Ladies and gentlemen, good day and welcome to Neogen Chemicals Q2 FY 2023 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 conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nishid Solanki from CDR India. Thank you, and over to you, Mr. Solanki. Thank you. Good afternoon, everyone, and welcome to Neogen Chemicals Q2 FY 2023 earnings conference call for analysts and investors. Today, we are joined by senior members of the management team, including Dr. Harin Kanani, Managing Director, Mr. Anurag Surana, Director, and Mr. Ketan Vyas, Chief Financial Officer. We will commence the call with opening thoughts from the management team, post which we shall open the forum for question and answer, where the management will be addressing queries of the participants. Before we commence, I would like to share our standard disclaimer. Certain statements made or discussed on the call today may be forward-looking statements. The actual results may vary from these forward-looking statements. A detailed disclaimer in this regard is available in Neogen Chemicals Q2 FY 2023 earnings presentation, which has been shared earlier. I would now like to invite Dr. Harin Kanani to share his perspective. Thank you, over to you, sir. Thank you, Nishid. Good afternoon, everyone, and welcome to our Q2 FY 2023 earnings conference call. I hope everyone is keeping safe and healthy. We have reported our second quarter numbers on Saturday, 5th November 2022, and I hope you had an opportunity to go through them. I will be sharing the key insights and updates from expansion initiatives while Mr. Ketan Vyas, our CFO, will take us through the financial performance for the quarter under review. We demonstrated healthy overall performance during the first half of the fiscal year 2023, notwithstanding the challenges posed by inflationary trends in key raw materials, elevated utility costs, as well as continued volatility in the foreign exchange rates. Our revenue grew by 50%, while EBITDA improved by 35% and PAT increased by 13%, respectively. Recently, we have witnessed some cooling effect in raw materials, barring lithium, which continued its upward trajectory, reaching its highest level, and bromine, which continues to remain steady with moderate increase. However, we were able to pass on this lithium-related cost pressures to the customers, thereby protecting the absolute EBITDA. The EBITDA percentage margin considers the impact of higher revenues and higher RM costs with preserved absolute earnings. In H1 FY 2023, we reported 19% growth in organic chemicals. Growth in inorganic chemicals stood at 176%, which was largely driven by realization gains across products. Steady demand momentum with incremental benefits from recently augmented capacities also contributed to the performance. As planned earlier, we have started shifting our production to high-value customized products that enjoyed better demand visibility. These are complex products that require expertise in key chemistry, but are value-additive and lead to customer stickiness, given the nature of offering. We have further strengthened our R&D team to accommodate such complex products and now have a 60-member dedicated R&D team to take advantage of these upcoming opportunities. Our expansion plans are progressing well across both lithium-ion battery chemicals and existing business operations, including CSM management, and we are on track to deliver our stated revenue guidance for the next few years. In line with our CapEx trajectory, we are also ramping up our teams across business development, operations, EHS, among others, to increase the management bandwidth. We have bolstered our in-house capabilities and process expertise in CSM and advanced intermediate segments to accommodate complex products that require multiple steps. We have added five customers in last quarter in Europe and Japan across agrochemical, flavors and fragrance, and engineering segment, where projects have moved from pilot to first commercial operation with combined revenue potential of more than INR 200 crore. We are now working with more than 15 customers actively and have started initial working with U.S. and European agrochemical companies to understand their requirements and identify projects where Neogen facilities and expertise can add value to their requirements. Our own six advanced intermediates targeted toward pharma and agro end use have completed their pilots and/or first commercial runs, which have a revenue potential of around INR 150 crore and will start contributing to our revenue in second half and will allow us to reach peak by FY 20 25. We have also extended and demonstrated our capabilities of doing organometallic chemistry from carrying out Grignard chemistry to now being able to perform organolithium chemistry at commercial scale, further extending the commercialized technologies in our toolbox available for our domestic and global clients. On lithium battery material front, we continue to work with future lithium cell producers in India to test our electrolyte samples internally or with their global partners and discussions around long-term contracts and with several of them have been initiated and in progress. In addition, we have received positive feedback from global customers for lithium electrolyte salts and additives and sample testing and approval process has been initiated by these customers. We have also seen keen interest from several global technology providers to partner or share technology with Neogen, and we continue to evaluate these options. I will now share some of the updates on expansion initiative announced till now. Based on timelines from the customer, we have prioritized our lithium electrolyte salts and additives manufacturing setup in Dahej, Gujarat. We expect commissioning to start by Q4 and trial production to start by Q1 next year. The electrolyte pilot facility will in parallel continue work. A smaller capacity for electrolyte trial needs, needed for our customer's immediate demand has already been installed and can support hundreds of kg requirements from trials to our customers. In the existing business, work on increasing capacity for existing lithium business has been initiated and new streamlined facility will be ready by Q4 of this year. Additional capacity will be available for the next financial year. Work on increasing organic chemical production capacity also continues and expect to be completed by Q1 or maximum Q2 of next financial year. We have been in active discussions with key customers in lithium battery materials and have received positive response from them. Larger CapEx plans will depend on how the final discussions progress for the lithium-ion battery material space and will accordingly be announced towards the second half of the current fiscal year. Overall, this plant expansion will put us on a strong growth footing within the chosen areas of our expertise and help us leverage the positive demand opportunity in the Indian chemical landscape. Our FY 2024 revenue guidance stands at INR 700-725 crore, as was stated earlier. While