook. I hope you had an opportunity to review our investor presentation. I will begin with key performance highlights and strategic developments during the quarter, along with progress of our growth initiatives. Following this, our CFO, Mr. Gopisati, will cover the financial highlights. The global chemical industry continues to navigate a complex operating landscape, We are characterized by persistent geopolitical volatility, uneven end market demand, and ongoing redrawing of supply chain dynamics. When near-term macro headwinds persist, our core strengths lie in how we navigate them with agility, financial discipline, and operational rigor. Anchored by the deep domain expertise and chemical synthesis capabilities, we have built over the past three decades. We remain focused on protecting core margins, supply reliability for our customers, and driving rapid progress across street growth pillars, particularly the battery material segment. Amidst this ongoing shift, I am pleased to share that Neogen Chemical has delivered a strong performance in Q1 FI27, marking a solid start of the new financial year. This growth was revealed by volume grains across our core business verticals, sustained customer demand, and our highest ever quarterly revenue recorded in both organolithium and battery chemicals portfolio. Let me quickly summarize the key financials. In Q1 FY27, on a consolidated basis, we recorded revenue of INR 250 crore, registering a robust growth of 35% year-on-year, EBITDA grew by 53% year-on-year, to INR 48 crores, with EBITDA margins expanding by 260 basis points to 19.3%. Profit after tax to the INR 17 crore surging 67% year-on-year. On-base business demonstrated immense resilience despite ongoing global supply chain volatility, elevated shipping freight costs and temporary overheads related to interim toll manufacturing arrangements. We have successfully initiated cost paths through mechanisms with customers across key raw materials and input costs such as utilities, freight, and packaging to safeguard our operating margins. I will now provide key operational updates across our core operation and expansion project. Dahej replacement plan and insurance recovery update. So, reconstruction of a replacement facility of Dahej is almost complete. Trial runs are actively underway with commercial production set to commence within current quarter, within Q2. On the insurance front, cumulative recoveries to date stand at 154 crore, which is comprising of on-account insurance claims as well as salvage realisation still now. Our net claim receivable as on date stands at 186 crore on a consolidated basis. And we continue to engage closely with insurers to expedite final settlement against the same, followed by some additional recoveries under various other insurance policies, such as loss in profit. Board approval on Fundraised QIP to support our long-term capital requirements and prepare our companies for growth opportunities coming future in the battery material as well as organolithium space. We decided to deliverage our balance sheet and the board has approved raising of INR 600 crore through an issue of eligible securities via a QIP subject to shareholder Updates on battery chemicals and neogen ionics performance. So, neogen ionics delivered a robust performance in Q1 FY27, generating 19 crores in revenue compared to 5 crores in Q1 FY26 and delivering over 50% of the entire previous year's revenue in just 3 months. Execution across our battery material facility remains on schedule. Commissioning for electrolyte Electrolyte is targeted for H1FY27, and Lithium electrolyte salts remain targeted for H2FY27. Mechanical assembly for our electrolyte plant is complete, trial runs are already initiated, and product validation leading domestic cell manufacture is actively progressing. We have secured provisional approvals from four international customers for Lithium electrolyte salts and successfully completed final type audits from all four electrolyte manufacturers. Commercial supplies will commence post-final plant trial approvals with global cell producers, accelerating their transition toward non-APOC, non-PAP compliant supply chains to meet U.S. tax credit requirements by 2027. Neogen is uniquely positioned to serve this demand with our partner with established technology from Japan. Our strategic partner, Borita, remains fully committed to their 20 million equity contribution towards the joint venture, which is expected to come during Q2 and Q3 of the current year. Turning the macro environment, the key industry dynamics, our battery-material strategy is strongly backed by government support and proactive policy actions. Neogen with our customer remains currently the only giga scale example where the local supply chain has been established, which has been appreciated by various government departments. The ecosystem is seeing accelerated momentum driven by the product ramp-up of PLI ATC battery manufacturers as well as non-ATC PLI manufacturers. And further the allocation of 10 gigawatt hour ACC-PLI rebidding tranche and government's proposed PLI scheme for battery components, which will be pivotal in incentivizing raw material localization. According to the Ministry of Heavy Industries report, domestic battery demand is projected to surge from already 33 gigawatt hours last year to 92 gigawatt hours by 2027 next year. Eventually, we will be reaching more than 200 GWh by 2032. Out of that total, almost 63 GWh is currently under development in India and further expected to be commissioned. Out of this, 30 GWh is expected commissioning in 2026 alone. This rapid fill-up underscores the expanding market opportunity ahead for us. We position Neogen Ionics to serve both domestic requirement and global non-FEOC, non-PFETMI. FY27 represents a strategic turning point for Neogen Chemical as our capital investment transition into revenue-generating assets. With the refilled Zahed plant coming back online, neogen ionic scaling rapidly, and our strategic position as a trusted non-APOC partner gaining strong global traction, we are set to capture expanding market opportunities across both specialty chemical and advanced factory materials. Back by solid customer demand, improving operational leverage, and disciplined capital allocation, we are happy to improve our stand-alone guidance from 875 to 950 crores to 950 to 1050 crores in the revised range. We remain fully committed to disciplined execution, expanding our market leadership, and driving sustainable long-term value for our stakeholders. With that, I hand over the call to our CFO, Mr. Gopikrishnan Sati, to walk you through the financial highlights. Thank you, Dr. Kanani. Good afternoon, everyone. I would now take you through the detailed consolidated financial performance for the quarter one. Please note all the comparisons are on year-on-year basis. Revenue from operations stood at 250 crores, up 34% from 187 crores in Q1 FY26. The revenue trajectory was anchored by strong volume led by organolithium, inorganic chemicals, and battery chemicals. Across our operational vertical, organic chemicals generated a revenue of 194 crores, reflecting an 18% growth, while inorganic chemicals segment delivered a standout performance with a revenue surging 158% to 57 crores. Gross profit rose by 37% to 117 crore, reflecting an optimized product mix and cost pass-through arrangements. EBITDA stood at 48.2 crore, registering a growth of 53% from 31.5 crore in Q1 FY26. EBITDA margin expanded substantially by 260 basis points to 19.3%. Margin expansion was achieved despite temporary expenses related to the hedge plant rebuild, toll-man-fire job-work-related expenses, initial expansion cost of neogen ionic, and freight spikes. Depreciation was higher at 8.2 crores, up 42 percent, due to smaller capacities which we had added, smaller capexes which we had added during the year. Finance costs stood at 20.8 crores, up 64 percent. The increase in finance costs reflects the higher debt drawdown to fund the ongoing capex at neogen chemicals. Thank you. Alongside normalized cost structures. Operating performance will be further blastered by pending insurance claim recovery. Additionally, our proposed QIP fundraise up to Rs. 600 crore will provide a substantial financial flexibility, allowing us to optimize our debt profile and also create a headroom for future growth. I am also glad to share that for FY26, we are publishing our first integrated annual report. This report incorporates our business responsibility and sustainability report, BRSR, along with reasonable assurance report. Moving to the integrated framework reflects our deep commitment to transparency, higher governance standards, and long-term value creation for all of our stakeholders. That concludes my remarks. I would now request the moderator to open the floor for Q&A session.