by FY 2025, FY 2026 we will add another INR 250-300 crore at full utilization levels. All these estimates are based on stable lithium prices and any large CapEx that we do in lithium and battery materials will be in addition to that. Our inventory stood higher as on September 2022 due to change in product business mix and planned customer supply schedules for the forthcoming quarter. This will improve as new capacity gets added as well as some of these inventories are liquidated and converted into sales in the second half of this year where we see additional demand. Looking ahead, I am enthused with the abundant opportunities that are emerging for India and Neogen more specifically, driven by greater focus from the global business. This, along with gains from our planned upcoming projects, will steer the momentum for the next few years. We will maintain financial discipline while accelerating our performance traction through prudent capital allocation. That ends my opening thoughts. I would now request our CFO, Mr. Ketan Vyas, to share the financial highlights for the period under review. Over to you, Ketan. Thank you, Dr. Harin Kanani. Good afternoon, everyone, and welcome to our Q2 FY 2023 earnings call. I will now take you through the key financial highlights. Please note that these are on standalone basis and are based on year-on-year comparison. During the half year ended FY 2023, revenue increased 50% to INR 296 crore as compared to INR 197.8 crore in H1 FY 2022. We witnessed global demand momentum and saw gains from augmented capacities as compared to the same period of last year. We have been refreshing our product mix to offer products that enjoy better demand, thereby deriving higher value. We saw 25% increase in EBITDA, which came in at INR 48.9 crore. This was delivered despite continued inflation-related cost pressures in the pricing of raw materials and key utilities, further aggravated by foreign exchange fluctuations. Favorable product mix as well as higher utilization levels at various plant levels fueled EBITDA performance. Moving to PAT performance, it increased by 13% at INR 21 crore in H1 FY 2023. The performance was in line given the impact of higher depreciation and finance cost due to new plant addition and increase in working capital. Now let me take you through the quarterly numbers. Revenue in Q2 FY 2023 increased by 11% to INR 148.1 crore. EBITDA was higher by 8% to INR 22.3 crore and PAT stood at INR 8.9 crore. I will also share the revenue breakup segment wise and geography wise. Organic chemicals saw growth of 9% year-on-year at INR 99 crore in Q2 FY 2023. Inorganic chemicals jumped 152% from INR 22 crore in Q2 FY 2022 - INR 49 crore in Q2 FY 2023. Domestic and export mix for Q2 FY 2023 stood at 50%, 50%. That these were the key financial highlights. I will now request the moderator to open the floor for Q&A session. Thank you. Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands-free while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, if you wish to ask any questions, please enter star and one on your phone. The first question is from the line of Ranvir Singh from Edelweiss Wealth. Please go ahead. Yeah, thanks for taking my question. Just on, you know, growth side, what has been the volume growth during the quarter in organic chemical segment? Yes. In our current quarter, I think in both the segments, there is a volume growth as compared to the previous year Q2. In case of organic, there is a volume growth. In case of organic, as compared to even Q1 of the current financial year, our organic revenue was also almost up by 10% as compared to the previous quarter, INR 10 crore. In case of inorganic, we reached the highest lithium prices in the current quarter. The peak lithium price impact was in the current quarter, based on which, there were some customers whose volumes were a bit down, and like, you know, there was a resistance to accept these high lithium prices. Also, some of them knew that the peak is coming, so in Q1 they had, like, pre-booked the material and were working off inventory. Therefore, in terms of volume, as compared to last year Q2, there was a growth. as compared to Q1 of the current financial year, there was a slight decrease in the volumes. However, like, you know, most of the customers have now accepted the new price, and we feel also lithium prices have now stabilized. Earlier, the expectation was that maybe this high price is not sustainable and prices will crash, but the high prices are more or less sustaining after about 10% kind of a correction. Now more and more customers are, like, you know, open towards accepting this price. Of course, there are few customers who are just not able to afford the high lithium prices. As I mentioned in my earlier calls, we are adding more international customers to basically make up for the, like, you know, little bit lesser volumes in the whole year. Overall, what we were expecting, that in the current financial year, like, you know, on a stable lithium price, about INR 100 crore plus kind of revenue from lithium, so that we are on track to achieve. Also, like, you know, our new capacity for lithium will also come online so that next year we can end up doing better. Yeah. Precisely, can you quantify what has been the average realization in organic chemical segment and inorganic separately? In case of organic and inorganic, the biggest challenge is that, you know, the product mix has changed significantly, b ecause of the product mix, I mean, it keeps changing almost every year, so it's very difficult to say so much quantity is more or so much quantity is less, right? That's why it becomes difficult for us to say, "Okay, in terms of tonnage what has happened?" Like qualitatively, what we can say is that, "Yes, like if you just look at trade difference, how much it did contribute to, okay?" When you look at from that point of view, you can say that there is a increase or there's a decrease. This is what I shared with you. Okay. Now, because if you just take, you know, the total revenue and divide it by the, volume, which I assume on that particular capacity utilization, this is the average, per liter price comes, you know, exorbitantly high during this quarter. Just I wanted to connect the dots whether I'm calculating right or wrong. In terms of capacity utilization, can you indicate something that of the total 407,000 L total capacity we have, so what has been the sold volume during this quarter? Like, you know, Mahape and Karakhadi continue to work at around 80% utilization levels, and Dahej site was at around 60% utilization levels. Okay. 60% is also not fully optimized yet, because, you know, some of the new molecules were getting launched. Again, some of the material which was made but was not sold yet. This is the utilization levels are high. Some of them, like, you know, the profit will be generated when we, you know, make the final sale of the material or the revenue will be generated when we do the sale. If you are talking of utilization levels, like, you know, again, Mahape and Karakhadi are around 80%-85% and Dahej is around 60%-65%. That's fine. Secondly, on INR 250 crore additional revenue you indicated in FY 2025, so that will come from inorganic side or organic side o r this is solely related to that new CapEx we are doing, that INR 150 crore CapEx we are doing lithium side? You mean the INR 250 crore additional revenue from around INR 150 crore CapEx which we are currently doing, right? Yeah. You indicated in commentary that in FY 2024 guidance of INR 707-INR 725 crore, and further in FY 2025, that INR 250 crore additional revenue may come. That INR 250 revenue or INR 250 crore revenue is related to that inorganic side. I mean that lithium side where the expansion is currently going on or there is contribution from organic side also. Yeah. There are three contributing factors for the additional INR 250-INR 300 crore revenue which are coming. One is the additional lithium capacity which we are adding, which will be somewhere around, let's say, INR 50 crore kind of a revenue. The second is we are adding 60 kg of additional reactor volume. That will be a second contributing factor. The third one will be the lithium-ion battery material salts which we are doing. Together the three of them are likely to contribute between INR 250-INR 300 crores of revenue. Okay, nice. This we have targeted. That's great. T his we have targeted for FY 2025 and FY 2026. Like, you know, once we are in FY 2024, we'll have an exact clear guidance how much in FY 2025, but somewhere between FY 2025 and 2026, we can reach the full utilization. Yeah. Understood. Yeah. Thank you. That's it from my side for now. Thanks a lot and all the best. Thank you. Thank you. Participants, if you wish to ask any questions, please enter star and one on your touch tone telephone now. The next question is from the line of Archit Joshi from B&K Securities. Please go ahead. Thanks. Good evening, sir, and thanks for the opportunity. Just needed some clarification that I'm a little confused about from reading our presentation. We've mentioned that 50 MTPA of capacity will be operational in FY 2023 and the 400 MTPA line which also be available for additional capacity going ahead. Sir, if you can just share the timeline of how these capacities will be commissioned. Also, since you mentioned that some bit of revenues will be derived from the new electrolyte plant of that we are expecting to commission by the end of FY 2023. If you can also share the quantum in the beginning, how much we can expect and, going ahead, what could be the size of this once, you know, 400 metric tons of plant is operational and available for us? Sure. You know, as I just said in my opening remarks, we have given priority to the 400 metric ton plant for the salts, the lithium salts and additive products, because, you know, we see that the demand from the customers is present today. This is basically targeted at lithium salt derivative requirement and the electrolyte requirement is going a bit slower on our Indian customer side. We are giving priority to the lithium salt derivatives, lithium salt, for battery materials electrolyte, which is targeted for the international market. Also, you know, once this is available, when we start our electrolyte plant, we have an ability to use our own lithium salt, so we don't have to depend on external source, b ecause of this, we prioritize that first. As I explained in my opening remarks, we are expecting that in Q4 of this year we will start the commissioning of the plant. You know, final installation of all the equipment, just the initial trial. By Q1 next year, we are targeting that trial production can start. This is for the 400 metric ton lithium salt derivative plant. For the electrolyte, we are working in parallel, and we expect that it should be ready by Q1 or Q2 of next year. Sorry if it is still FY 2023 in the investor presentation, we need to correct that, but it will be ready little bit later in Q1 or Q2 of FY 2024. Got it, sir. Got it. Thanks. In terms of the revenue from the 400 metric ton plant, again, that is part of the INR 250-INR 300 crore additional revenue which we have projected. It should be like at peak utilization it will be somewhere close to around INR 100 odd crore. Again, like it will depend also on the final product mix, what, how it gets sold, but this is approximately the idea. Out of that INR 250 crore, about INR 50 odd crore will come from traditional lithium. About INR 100 odd crore will come from, like, you know, our additional organic capacity which we are adding. And around INR 100 odd crore will come from this lithium salt derivatives unit. Again, on full utilization. Now, I think lithium salts and organic derivatives and like, you know, might get done sooner, but b ecause this is new, like we want to first wait for approvals, et cetera, to give a guidance that by FY 2025 or FY 2026 by when we can fully utilize this. Sure, sir. Just one follow-up on this. Since you mentioned that, there is a fair bit of a visibility more on the salts front, which is the electrolyte salts, than that of electrolytes, which is where we are focusing at this point in time. Sir, shouldn't it be, in my understanding, shouldn't it be the other way around that someone would be looking for a more packaged material which comes in the form of an electrolyte per se, than buying the salts because, you know, electrolytes can be readily installed in a battery. Is there something that we are missing or is there an insight that you'd like to share as to why there's more demand for the salts than that of the final product itself? Okay. I'm glad you asked this question so I could clarify. Yes. In terms of overall interest, especially when it comes to India, the interest remains electrolyte. Okay? Electrolyte, as you have rightly said, customers would like to buy electrolyte, a nd when it comes to India, our focus is also to sell the electrolyte only. However, this electrolyte and Indian demand is likely to start somewhere in 2024. Okay? There's still a lot of time. In terms of the lithium salts, the international customers are currently who are making electrolyte or who are making other electrolytes, for them, the requirement is today because it is being consumed even today. From that point of view, like, you know, what I wanted to say was that there are customers who are ready to test the samples, and let's say if my plant starts in the month of April or May, they can start buying. Whereas for electrolytes, the customers are still taking time for the I mean, the Indian customers are still taking time to basically, like, start consuming the electrolytes. They want right now only very small quantity, which as I mentioned, we have a small setup which can do 200 kg per month, and that requirement can be met with my small plant. In terms of timing, like we felt that the electrolyte salt is needed first and electrolyte plant can be slightly delayed, still it will be okay. Thanks for the clarification, sir. That's it from my side and all the best. Thank you. Thank you. Participants, if you wish to ask any questions, please