Sure. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and 1 on their touchstone telephone. If you wish to remove yourself from the question key, you may press star and 2. Two participants are requested to use handsets while asking questions.

Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and 1.

The first question is from Asit Bandarkar from JM Financial Mutual Fund. Please go ahead.

Good afternoon. I just wanted to understand the battery outlook in terms of chemicals. How big can this opportunity be in five years' time, and what would it be as a proportion of our business in that period of time, one? Second is that we hear that battery technology is being restricted by China. So is it realistic to assume that the growth will take place the way we anticipate?

Thank you for your question. So, when we are thinking of battery, you know, Neogen as a policy talks about what revenue guidance we can give based on KPEX which is currently underway. So, the current KPEX that is currently undergoing can cater to give us a revenue of around 2,400 to 2,900 crores, depending on the lithium prices ongoing, and we expect to achieve this by FY29. So, that That was the target for full utilization which we had taken. So, if we are talking of two or three years period, we expect around 2,500 to 2,900 crores of revenue potential. This is mostly taking care of only 30 gigawatt hour of electrolyte demand and then little bit around 5 to 10 gigawatt hour of salt which is being sold internationally. So, that is what the current capacity is fully designed for. Around 40 gigawatt hour of soils and 30 gigawatt hour of electrolyte. Now, as we have shared in our presentation, that even today, around 60 gigawatt hour of electrolyte cell production capacities are ongoing. And over five years, the government expects the total demand to be 236 gigawatt hour. So total demand is going to be approximately seven times of what we mentioned just for India for the sake of electrolyte. And then also we will be open to international demand. So, you know, the demand is going to be like reaching, let's say if we are talking of five years, like tens of thousands of crore in that range. If we consider both electrolyte for India and electrolyte salts and additives for the international market, at present, Neogen has already taken a significant step to achieve 2,500 to 3,000 crores in the next two and a half years. So in five years, it would be significantly higher. But as a policy, once we make some investment decisions, then we can give a specific number to that.

So, does this mean that our business, the way it will look is, what, 60% will come from battery chemicals and 40% from other chemicals?

Yeah, so, in other chemicals also, you know, we have many growth drivers, our pharma, agro, CFM, future potential business in semiconductor. So, like, you know, we have not given any long-term guidance around that. But yeah, five years on the line, you know, it can be 50-50. It's a challenge to my regular business team also, that how they can keep up with the growth we will have in the battery space.

And what about the change in battery technology, sir? How will we handle that?

Yes, sir, you also mentioned about restrictions from China. So, today, Neogen's electrolyte and electrolyte salt capacity, we are very fortunate that we have Japanese partners, and internationally, like, you know, so, there is no dependency on China for Neogen in terms of technology, as well as we had our own homegrown technology also, and the Japanese technology further improved the same. So, we don't have dependency on China. Also, in terms of changing technology, so lithium-ion battery remains one of the most efficient technologies currently. There is some discussion about shifting to the sodium-ion, but that will be gradual and will be, in my view, only for some niche applications for low temperature or very low cost kind of applications. However, lithium-ion batteries are right now the most efficient. Having said that, in case of electrolyte, the way the sodium ion technology is developing today, like, you know, the same plant can also be used for sodium ion. And, like, so, between sodium and DTM ion, there will not be too much impact on neogen vibration.

Thank you, sir. Wish you all the best.

Thank you. The next question is from Arun Prasad from Aventus Park. Please go ahead. Okay.

Hi. Good evening. Thanks for the opportunity. Dr. Harin, if you can start with what are your current year guidance for the battery chemical business top line and margins, then probably it will be helpful.

As you explained earlier, you know, we are looking at a 300 crore kind of revenue for the current year for the battery business. We currently maintain the same. Most of this would be in the second half as the U.S. customers are expecting to shift from China to non-China or FEOC to non-FEOC suppliers from January onwards. So, we have already started some trial supplies and some trial sales towards these customers, and we expect that to ramp up, and we expect the shift to happen in Q3 and Q4. In terms of the other guiding factor for this is the increase in the ACC, PLI, the PEL production in India. So, already there is one giga factory which is started at a giga scale and now increasing in the midst of increasing capacity. The second giga factory also has started their trial production and expected to start commercial production soon. So, and there are two more expected to start before the end of the current financial year. So I think with these four customers, depending on the exact time at which they start, we would be able to either exceed the production, but currently what we have done is that we kept some buffer because last year we had gone wrong. So, we would like to maintain the same production, and if India ACCPLI, the cell production increases or starts in a very nice way or ramps up faster, then we might be able to increase from the current guide.

Okay. So, safe to assume that a large part of this 300 gross guidance is coming from the salt revenue rather than the electrolyte, and if that is the case, And you also mentioned that most of the revenue main volumes will come from the Jan 2027. So largely the three months of SALT revenue should itself will be giving this kind of a revenue. That's the right understanding?

So yeah, so we would expect sometime from November, December, the uppeak would start because January is when they need to shift. So shift rates from India will start in November and So, we have currently, like, approximately kept around 200 crores for the soil and 100 crores for the electrolyte. Of course, the electrolyte is subject to, like, you know, India, like, Indian ACC, PLI exact production, how the plants ramp up and how they start. And we have not considered any revenue from Pakhajan yet. So, we have set Pakhajan to come online in H2. The team is making efforts so that we can complete it by Q3. So any shortfall in electrolyte can be made up by additional salts which we can get from Pakhajil in Q4. So that's the way we currently plan it. In case the electrolytes are on track and we are also able to deliver revenues from Pakhajil, then we would be able to outperform our current guidance.

Understood, sir. Just one more follow-up on the same topic. This 200 crores salt we are talking about, what kind of a pricing or a salt pricing and electrolyte pricing and LCE pricing that we are building in based on which this number is coming?

So currently, you know, we are considering like, so we have like a long term contract with one of the customers. And in this contract, the pricing is currently already fixed based on a lithium based formula. So we and you know, the normal stable lithium price is expected to be $20 plus minus $5. So $15 to $25. So currently, we are expecting like, you know, like the current lithium carbonate prices are in that range. So, this is kind of like the stable lithium price between $15 to $25, close to around $20 of lithium carbonate. So, based on that, the salt pricing is currently derived, both salt as well as the electrolyte. Both prices are derived based on like a stable lithium price. And for us, lithium is a path through for both salt as well as electrolyte.