press star one on your touchtone telephone. The next question is from the line of Ankur Periwal from Axis Capital. Please go ahead. Hi, sir. Thanks for the opportunity. Just continuing with the earlier question. You know, Lithium Salt initially will be addressing the international markets, and you know, given that Indian demand is expected to start picking up from CY24, probably, this will be shifted back to India. Or there could be another round of CapEx wherein you can expand the Lithium Salt capacity as well, so that the international market and the domestic market both could be addressed. Yeah. You know what, we are basically planning to do is that, see right now with this trial plant of 250-400 tons, the 400 metric tons of salts which we made, we will supply this to the international customers. In parallel we are also working out that what is the amount of CapEx, I mean, what is the size of the electrolyte plant for India. See, as I've said in my earlier calls, electrolyte is mostly a local business. In India we have an advantage because we are locally situated and our target is to serve the electrolyte market within India. Internationally we want to do lithium salts. The other idea of, you know, pre-forming the salt is that once I've sold the salt and I know what is the international interest, so when I'm planning my India electrolyte and electrolyte salt demand, if I have a feedback also of the international demand, accordingly, I can go for a larger capacity for the salt, which will take care of India as well as the international demand, and electrolyte, which will be mainly for the India demand. That's how we see it happening. If we can get this done quickly, we can do our planning more efficiently, go for a bigger capacity for the salt, both for India, considering both India and the international demand and, the electrolyte plant capacity we will plan based on what is the India demand. Sure. Just a clarification, this all will be based on our own technology, right? Yes. I mean, the technology which we have. We have our own technology, and we also keep talking to international customers, I mean, international technology providers or people who have technology, to see if there is an interest in partnering with Neogen, b ecause what it does is that, you know, if there are companies or if we have people who have technologies, which basically have a proven track record, having supplied to, let's say, cell manufacturers globally, then this gives, you know, even further, it gives us even further credibility to Neogen. We keep exploring both the options. We are working based on our own technology, but there are also international companies which have an interest, which are working with us. Sure. That's helpful. Secondly, you know, in your initial remarks, you did mention, you know, new client addition as well as, you know, the inquiries that have been, you know, rising across Europe and Japan. If you can probably, you know, touch, or maybe put some more light there, what sort of inquiries these are, more short-term, sort of requirements or structure longer term contracts that you're working on? These are again, mostly with innovator or like innovator kind of like, you know, basically I guess global leaders in their areas, in Europe, and in Japan. As I mentioned, yeah, and these will be long-term requirements. However, each one, like, you know, the size of each molecule is, let's say between INR 15 crore-INR 50 crore kind of a demand. I don't know whether we'll get into ultimately a long-term supply contract. Yes, it will be definitely long-term and it will be long-term demand because they are mostly we are working with global leaders in their particular areas or who have a global strong position in their final molecules. Yeah, and like especially in flavor and fragrance, it's mostly Europe, and in agrochemical it's mostly Japan and Europe, and like, you know, we have just started working with the bigger agrochemical companies. As we had said, once we have our Dahej site Ready, we have started approaching them, and we have seen good response during our initial presentations. Now we are identifying potential projects on which we can work together. Mr. Ankur Periwal, do you have any further questions? Sorry. Yeah. Just one, you know, another question on the margin front. The gross margin pressure that we had seen, you know, some bit of it earlier, and there is an improvement, you know, this quarter. Will it be fair to say that most of the benefit is already there or probably there could be further improvement there? You mean in the gross margin? On the margin side, yes. Yeah. You know, overall margins right now, I see the biggest impact is like when you look at a percentage margin, is the higher lithium prices. What I can see is that the worst we have now seen. At least now we feel that the lithium prices we should see and what we are is now at a new stable price, at least for next one or two years. It may eventually decrease a bit, but for now, I think at least for next one or two years, the price should remain more or less close to where it is. Slowly my customers are also accepting this. I'm very happy to say that our team worked really well with, you know, right procurement at the right time and, you know, getting into back-to-back contract. We ensured that in spite of a historical 4x, 5x increase in lithium prices, we were able to pass on all the lithium prices to our customers, and like, you know, basically protecting our absolute EBITDA margins. Like overall in this year we had targeted INR 600 crore revenue with around 18.5% EBITDA, which is around INR 110 crore. In the first six months we've already done INR 300 crore and we've done EBITDA close to around INR 49-INR 50 crores. We are on track to basically achieve like our target in this year. Overall, the way we look at it, our final revenue will be somewhere between, let's say, INR 650 crore-INR 700 crore, depending on how lithium behaves in the remaining six months. We'll be somewhere between INR 650-INR 700 crore, and the EBITDA should be closer to INR 100-INR 110 crore, what we had targeted. I think more or less, you know, yes, there is a very strong lithium price which we've passed on to our customers and but whatever was the absolute EBITDA that we are protecting. Then as lithium prices stabilize with our new customers in lithium coming in, we will try to work that even with a higher lithium price, how our EBITDA margins or a percentage margins also can improve, going forward in the future years. Sure, that's helpful. Thank you and all the best. Thank you. Thank you. The next question is from the line of Mihir Dabani from Ambit Asset Management. Please go ahead. Yeah. Hi. I have one question. My first question is we've seen elevated levels of working capital, which has resulted in almost INR 23 crore of negative cash flow from operations in the first half. How do we see it panning out for the second half and maybe going forward for FY 2024? I think in second half, you know, our working capital cycle will improve and b ecause we are basically ramping up from, let's say, INR 80 crore- INR 150 crore, plus kind of a revenue. As I mentioned earlier, you know, we will end the year with a top line of somewhere between INR 650 crore-INR 700 crore. You know, ultimately with the elevated lithium price, we are talking of revenues in the range of INR 175 crore-INR 225 crore kind of a revenue target that we need to reach. When we are doing this ramp up, there is some, like, you know, addition to working capital requirements, as debtors as well as our stock levels have to basically increase to support this business levels. However, in this particular quarter or like last six months it was a bit higher because, you know, we are ramping up and we are preparing for some of the molecules. So we make the molecule, we keep it. So this was one reason. Second reason was that some of our pharma molecules we see like, you know, abnormally low demand as compared to what we had seen. So like we basically, these were our regular products which we are making for many years. The demand was a bit lower. So like we still continued our production. We have some inventory. Now, this inventory will be sold off because like the demand is now improving and we've now planned our production in such a way that, okay, since we have this inventory, there are other molecules which are in the pipeline. Use the facility for making that and again control our inventory. I think in the second half, like, you know, by end of March, we will see like improvement in our inventory levels. They should be lower than what they are t oday. Also, overall it will be better, like the six months is from working capital point of view as opposed to the six months now. Also as we get into FY 2024, as I've stated earlier, like our goal is to first reach around 110, 120 days of, like, you know, stock, inventory levels on net sales basis by FY 2024. Then going forward, once the new molecules which are more dedicated, coming from more dedicated facility, to improve it, gradually as we get into FY 2025 and FY 2026. I think we continue to maintain that. Okay. Got it. Just the other question I have is, how are we looking to fund additional CapEx requirements which will be announced in H2 of this year? First we need to figure out, you know, what is the total CapEx requirement going to be. Based on whatever we had estimated earlier, if we are going for the same capacity, then we already had some debt, some equity portion which is raised, and then the remaining we were basically planning to fund using debt as well as our internal accruals. Of course, you know, if the demand exceeds what we have currently planned, then you know, we'll have to relook at it. Currently the plan is its mix of equity which we already raised, our own internal accruals as well as, the additional debt which we'll be taking, so that our debt equity ratio will still remain around 1:1, maximum 1.25 for a short period of time, but otherwise it stays below 1:1, is what we are targeting. Got it. Thank you, Harin. Thank you. The next question is from the line of Sabyasachi Mukherjee from Centrum PMS. Please go ahead. Yeah, hi, thanks for the opportunity. Just continuing on the last participant's question, on you know, funding the next CapEx. So if I look at your you know, balance sheet and cash flow, so cash has almost been consumed. We are sitting at almost, I think, almost INR 250 crores of net debt, a nd given the you know, huge increase in inventory, cash flow from operations has also been negative. So what kind of you know, are we looking at you know, fundraising plan as well, apart from taking on debt? You know, we feel that again, so there's a, like, a certain level of investment can still be managed with our own funds that we have. I mean, as I mentioned, the working capital will also improve. While you know, we have not yet fully even utilized our working capital facilities, so we still have a room available there. We feel that, like, up to a reasonable amount of investment when we are making, we should be able to raise our own funds just with debt as well as company's own operations. Again, the final decision we can take once we have the exact size of the electrolyte business and the lithium salt additives which will come with that finalized. Okay. The next CapEx decision will entail one, the electrolyte CapEx, and if at all we need a larger salt and additives capacity, right? Both the CapEx decision will be taken. It will definitely need the salt capacity. Whether the salt capacity will be only to the tune of what is required for our own consumption or also to take care of international? That's the decision which we still need to make. Okay. You'll take this decision, hopefully by next earnings call that you'll be hosting? The thing which is pending is once we have the final confirmations from our customers. Most of my customers are right now just about to finalize their final equipment purchase contract. Some of them are finalizing their technology provider partners. Once, like, you know, we get the final clarification, our expectation is that by March, like, you know, before March, we should get a maximum clarity from them. In the second half, we should get a clarity from them, and based on that, anytime between, let's say now and March, we should be deciding on the CapEx. Whether it'll be before the earnings call or just after, I don't know. It depends on, you know, how the customers finalize. Got it. Second question, you know, if I look at other players in terms of competition in electrolyte CapEx, you know, I see many players, you know, setting up their electrolyte CapEx. Gujarat Fluorochemicals is one such name. What is your view on competition, especially in the domestic market? I think, you know, as I said in international, in my previous calls, that yes, there will be some competition where the customers can say, "Okay, I would like to buy this internationally," even though there are some challenges. There can be, like, you know, some international company coming to India and setting up a shop here. Nobody has announced or nobody has even started work on that. The third can be domestic competition. Like, you know, between all of these, like, we will divide the market share. Then, you know, based on whatever we have done so far or the work we have done, we will, like, you know, we will get a certain market share of that, b ecause the business is big enough where, you know, like, the final market will be divided in this three way, three or four ways. You know how much market share Neogen is getting, 25%, 40%, 50%, 60%, will decide the final capacity of the plant that we need to make, b ecause how much India is gonna make, there's a good degree of certainty. When they will start making, there's a bit uncertain. What market share Neogen gets is what is going to determine the plant size that we have. I am fairly hopeful with the work we have done with our track record in lithium, that we have. We are expecting a decent, like, market share. Exactly how much it is, I don't know yet. Once I know, I will have my plant