And of this 200 crores that we were talking about, how much do you think is, I mean, do you see from the firm order that you already have, I mean, kind of an order book, kind of a business?

So I think if we look at our contract, you know, then based on the contract, everything is firm. But as we, as I explained in our opening remarks, that as the customers complete their qualifications, So, they've already completed all the four customers, have audited an approved neogen facility. Some of them are now ready to start purchasing slowly in Q2 as well as Q3. And in Q2, Q3, they might require some special kind of a pricing. Some of them are doing a trial at a commercial level in the plant, and then they would start shifting. So, we expect this process to get over in Q2, Q3, so that towards the end of Q3 and in Q4, So, you know, they are able to fully buy their requirements from us. So, that is currently the status with them.

Sir, you said something like a special kind of a pricing. What do you mean by that?

No, we have a formula price. So, special pricing meaning, like, you know, normally we expect once the non-FEOT requirement kicks in, so it will be completely formula-based price. But before such a period, you know, they may want to have, okay, what is today's market price? And the market price in China can be like, you know, fluctuating every month on month. So, you know, depending on to secure some volumes in Q2 or Q3, it could be slightly lower than the long-term formula price that we have. But as we move to the regulated supplies in Q3, Q4, then it would have, it would be based on the formula price, which we have

The current spot price is slower than the formula price, sir?

Yes, the current China spot prices are lower than... In the last six months, a few times they were higher, a few times they are lower, right? So it's a very fluctuating cycle. But the difference between the formula price and the spot price is now significantly reduced as compared to what it was in 2025.

Understood, understood. One final question on the cash flow for this year, if you take the CAPMIN, if you take the CAPEX for this year, if you can guide for that number, and what is the source, how you are proposing to source fund those CAPEX numbers, that will be really helpful.

So, whatever is a balanced KPEC left for Neogen Ionics, that has been fully been, that will come from, like, you know, whatever the remaining debt that we need to still draw because our contribution is largely done. And then some which will be coming from Morita's contribution. And ultimately, from our side, maybe only 30-40 crores as an equity contribution we would need to do towards the end of the financial year when we complete fully the KPEX and start getting ready for contributing for the working capital. So, from Neogen side, there will be very limited contribution needed till the completion because the financial closure we've already received.

Understood. Sir, one final question on the legacy business. You increased the guidance for the legacy business. Was it driven largely by the underlying price increase or some kind of a capacity addition or a mixed change? How should we understand that number?

So, what we have seen is, you know, our organo-leachium capacity, we hit like our peak utilization level. So, as you have seen, when we took the plant, it was like 10 tons per month active or 120 tons, and we increased the capacity two and a half times to 300 tons. So, now in Q1, you know, our plant was able to hit the full utilization already, And based on that, we are also considering to further increase capacity slightly by end of the financial year. So, I think it's largely driven by that. Also, when the organolithium business grows, in the past, we have explained that we can also get some byproduct lithium, which we can recycle back, which also helps our inorganic lithium sales. So, both these did very well. So, based on the performance of the organo, lithium, lithium, and we're still seeing strong demand in the organic chemical space as well. So, considering that, we have revised our revenue guidance in the legacy business.

Sir, in the legacy business, what was the underlying volume growth for the quarter and the last six months, if you can share? It would be helpful.

First off, it was, like, you know, completely volumely.

Thank you very much, and all the best for all your plans. Thank you very much.

Thank you.

Thank you.

The next question is from Abhiji Takella from KIE. Please go ahead.

Yeah, good afternoon. Thank you so much. So, first on the Sikhan Red Corp proposed fundraise, if you could please just help us with the proposed uses of this. Is it primarily debt repayment for the time being or also some capex that you are considering? And if it's debt repayment, then by how much do we expect the finance cost to go down following this?

So, you know, the board has right now approved the QIP. This will be basically for debt reduction. And the main purpose of this is that, you know, we are seeing many future opportunities. So, for example, in my opening remarks, I mentioned the government of India is planning battery material supply chain, PLI, as well as, like, you know, after Morita, after JV with Morita, we've also seen a very strong demand in the international market. So, we would like to be ready for the case. The current salt capacity that we have in place will take cater to either the US demand fully or our India demand. But we have to be ready for a case where we need to take care of both. So, of course, this is something which doesn't have to happen immediately. But as the business develops, we have to be ready for that. We have to also be ready the way organolithium business is progressing if we have to increase some capacity. And we also want to get into the next phase of R&D where from just making basic process, we need to invest into R&D where we are working on battery performance improvement by novel additives and novel electrolyte designs. So, I think to basically be ready for these and few other opportunities which are in front of us, the board decided it would be good to kind of deliverage the balance sheet and reduce the debt so that we are ready to capture any of these growth opportunities which are expected to present in front of us. So, that's the main guidance. I would ask maybe Gopi to comment how much the finance cost would reduce down by. See, at the maximum thing, at full 600 crores, if at all I repay around, say, it's just a max, if at all I repay, say, whatever crores I repay, you can just multiply with the interest rate, say, 8 to 8, 8 and up percent. You can multiply it and take it as an interest, maybe. So, maybe roughly around, so if the entire thing is just repaid, roughly around 40-50 crore for the year, for the reduction annually, once we set it. But it's subject to, like, you know, this is subject to, like I said, if there are some other opportunities, so considering that, we will have to decide what the final interest is.

Yeah, sure. And just, you know, so number one on the battery TLI component scheme that you spoke about, would it be possible to just help us understand maybe the broad contours of what, you know, might be offered by the government? I mean, is it CAPEX linked incentive? Is it OPEX linked incentive? And, you know, how much in quantitative terms could Neogen potentially hope to benefit from it? Also, any expansion that you consider because of all of these developments, what would the timeline to embark on such an expansion be? Do you have to do that, you know, by the end of this year or maybe sometime closer to, say, you know, approaching optimal utilization of your current expansions?