size, and then the investment. Got it. Any other chemistry, other than lithium-ion, we are exploring, like sodium-ion or any other chemistry? Yeah. Sodium-ion chemistry follows, or the equipment required or the facilities required are very similar to lithium-ion, so we, like, you know, right now our focus is on lithium. But yes, at our R&D stage, we also have started looking at sodium to take care of, you know, some of the companies in India who have already announced their plans to work on sodium. But again, our main focus remains on lithium and the same facilities can, with some modifications, be also used for sodium if needed. Got it. Last question from my side, with on the chemistry process. I hear, you know, many companies talking about continuous flow chemistry, moving on to continuous flow chemistry from a batch process kind of a thing. Do you see any merit for our case, and do we intend to move to continuous chemistry? We have a R&D team which has been working on continuous chemistry for like some time. Like generally our experience is that molecules which are like, you know, large volume. You have maybe one or two steps, but you have a large volume kind of a requirement. That is where continuous chemistry is more useful. We do have some bromine derivatives, where we feel that, you know, which are our like normal bromine derivatives, which we've been making for long period of time, where the volumes are couple of hundreds of metric tons. That is where we are currently trying the flow chemistry options. Although like bromine being corrosive, you know, the toolboxes for continuous chemistry remain a bit more challenging for bromine as compared to others. We are learning that, and we have a team which is working on that. As of concrete commercial, on which we can plan on this. Got it. Thank you. Thanks a lot, Dr. Harin Kanani. That's all from my side. Thank you. Thank you. The next question is from the line of Nitin Tiwari from YES Securities. Please go ahead. Hi, sir. Good evening. Thanks for the opportunity. My first question is with respect to the lithium salt business that we are discussing. One, like, you know, I just wanted to understand that and correct me if I'm wrong. Lithium salts typically would be about 10%-15% of the, basically, volume and cost of the electrolyte assets. Right? Today, like, you know, the lithium products that we are manufacturing, what percentage does lithium form as a percentage of those products? I'll tell you, like, the motivation behind this question is that today lithium prices are fairly high. I mean, 4x-5 x increase we have seen, but we have been able to pass on that increase because my sense is that, like, you know, the percentage of lithium being used as a raw material in the final product is a very small proportion, and therefore the cost pass on is therefore easier. Would that be the case in case of lithium salts as well? Secondly, wanted to understand that, what is the perspective around the market for lithium salts currently in India and globally and, like, you know, what kind of manufacturing facilities do we already have in India and what's coming up? If you can give us some sense around that. Okay. I think, you know, two parts of the question the way I understood is, the first our existing lithium molecules and how much lithium contributes, in that. Correct? Correct. In our existing molecules, which we make, the lithium. Now when I say lithium consumption, it's lithium, like globally comes out as lithium carbonate equivalent. As lithium carbonate and all the lithium is measured as lithium carbonate equivalent. I will also say so in terms of lithium carbonate, we have a product where at the lower side it would require like 0.15 per, 0.15 kg per kg of lithium carbonate, a nd on a higher side, 1 kg of lithium carbonate is needed to make 1 kg of the molecule. We have the full range. Like, you know, it's irrespective of that, you know, we've been able to pass on the increase. The main reason why we could pass on the increase is that, yes, there are some customers for whom this price is a challenge, but the fact that we are still able to source lithium at a competitive as compared to our competitors, okay. This is what is allowing us to be able to pass on the increase. Like, you know, wherever our existing customers are not able to take the increase, we are finding new customers who are interested in, like, capability because there are many of our competitors who are just not able to get enough lithium. The fact that Neogen is able to get this lithium and make this product and has been making for last 30 years, is what being allowing us to, you know, basically either with our existing client or with, let's say finding alternate customers to whom we can sell the product in such a way that we don't have to take a hit because of the lithium price increase, and we are able to pass on the difference. I think your second part or, of the question also you wanted to know what are the capacities which are existing for such a kind of existing lithium salt production. As I've shared in my previous calls, there's a company in Korea, there's a company in Japan, there are two companies in China, and there's one company in Europe. These four or five companies do similar work as what Neogen is doing. There are some companies in India which like bromine, like sometimes lithium also comes off as a by-product in some other reactions in pharma or like at the end of the life of the machine. There are some companies which basically collect this recycle, collect this lithium material and then from that they try to make molecules similar to our existing molecules. However, most of the OEMs don't like to work with them because the quality is uncertain and even the pricing and the demand availability is uncertain because they can only make so much as you know, what they can get from the by-product or a waste product. This is when it comes to our existing lithium business. Now, when it comes to, let's say, the electrolyte business, the lithium electrolyte salts, like as you mentioned, they are between 15%-25% by weight. You said weight and value. By weight, 15%-25% is correct. By value, the contribution can be much higher, and that will depend on what is the lithium prices and what are the other raw material prices at that time. If I were to say today, it would be much higher, as compared to 15%-25% what you are mentioning. The value of the salt which is present in the final electrolyte in the electrolyte pricing. I hope this answers your question. It does clarify to a large extent. Sir, actually what I was trying to understand is that, has the increase in lithium prices any way impacted the lithium electrolyte salt market, has impacted the demand in any way? Like, you know, what is the sense that you're getting on ground in your conversations? If you can help us understand that. What could be a potential size of the market for the salts specifically in India? You have only given an indication of maybe the electrolyte market size that you're looking at, given the battery capacity that you would be looking at by 2030. Any sense on the salt market size as well, globally and within India? You know, if you were to basically look at the India demand. First of all, your question that the high lithium prices affected the demand of the electrolyte salt? To answer that, you know, the electrolyte salt requirement or electrolyte requirement will be driven largely by EV and to some extent by the energy storage requirements which are there. At least when it comes to EV, it's very clear that the demand and the projection still continues. Like, you know, long term we would worry or let's say sometimes we would worry that, like especially when you are talking globally, almost all the countries wherever EVs are getting made, there is a waiting between four months, 12 months, 14 months. Pre-booking is required to get the EV. I think the demand still remains strong. I have not heard of anybody kind of cutting down on the demand on the EV. As long as that is remaining and, like, you know, the desire to move to non-conventional energy, which basically generates the energy storage requirement also continues. More and more countries want to move to solar, wind, et cetera. E specially in Europe, with what is happening with, you know, the existing problems of gas, it's even more, like, you know, more, they want to move to the renewable energy, which requires more energy storage. Therefore, I don't see the demand for lithium-ion batteries going down, and hence the demand worldwide for the electrolytes remain same. Similarly, like when we are even talking of India, the projections which we've given for 2030, like, you know, which was made by IESA, and which is what we have used as a basis, continues to remain. I don't see, like, you know, any delay in the plans or the demand kind of going down from where it was. Therefore, the demand which you mentioned of around 150,000 metric ton of electrolyte continues to remain. In terms of electrolyte salt, it will be between 15%-25%. So, you know, you can just multiply that number by 15%-25%, and you have the range of what is the electrolyte salt which will be required for India, let's say by 2030. Right. Staying on that topic. If I understand it right, there are a number of electrolyte salts which are used in a lithium-ion battery. Are we planning to produce any particular salt, or there'll be a range of salts that we'll be producing as such? Yeah. We are planning to ultimately make the range of salts required. Understood. Sure, sir. Lastly, final question on this. You, in your presentation, you had indicated, like, you know, that CSM opportunity is also looking, really attractive. If you can just, like, throw some more light on, like the CSM opportunities that's coming our way and, like, how we are looking at that segment evolving over, like, you know, next couple of quarters. Sure. You know, CSM opportunities, we had, like, basically two targets. First is once Dahej site started, our idea was that the CSM should increase from 10% of our revenue to 20%, let's say by FY 2024. If I look at the first six months, we are already at 15%, so we are moving in that direction. Yes. As I also mentioned in my opening call, now that Dahej site and the capacity was available, we could go to customer, take COAs and, like, you know. There are four-five molecules which are now moved from pilot to a first commercial production across, like, you know, three different industries, agro as well as flavor and fragrance, as well as a specialty chemical application in engineering. These molecules have now moved again. O n top of that, you know, this will allow us that at least by FY 2024, we are meeting our target of 20% of INR 750 crore, we are getting by, let's say the CSM opportunity. In addition, for growth beyond FY 2024, we said that we'll start now. Once Dahej site is available, we'll start working with global innovator companies in Europe and U.S., which have a much larger requirement. We have made our presentations. You know, many of them have really appreciated our Dahej site. Some of them have started visiting, some of them have just made the initial presentation and evaluating based on our chemistry expertise, which kind of projects we can do. Also, as I mentioned in my opening remarks, we also were working in organometallic. We were working with Grignard reagents, which are magnesium-based organometallic. Whereas now we were able to also make use organolithium molecules, which are even more difficult to handle and the reactions happen at even lower temperature. With this increase in our expertise, there's a good interest, and we hope that by the time we work with our existing 15 customers in the CSM space, to meet our, like, you know, short-term goals, we would have a pipeline of bigger molecules coming in from global majors. Hopefully that will fuel the growth for FY 2025, FY 2026 beyond. Thanks, sir. That's very helpful. Thanks for answering all the questions, and all the best to you. Thank you. Next question is from the line of Yash Shah from Investec India. Please go ahead. Hi, sir. Sir, my question was in continuation to the previous participant's question, which was about our competitors in electrolytes, and you mentioned that we'll be splitting market share. What I actually wanted to understand is, as you've mentioned that we've been pioneers in the lithium chemistry for the last 30 years, and our ability to procure lithium sets us apart to our competitors, which are not many in the Indian space at least. What I really wanted to understand is, having such kind of an edge, should we not be the market leader? Why would we split the market share with our competitors when it comes to the electrolytes? You know, I said, you know, there are three things. One is that, the customer can say, "I'm going to buy this directly from someone who's already making and supplying it to, like, you know, battery manufacturers now." That's one sense of competition. The second sense of competition is some of the global companies coming to India and saying, "Hey, I will set up a shop in India and supply." These companies also are making electrolyte and selling electrolyte, right? Which has not happened. Third is, other than Neogen, some other company also, like, you know, basically setting up electrolyte. you know, I would be very happy if I have 100% market share, but I know my customers are considering all these options. You know, maybe each customer, even if they go with Neogen, they might want to keep a second option. You know, they might say, "Okay, split it between 80/20," or something like that. Again, it depends on my customers, but like, you know, I would expect that there will be some competition looking at the size of the molecule and size of the market. Of course, you know, how it's going to get split, how much market share I will get, you know, again, my effort will be to try to get maximum market share considering our like abilities. Ultimately, I can say more concretely only, you know, as things develop. Like in our internal projection, we have like a minimum case, we have a maximum