See, regarding the PLI scheme, I think this is still under discussion by the government and, you know, why it has quite advanced stage but not yet finalized. So, it would be not right for me to comment on that because ultimately this is government policy and only once the scheme has been like published, we should basically consider it, but the broad idea or the main intent of the government is to support localization of the cell production because as we mentioned, you know, the government is seeing very high growth in the demand for the ACC, PLI, the cells. And unless there is a local production, there will be a strong dependence on imports internationally. So any restrictions can, you know, restrict our plans to reduce dependency on oil through EV or through ESS storage. So considering this as a very strategic area, the government has already, you know, re-announced the bid for 10 gigawatt hours to make sure that the entire 50 gigawatt hour ATCP line there are recipients. They also want to increase the number of recipients. So, the revised scheme, the 10 ACC PLI, is targeting two to three different players, minimum two to three. So, that there are at least four or five PLI recipients. So, this is what the government's current target is. And, like, you know, to increase the competitiveness, because, you know, the Indian industry, like Neogen and few others, battery material supply are just starting, competing against Chinese or other companies where already more than 100 gigawatt hour of capacities are available. So, therefore, like, you know, to give us some kind of a level playing for the initial, the government is considering these options, any step by the government would be helpful, whichever form, whether it is CAPED, whether it is OPED, and more important is the intention of the government to support the industry and the desire to have the local supply. Of course, this was already part of the APCPLI requirement, but now the government is more proactively ready to support whichever stage, each and every stage, which is the positive sign for Neogin. In reference to your second, when the capacity increase would be triggered, I think, you know, we will be very careful in triggering this. So, once we have a full visibility of the utilization of the existing, only after that it would be triggered. But we have to appreciate that anything in the battery we do requires around 12 to 18 months to set up the capacity. And then, you know, other than at least 6 months to 12 months to qualify. So, therefore, we need to plan at least 2 years, 2, 2 and a half years in ahead, like, you know, whenever you expect the capacity. So, we will take a call based on that, but currently, there are no specific timelines. We just want to be ready so that, if needed, Neogen is ready to basically take action in that area.

Thank you. So, these PLI incentives, would you expect to pass along to the customers, Harinbhai, or would you, you know, think that the industry could retain them? That's question number one. Second was, some of these cell manufacturers in India, you know, they have Chinese technology partners, like, for example, Exide and Amar Raja. And there's an understanding that maybe the technology partners might be asking them to use Chinese electrolyte formulations itself. So, in that context, how easy is it for us to break through with these guys, with our Japanese formulation, and in that context, how confident about the SI-29 guidance for, you know, full utilization of electrolyte, or what exactly underpins the confidence over there?

Sure. So, like again, for the PLI benefit will be shared, I think it's too pre-venture to discuss till the government actually comes out with the PLI scheme, But what basically we expect is that it basically puts us at par, and while electrolyte is a local required material, so therefore it has to be bought locally. But the ultimate aim is that when the customer is doing that, they are not paying a heavy price as against what are international prices. So basically to remove the disparity between prices, which comes from time to time, you know, in international prices and India prices. So, that would be the first concern, to make sure that the customers receive, like, you know, a very competitive price in line with whatever is the global prices, so that the sales which they are making are also very competitive. So, that is the main intention of the PALI, and that would be the principle which Neogen would work in, like, basically sharing the benefits so that the customer is not having a financial penalty to basically purchase from Neogen once the government also gives us the support. In terms of technology, see, there is always a period where the company, sorry, there is always a period where the self-producer has to work with the technology provider, but, you know, that is usually three months, six months, whatever period, post that the customers are free to, like, you know, free to change over to a raw material, local raw material supplier. The PLI further makes it more possible for them to take that on a more active basis. And when it comes for us, we have right now worked with like, you know, five out of six the large giga factories which are coming. And we are very confident that, you know, we should be able to give them an electrolyte which has a similar performance or better as compared to what they are using currently or what has been proposed by their technology partners. We are also working on the sixth one, like, you know, where we can work together, but at least for the five, we have a clarity. So, considering that, and considering the fact that just today in current and next financial year, so current financial year, like, almost four out of six giga factories would start, And another two would start in, let's say, beginning of next financial year. So it gives us enough time for them to reach at least 50%. So the combined capacity of these people itself is more than 60 gigawatt hour. So even if they hit 50% utilization also, then also we would basically reach our full utilization target. So, I think this is like normally it takes about a year for somebody to stabilize and the fact that two giga factories have already started and others will be starting this year. So, we feel by FI29, they should be at least at 50% or higher utilization. There is already demand. The good thing is that the demand already exists. It's just the manufacturing needs to get stabilized. So, even if they reach 50% plus kind of utilization level, then Neogen has a very strong case to reach full utilization level. Further, this is just talking of local electrolytes. We will also have international salt business as well as like, you know, some of the solvents also are now required under non-APOT requirements of the 45X. So, the component, so the electrolyte salt additive as well as the solvent also can be sold internationally. So, any capacity, if at all, unutilized when we sell internationally, we anyway achieve 70-80% of the total value. So, therefore, like, you know, considering that, we are still confident that, you know, in FY29, as per our original guidance, we can hit the full utilization of 2,400 to 2,900 crores.

Got it. Thank you so much. That's very helpful. Just one last thing from me, if I may, just two, three data points very specific. One is the 19 crore revenue from near-gen ionics this quarter. Possible to break it down between salts and electrolytes. That was one. Second thing was just largely salts. Okay. Thank you. And any inventory gains during the first quarter, given that gross margin seem to have gone up significantly despite rising raw material prices?

Indirectly, in a sense that, you know, we had some older inventory, but when we were selling it, we got some benefit out of it.

Possible to quantify that or?

Very difficult, sorry.

Okay, all right. And last thing was just, you know, you mentioned that the guidance upgrade is largely due to the organolithium business, which I guess is clubbed within organic chemicals, right? Kurt, organic chemicals revenues have been largely, you know, range-bound between, say, 180 to 190-odd growth for the last four quarters, whereas it's actually inorganic that has gone up very sharply in the last three, four quarters. So, if you could please just explain that a little bit.

Yeah, so, you know, so there is, as I explained that the organolithium also supports the inorganic growth, and so the sharp increases as compared to the same quarter, let's say QOQ basis, sorry, on a year-on-year basis, if we are looking at a year-on QOQ, so consecutive quarters, this was already increasing. So, as we mentioned, we reached the full utilization, but even previous quarter also was 70%, 80%, but yes, this is the time where our new capacity was fully utilized, so we reached our highest revenues. So, therefore, like you know, some of the organolithium capacity increase was already built in, like say, Q3 and Q4, and now we hit the peak. But when you look at a year-on-year comparison, there's a sharp difference in organics because of that.

Thank you very much. Before we take the next question, I request to participants to please limit your questions to two per participant. For follow-up questions, we request you to rejoin the queue. The next question is from Jason Sons from IDBI Capital. Please go ahead.

Sir, thank you for taking my question. Sorry, you know, just wanted to understand first thing, I missed out on the, you know, the revenue guidance for the base business. So, could you, if you could just repeat that for 27 and 28, both, we clocked in around 826 close in 26. So, just wanted to know what is the increase guidance for 27, 28, just for the base business.

For the 27, 28, you mean?

Yes, yes.

Yeah, so this year target, we had originally given 875 to 950, but based on the Q1 performance, we revised it from 950 to 1050. So we feel the base business should be able to cross 1000 crores in the current financial year. For the next year, we had expected around 10 to 15% growth. We have not given a specific number for FY2328, but we feel it will have at least more than 10% growth because we are not doing any significant capacity ever now. The focus next year would be to stabilize the business, optimize the business, make it more efficient in terms of margins and in terms of working capital. So, in the base business, the next year focus will be to further streamline the business and optimize it. So, at least with the same We should get at least 10 to 15% increase. So we should be somewhere between 1100 to 1200 crore kind of revenue for the next financial year. However, a proper guidance will give more closer towards the end of the year.

And sir, this is assuming, I mean, the hedge fund will be back on track, of course, and there'll be a good smooth ramp up going ahead, right? For the next two years, one or two years.

Yes, so there will be a ramp up in the current financial year, and next year we want to basically work on, you know, better optimizing, because once we have a full utilization, which is around that 1,000 to 1,100 crores, so we start hitting like 250 to 300 crores kind of quarterly revenues. Then the main focus will be on improving the product mix, like, you know, trying to select for larger volume molecules, reduce the total large number of products that we have, right, and then focus on margin and working capital efficiencies in the basis of this.

And so for 28, what are we running for battery chemicals? You said 300 crores for 27, but 28, what are we running for revenue for battery chemicals in 28?

We have not given the guidance on that, but what we had estimated in the past is that looking at, like, you know, there should be a very strong demand for the salt. So, we should have a salt business at 70-80% utilization level, and the electrolyte also would be, like, between 30-50% utilization level. So, we feel there's a very strong case for us to cross 1,000 crores. So, it should be something more than 1,000 crores. But the exact number, you know, because all these businesses are just starting, so it's better that we provide again towards the end of the financial year.

Thanks, sir. And, sir, just one question I had, you know, in terms of, you know, of course, lithium-ion is a very well-proven technology. Now, I just wanted to know in terms of the silicon carbon batteries, you know, that also is an evolving technology, you know, And premium smartphones, et cetera, that's being adopted rapidly and showing good efficacy, longevity as well. So, just wanted to know, in that technology also, you know, our electrolytes and solids have the same usage or is there any reduction or increase? Just could you give some color on that?

So, I think most likely when you think silicon, carbon, like, you know, battery usage, what you are referring to is that the anode side. So, the anode side usually is normally only graphite, but to increase the efficiency of the battery, people use a combination of silicon and carbon in the graphite. So, it's still a lithium-ion battery, but instead of just a traditional anode with a graphite, you are using silicon, carbon, graphite, which increases the efficiency and the performance. So, yeah, so the electrolyte mix changes a bit, the additive changes a bit, but broadly it remains within the same contours where, like, you know, the same plant can make it, the same type of additives are used. Only the percentage is optimized a bit when you have this anode for the optimum performance.

Before we take the next question, a reminder to participants to please limit your questions to two per participant. The next question is from Rohit Nagraj from 361 Capital. Please go ahead.

Yeah, thanks for the opportunity. So, first question is just a clarification on the legacy business and battery chemicals business EBITDA margins for FY27 and FY28 at A.M.

Mr. Yeah, so I think we can provide you like EBITDA margins. So, as we have said, you know, in the current year, like our base is 18 plus minus 1, 1.5%. Mostly, you know, once Daesh plant starts, we will have a job work, like, you know, the job work related or such kind of expenses would kind of come down. So, like, you know, again, first quarter is very strong, but we expect that at least during the year we can maintain the same guidance. So, 18 plus minus 1, 1.5%. There will be some additional costs also which would come online once Daesh plant comes, and maybe it's not fully utilized. So, we would like to maintain the same margin. And next year, like, you know, depending on how the global macroeconomic is, we would like to optimize the business a little bit better, that, a little bit better, and basically have between, let's say, 18 to 20% kind of gross margin, sorry, EBITDA margin for the next financial year. So, 18 plus minus 1, 1.5% for the current year. Next year, like 18 plus, hopefully not minus, or 19 plus minus 1% kind of a range for the next financial year. This is for the base business. It's very difficult to give EBITDA for battery business. So, we would like to kind of maintain like 20% ROC on full utilization levels. So, in FY29, you know, we expect a 20% return on capital on the battery business. So, it would be, let's say, around 1,800 crores of capex and some working capital requirement. So, based on that, you can estimate like an EBITDA at a full utilization level. In trim EBITDA percentage, because leetier price can fluctuate, different capacities would be fully utilized, partly utilized. So, depending on that, it's very difficult to predict the exact EBITDA for the current and the next financial year.

Sure, this is helpful. The second question is, this year, battery chemicals, you said the components will be 200 crores electrolyte and about 100 crores, sorry, 200 crores salts and 100 crores electrolyte. In case the domestic batteries get delayed, then probably there could be a delay of business. Is that the right way of looking at it?

I'm sorry to interrupt you, Rohit, but your line is breaking. We can't hear you clearly.

Maybe, Rohit, I got your question. So, as I explained earlier, what we have done is that for 200 crores, we have just considered what we can do from our dahej capacity, and we have not considered the packaging volume. So, what we are trying, that in case if the battery manufacturing gets delayed and we are not able to achieve the 100 crore revenue from our battery business, from the electrolyte business, or like if we are falling short, then Pakhajan's contribution in Q4, we have not considered in this guidance. So, we hope with the Pakhajan contribution, we can make up and we can still achieve the 300 crore's revenue.

Thank you. The next question is from Ankur Perival from Axis Capital. Please go ahead.

Yeah, thanks for the opportunity. First bit on the SALT side, now given that we have, you know, some initial confirmations and success there with Global Clients, would it be fair to say that the ramp up in SALT business for next year will be more or less, let's say, full utilization?

Yeah, we are also targeting in the next financial year around 70-80% utilization levels for the salt business.

Sure, and just related to it, you know, any incremental salt capacity or even additive capacity, as you highlighted earlier, how much time it will take for you? And whether on a, you know, from a basic infra perspective, largely things are in place or will, so it will be more modular or will it require a significant capex?

So, no, so it will require a KPEG, but we have kept the space from a timing point of view to add around 2,000 tonne capacity in Pakaj and 500 tonne capacity for additives in Gahej. So, around 2.5 tonnes can come relatively faster. When I say relatively faster means like, you know, 12 to 15 months kind of a period just to get the capacity online and then like, you know, maybe approval takes another 3 to 6 months. But yeah, and anything more than that, we have to start from a foundation level, so it will take longer time. So normally, let's say, let's take 15 months, up to 2000, 2500 would be like around 15 months just to get the facility online, and then maybe another three to six months for approval. So, it's still an 18 to 24 month kind of a process from the time we decide to get go. So, basically, like, you know, it's very difficult for that to contribute in, you know, this or next financial year. But looking at once we have a clarity on FY29, we will have to plan sometime towards end of FY27 or early 28 to basically take care of the requirements in FY29.

Sure, sir. Second bit on organolithium, as well as, you know, the CSM part of the business in the standalone, in the core operations. How much time, you said organolithium we are largely fully utilized as per the run rate of Q1. What time frame are you looking at in terms of ramping this up? And secondly, on the CSM side, we had plans earlier to scale this part of the business up as well. What are your thoughts there in terms of timeline?

See, we would like to take a view because, you know, while this quarter was the first quarter, we hit full utilization. So I think next quarter we would like to propose to the board about organolithium. Fortunately, it will be incremental KPEX. So it will be like, you know, a few, like less than kind of 10 crore, kind of 10, 15 crore kind of a KPEX. So the volume will, the value will not be very high. So, once you see the business visibility continuing for one more quarter, then we will basically go ahead and plan, like, at least an initial capacity increase in the existing, and then also maybe a long-term capacity beyond what we can do at the existing and the current site. So, that would be something which would be decided maybe at the end of Q2, but broadly in the second half of the current year. This is on the organolithium side. To answer your question on CSM, you know, in a way, like the customers are still interested. It's a very broad-based CSM, where we have, like, you know, pharma, agro, semiconductor, like some flavors and fragrance, as well as some specialty materials. So, we have four or five industries. The customers are committed, but in CSM, you are actually selling your capacity, not a product. And Dahej was our flagship capacity for that. So, in absence of Dahej, we have not made any further progress. So, all the customers remain engaged once our Dahej plan restarts. And again, it's restarting with many, like, improvements also, so, like, which we have incorporated, you know, based on our experience. So, it should be even more attractive for our CSM customers. So, based on, you know, the outcome of that, we will see CSM business. So, we'll have a better clarity in the CSM business in next financial year. Like, you know, where we wanted to have the customers who test one more time in this year and next year would be where we would ramp up further. And then depending on how this year and next year goes, we'll basically, like, you know, pave the path for increase in the CSM business. So, like a dedicated investment to support CSM, I expect, like, you know, to come on board by FI 29, FI 30. So, that is when the CSM business will have a big increase.

Sure, sir. Just lastly, on the core working capital, you said peak utilization in 28, and after that, we should see improvement or there should be some improvement in 27 as well? That's it for myself.

No, so, 27 also, we would target. So, once, you know, our Daesh plant starts and streamlines, then you will see some improvement in FY27. But, you know, first six months is very difficult because we are trying to manage this growth as well as, you know, getting a new site online. But FY28, you should see a significant improvement in the working capital site.

That's it. Thank you from my side and all the best. Thank you.

The next question is from Deepak Pozai from Sapphire Capital. Please go ahead.

Hello, I'm audible, sir. Hello. Okay, great. Thank you very much for this opportunity, sir. So just first I wanted to understand on this battery chemical capex out of 1800 crores, I think 1300 crores we have already spent. So incremental 500 crores would be debt driven, I mean the incremental capex that we are likely to do. And this CAPEX is likely to get commissioned by FY27 end, the entire, in entirety, right?

Yes, I'm just asking Gopi to confirm that a 1300 crore number is correct, but yes, the entire 1800 would be completed by the end of current financial year.

And this would be financed by debt?

As well as the equity which is going to come from Morita, and around 40-50 crores of equity that we need to still complete.

Okay, okay, okay, okay, understood. And then, sir, just wanted to understand on your working capital, in FY26, we were at about 8,600 crores, I mean, 860 crores kind of a revenue. So, on that, we required about 500 crores of working capital, right? So, hypothetically, in three years, FI 29, if you have to achieve around 35 to 3,700 crores kind of a revenue, which includes your base business plus the INX business, so ideally, your working capital requirement might be close to, what, 2,000 crores, I mean, even if you kind of assume some kind of improvement, that effectively means a 15 crores kind of a funding requirement. So, how are we going to do that? I mean, can you throw some color on there? Yeah.

So, see, basically what we feel is that, so sorry, so one thing which you clarified from the beginning of the battery is that because the nature of this business is very different from our pharma, pharma agro, where we have more than like 200 plus molecule and we have more than some 350, 400 customers that we serve every year and each customer In case of electrolyte, you know, we have, like, in case of battery business, we have, like, contracts, we have form demand, and, like, we have, let's say, two or three salt and additive, like, you know, some sorgrants and electrolytes. So, the complexity is much lower. So, from the beginning, we have guided that the working capital cycle should not exceed more than 90 days for this business. Also, for the brave business, like, you know, this was largely affected by, like, some changes in demand, like, you know, in the last two years, as well as the fire incident and that we had. So, long term, what we have is, like, you know, by the time we reach full utilization, let's say, by next financial year, which is FY28, we would be at around 140 days working capital cycle, which is a stable. And then beyond this, as we grow, our intention is to have larger molecules, so reduce or increase per molecule kind of business size. So with that, it should further improve to maybe 110 and 120 days. But in the beginning, first stage would be to reach around 140-150 days by next financial year, and the 90 days cycle would be, and 90 days would be for the battery business.

So, what is your expectation? I mean, at, let's say, a consolidated 3,500 crore kind of a revenue level, what sort of working capital would be required, assuming all this improvement that you just spoke about?

I'm sorry, I can't do this math on the fly right now, but if you take 90 days, like, you know, for, let's say, 2,500 crore kind of revenue, and you take 140 days for around, let's say, 1,200 crore's revenue, then whatever number comes, minus what is today. But it's something which has already been factored.

Okay, okay, okay, understood. And what's the peak debt that we are looking at? I mean, considering this 600 crores also, you would look to repay the debt, right? So, by FI20, what's the debt level we are targeting?

So, before 600 crores, the peak debt was around the net debt of 1,800. 1,800.

Net debt.

And if the 600 crores is fully used, then it would be like maybe 1,200, 1,300 crores kind of, depending on how much. We have, like, you know, also insurance proceeds which is going to come, like, you know, so, and hopefully working out cycle also improves as we stabilize the plan. So, we will see. I mean, it should be below 1,500 crores for sure, more closer to 1,000 if everything falls in place. So, broadly, I would say once the 600 crores is rate, it should be, let's say, between 1,000 to 1,500, like best care, worst care kind of scenario.

Got it, got it. That's very helpful, sir. That would be it from my side. I wish you all the best. Thank you so much.

Thank you.

Thank you.

The next question is from Sivan Gupta from Preenetra Assets Managers. Please go ahead.

Hi, sir. Thank you for the opportunity. Hello, am I already?

Yes, we can hear.

I want to know like beyond India, which international market do you believe offer the largest opportunity for battery chemicals and what edge does Neogen have been winning global customers?

So, I think U.S. is the biggest market here. One in terms of cell production, like, you know, where there is a restriction of, like, you know, not depending on a single country. So, I think currently after India, you know, U.S. looks like the biggest market for us, or U.S. could be even bigger because the total volume or the capacity which is already existing Thank you. There are five major electrolyte makers in the US, out of which four have already approved our site. And hopefully the first one also is interested once our packaging site starts because that's with a stable Japanese technology. So there was a very short time, he said we will directly approve the same. So therefore, we would have access to all the US customers through these four or five major electrolyte makers. The advantage of Miogen is that, let's Let's say, for example, we have some of the international partnership. So for electrolyte solvents, it's based on whatever we've designed with Mitsubishi technology or our LIPS6s with Morita technology. So having established technology as compared to somebody who's just starting new gives a lot of confidence to the customer. So I think that is the advantage that we offer. We can scale capacity relatively quickly as compared to other job growth fees. And we already have a site. So, the same site which is currently, let's say, Patajan site is starting at a 30 gigawatt hour for salt and electrolytes, but has a room to go up to 100 gigawatt hour. So, therefore, you know, the incremental capex would be even more efficient as compared to somebody starting. So, I think these are the things that we offer to our customers.

Okay, sir. Thank you.

The next question is from Dhamrashan from Northern R-Capital. Please go ahead.

Dhamrashan from Northern R-Capital. Yeah, yeah.

Am I audible?

Yes.

Yeah, thank you. I have a question on Neogen Ionics. Since most of the Ionics 7 news are currently coming from the HPT PLI screenplayers, what happens to Optic is these customers miss their own PLI targets, So, just

to clarify, as I answered one of the previous investors, the current, you know, majority of the revenue is coming from electrolyte salts, which is in the international market. So, currently, it's not that we are doing only for PLI customers. The second point is that the PLI is not slowing down. Just the startup of the plant took longer than expected because battery cell production is a very complex plant. And as I explained, and also in our investor presentation, that almost six companies which are building together 60 gigawatt hour of cell production capacities are coming online, have already come online or coming online in the current year or by next year. So once they come online and they will take about a year to stabilize, just the starting capacity is two times of Neogen's existing installed capacity. So therefore we feel like, you know, and it's PLI or non-PLI, electrolyte has to be made locally. And then, And, you know, Neogen right now has the largest capacity with an internationally stable, like, Mitsubishi technology. So, therefore, you know, we are not just dependent on PLI benefits.

Okay. And secondly, I wanted to ask that the liquid electrolytes have a limited shelf life, as I studied. How is management thinking about the logistics and lead times for exports if we are exporting electrolytes? Because it becomes difficult to export short self-made articles.

Yeah, so that's why we are not planning to export electrolytes. We will export electrolyte components such as electrolytes, salt, additives, solvent, etc. Which are stable. Electrolytes are for the local market.

Okay, and finally I wanted to ask with a consolidated debt-to-equity at 1.4 versus standalone at 0.68. And you know, in Morita are now authorized to borrow Rs. 500 crores additionally. What is the peak consolidated leverage amount the management is compatible with? And when does the 600 QIP start deleveraging the balance sheet rather than just funding more CAPEX?

Yeah, so I think, you know, the Neurgeon Morita 500 crore approval is basically some of the loan, which was already planned by NIL will now shift to Neogen Morita. So, it is not an additional date. It is in line with whatever we had decided. Only, like, part of it will shift to Neogen Morita. So, we wanted to have the approvals in place, right? So, that is not increasing the debt. And as we explained earlier, like, you know, that if, once we complete, the peak debt should be somewhere around 1000 to 1500 crore, like, you know, to begin with. So, So, therefore, that would significantly reduce the dead equity ratios.

Okay, sure, sir. And the final question for me is the electrolyte salt capacity long-term plan is to consume it entirely captively for in-house electrolyte production or like we have more room for merchant sales strategy for the salt itself?

It's both.

Like we're aiming to have more merchant sales and little bit on the in-house production.

No, no. We would like to do maximum in-house production, which would be in consultation with the customer. At the same time, we are already serving international customers, so they also remain our focus. So, therefore, both are equally important for me. The volumes can change from time to time, depending on how much is the demand in the local market and how much is the demand in the international market. So, we will keep monitoring that and then basically plan our capacities accordingly.

Thank you. The next question is from Sarjan Kapoor from Anti-Fragile Thinking. Please go ahead.

Yeah, thank you for taking my questions. Hi, over the last five years, Nugent reported a very healthy cumulative 582 crores of EBITDA, but on the operating cash flow, it has been a negative 93 crore number, even including the FY25 insurance inflow. Some of this clearly reflects, you know, necessary CAPEX and CAPEX cycle-related drag on the balance sheet. And the question really is what structural changes are required for at least 70% of EBITDA to consistently translate into operating cash flow and when we might expect to see that kind of a conversion going forward. That's my first question. Thank you.

So, I think one of the points is that, you know, when we start the battery business, our working cycle requirement is significantly lower. 90 days as opposed to 120, sorry, 140 days target in the base business. And, of course, long hire, which has been the case in the last two, three years due to various difficulties we've faced or challenges that we've faced. In the base business, what we expect is that today, you know, till we reach 1000 crores and then we have a full utilization level, like the business model today requires around 140-150 days, 140-160 days of working capital cycle because of a large product mix. So, as we get more into CSM molecules, where the single molecule is like 50 crore, 100 crore, or even our own target, own molecules which are developing, we are targeting like a 50, 100 crore single molecule. So, as we have more molecules of these types, then like, you know, the working capital side can further improve. So actually, this has been a challenge because, you know, last 5-6 years, Neogen has grown. And historically, we used to keep as a de-risking strategy, no single molecule to be higher than 30, sorry, 10% of the revenue. So that was the internal target during our initial growth times. So that number ideally was around, like, you know, like 5-6 years back, it was around 30 crores for revenue. So today, once we are hitting 1000 crores, we should have molecules which are 100 crores, like round about that. But so far, we have not been able to scale because these were largely going to come from agro and CSM business. But last two, three years, agro slowed down and the CSM business also took a hit because of the fire. So, I think once we are able to move to such large-volume molecules, then the working capital cycle will further improve in the brazenness, and on the electrolyte side, you know, we are starting from the beginning, we are targeting a 90-day conversion cycle, which should be more efficient. Whether it hits your 70% number or not, I am not able to do the mental math right now, but at least it should be significantly better than now.

No, that's helpful, Dr. Kanani. I mean, any sort of ballpark, I mean, is it fiscal 29 and thereafter? Or, I mean, looking at the pipeline, I mean, no one is sure about the agro cycle recovery in the industry. But from where you are and based on the capex that you have planned and the kind of working capital we expect both on the Neogen IMX and the base business, I mean, what is the first year you expect that, you know, the pain on the balance sheet and the cash flow to be behind and we could just be realistic? Yeah, I understand it may not be 70%, it may be 60% or whatever, but what is the first year we can see that, yeah, going forward, starting this year, we expect consistently positive operating cash flow.

So, I can't promise consistently positive cash flows because Neurogen will always be growing. But as I have said that, you know, we want that once we reach full utilization levels in this year, next year, which is FY28, we would want to optimize the business. So that, like, you know, we are, like, wherever we have, make some structural changes or, like, you know, select molecules which are more capital efficient or working capital efficient or margin efficient. So that would be the target in FI28. So FI29 is where you will basically have a full year, you know, where you with the optimized kind of a business. And, like, you know, the future growth also, which will come, will be basically considering that. And then, FI29 is also the year where you have a full utilization of our initial investment into the battery. So, therefore, I think FI29 would be a very good year, like, you know, from cash flow conversion point of view from years in chemical. Of course, like, battery represents a very strong opportunity. So, like a free cash flow, operating cash flow, of course, would be positive, but free cash flow because depending on how much investment which we are doing at that point in time, for the battery or even for the base business would be right for a capex around that time, right, for future maintaining the growth. So, I am not able to answer on that part, but the business would be very efficient from working capital standpoint by FY29.

Thank you. The next question is from Umar Gadda from Tabna Investment Management. Please go ahead.

Hi. Am I audible?

Yes.

Yeah. First of all, thank you for the opportunity. Most of my questions are answered, but sir, I needed one clarification on the salt bit, right? You have mentioned that we have a formula-based pricing which is dependent on the LCE, lithium carbonate pricing, And most of our capacity is booked by the customers. So, sir, can you explain that how much this pricing is influenced by the spot pricing of the soils? And does that, like, even the spot pricing impact our contracted capacity that we have with our customers?

Sir, I think the spot price would be more, you know, till the majority of the customers are following the contracted price, right? So, it's only in the interim till, like, you know, we get into, we start supplying under the existing contract, or we enter into similar contracts with some of the established players, till such a time, like, you know, and this is largely being driven by the requirements for, like, you know, having non-SEOC kind of a supply, right? So, once we shift to that, hopefully, majority of our demand should be met by that. So, therefore, there is no dependency on the spot market. And similar thing, we are also targeting for our electrolyte business, where we are not impacted by the spot market. Because the spot market is very volatile. So, therefore, it's very difficult to do a business. But in the interim, you know, till all these comes into place, we may have to sell for a few quarters, or maybe in the future, once everything develops to certain percentages, spot market, and certain percentages, contracting. But currently, the target is for everything to be under contract.

This situation, post-FY29 only, right? Current, given the demand that we have.

Post FI, like Q4 current financial year, right? Because by the time we hit current financial year, already there is a demand for a non-FEOC. So, therefore, starting the current financial year Q4 should be under the contracted base.

So, sir, if I extrapolate this, I was saying that the US customers that we have, they are okay to pay a little higher pricing to us compared to the China pricing, just we are a risk diversification or we are a backup supply to them. How these things in the pricing work?

So, yeah. So, what we would like to say is that not higher price, but basically like a fair price, which is a consistent, reliable price, right? So, like for example, China, China prices sometimes are sometimes very low, and sometimes extraordinary high. Whereas here, they will have a very predictable price, which is only linked to lithium. And, you know, the conversion margins are also more predictable. So that is what, basically, they get. And, yeah, so we, like, we had seen a period of four or five years, when we entered the contract, where, overall, actually, they were making more money over a three-year, four-year period with a contracted price, Rather than follow very low spot price and then sometimes exceptionally high prices in case of a shortage. So I think that is the basic logic. And in addition to, like you said, like, you know, this China risk-free and a second backup supply, there's also a policy guideline in the US where it's called 45X tax credits. To get this tax credit, you know, a certain value addition or certain percentage of the supply has to be free from, So, in such a case, they need to have a non-China kind of a source. So, it's also for, if they want to achieve the benefits they want from the subsidy, which they want to get from the government. So, it's kind of like a precondition for that, in addition to the backup and supply security.

Thank you. We'll take the last question from Jason Sones from IDBI Capital. Please go ahead.

So thanks for taking my question again. Just wanted to know, I mean, you did mention that organolithium did hit peak capacity utilization in Q1. So I just wanted to know, is there any seasonality attached to this? I mean, I understand that probably the inorganic chemicals piece, which is basically related to HOI cooling, that must have seen some seasonality impact. Now, just wanted to know, in terms of organolithium, what is the exact reason for this demand picking up so sharply? And do you see this demand being sustainable going ahead?

Yeah, so this is basically like in last one year. So if you remember, we took this business sometime mid of FY24. And I think when we took the lithium prices suddenly decreased and there was some unstability around that. Then, you know, afterwards, in the next two years, we have worked to basically get ourselves approved in the international market. Then also, when we took over this business from the previous company, they had only one major product and only three or four customers. So, now the customer phase has been fairly diversified. So, therefore, and like, you know, after that, we needed the additional capacity. So, additional capacity came online one year ago, and then during the whole of last year, we gradually kept increasing, reaching the revised full utilized capacity, like, revised capacity by end of, like, in current Q1. So, it's something which we've been working on for two years. In fact, if you think, when we took over the one year before, whatever was the volume which was sold, now we are selling every month. So, in two or three years, the demand, like what we've been able to generate with a diverse customer base, is like almost 12 times. So, this is some of the advantages of that, like, you know, having a bigger customer base and bigger product base, where we are like into with many customers. So, once we go through the approval cycle, we can ramp up new molecules in the same industry much faster. So, that's the main driver for that. And we still see stronger and stronger demand. More international approvals are coming. So, to keep up with that, like, you know, we are adding more capacity.

So, just to follow up to that, end-user industry-wise, which is the biggest segment for Ganitium? Will it be pharma?

Yeah, so today, pharma is the bigger segment. There is also use in agro, which is like ramping up. There is also use in semiconductor, where we have just got an approval and we can, we are expecting more volumes. And then there are some other very speciality polymer type or speciality polymer type applications also where, you know, this is used. So it's a, again, multi-industry application. But yeah, for us, right now, Pharma is the biggest driver, but Pharma and Semiconductor, honestly, are the two biggest drivers here. Agro is just picking up, and we are also working in other industries, where we are expecting approval soon.

So, thank you, Confidenta. Thank you so much.

Thank you very much. We'll take that as the last question. I would now like to hand the conference over to the management team for closing.

So, thank you, everyone, for your time, insightful questions, and continued interest in neogen chemicals. Should you have any further questions or require additional details, please feel free to reach out to our Investor Relations team. We look forward to interacting with you again next quarter. Have a great day ahead. Thank you again.

Thank you very much. On behalf of the organization, thank you for joining us, ladies and gentlemen.