case. We have an idea that the capacity will be somewhere between here and, like, you know, in a particular range. It's better that, like, you know, once I have more stronger confirmation or some contract with my customer, where we can, like, give a more precise number of where the market share will be. Got it, sir. Sir, my second question was regarding employee cost and the tax rate. Regarding employee cost, sir, is there any one-off this quarter, b ecause it has been at historically highest level at about 8% of the revenue? On the tax front, sir, like, for H1, the tax rate has been significantly high at about 29% approximately. I was assuming, sir, that with the Dahej revenues ramping up, our tax rate will decrease. Any comments on both these two factors? I think on the first one, yes. Basically, you know, we have reached our peak employee count already before we have reached our peak turnover from Dahej and other sites. As you know, utilization improves, like, as our revenues, because we're not like, you know, let's say we have a capacity of INR 750 crore, so that's roughly around INR 175 crore on an average. With today's lithium price is somewhere around INR 200-INR 225 crore. As we reach around that kind of numbers, between INR 125 crore-INR 200 crore, as a percentage, you will see that our revenue will come up. Our revenue, as a percentage, the employee costs will kind of moderate. Yes, this is relatively on a higher side, but I feel it will improve, as compared to this as our utilization levels improve. On your second question about tax, we've been a bit more conservative so Dahej operations are still ramping up, so we are kind of projecting on a higher side. Like, you know, as we get closer to the year, as you are very right that, with the Dahej contributing more, our overall tax rate should improve and, like, should be, like, at least 25%-26% or below. You know, otherwise we always have an option to go to a second rating. This is our expectation. This has been a provision done up till now based on guidance from our auditors and our internal working. Like, it's more conservative, and we hope that by the end of the year, it will be closer to 25% also. Got it, sir. Thank you for answering all my questions, sir. All the best. Thank you. The next question is from the line of Pallavi Deshpande. She's an individual investor. Please go ahead. Sir, on the electrolyte salts, just wanted to understand, what's the number of customers we are talking to and, where they would be located, which region? Thanks for the question, Ms. Pallavi. We are talking to maybe a round 10-12 customers in India for electrolyte and about two customers internationally, for electrolyte. For electrolyte salts, we are talking to several customers in, like, you know, Japan, Europe and Korea markets. Right, sir. Sir, in my last question, you mentioned about the pharma demand being low on some molecules. Are those, you know, the large molecules that you were speaking about, and you also said the demand is coming back to normal. You know, any insight into that part? I think, you know, we've seen that some of the APIs which are very large volume, which are used in bulk quantities, like which are also the derivatives of that also for Neogen are on a higher side. You know, our highest molecule is also, let's say, about 10%-15% of our revenue. Some of these molecules have seen a bit lower demand. I think, you know, we are generally seeing pharma, either people are saying inventory correction or, you know, because people are working from home and less travel, so people have become healthier. Like, you know, we are seeing a little bit lower demand on the pharma side for last two quarters. We have seen that, like, my sense is it's more inventory correction which is happening, that during COVID, you know, because pharma was essential, everybody kind of, like the entire supply chain had, like, basically built up inventory. Now, like, you know, people are doing that correction. Historically, we've seen that such corrections come within one year's time. We've already seen some improvement in these molecules. In the existing quarter, there is more interest than in, like, the molecules where the demand was low as compared to Q2, and Q2 was slightly better than Q1. I think, that trend is continuing and hopefully, I feel by next year, you know, the demand should return to normal. Having said that, you know, historically, as Neogen, we are used to such kind of demand, like, going down for a particular API for various reasons, and that's where, you know, the number of molecules that we have kind of comes to our help. We already, like, you know, the regular ones, we've kind of made and kept some inventory. Now in current quarter and the next quarter till the demand comes back fully, we have. We are now using the facility to make some other intermediates. Overall that will help us increase our organic revenue. Would you say that this quarter and next, I mean maybe the next quarter, it should be cleaned up and next fourth quarter should be normal? Yes. Again, demand, let's hope by at least Q4 or Q1 it becomes normal. We've seen usually sometimes when these kind of slowdown comes in pharma, inventory correction takes somewhere between one and a half year. I think we've seen already six months of that. Between next six-nine months, I mean, things will start improving better, but by, for it to be fully normal will take around, let's say between six months to a year from now. Neogen would like to, you know, utilize this facility for other molecules. From our side, our performance will start improving using the other molecules. The agrochemical demand has been fine on that side? Yeah. Agrochemical molecules. Recent demand in agrochemicals. Yeah. Right. However, one thing which is there across is that we've seen in China, like, you know, with the demand going slow and Chinese having overcapacity, they are becoming more and more aggressive when it comes to both pharma as well as agro. Sometimes we have seen prices from China which are really difficult to believe or, like, historically low. Sometimes we even believe that this is, like, a very good case for anti-dumping because they are basically selling at a very, very low price which even raw material doesn't make sense. This is a business typically of China, that when there is a capacity constraint, they sometimes, like overcapacity, they go to sometimes very low prices. There are times when the demand is shortage, they try to maximize the potential. Yeah, we've seen a bit of that, but I think more and more customers are aware of these kind of, you know, Chinese practices and they are still sticking. Yes, there's a very strong competition in general from China because of the overall low demand from them. Is the Chinese competition more in the agrochemical than the pharma, would it be fair to say? It will be there for both. Like, you know, like in pharma it's a little bit more difficult because, you know, they need to have a prior approval, so it can be only with people who've been approved. When it comes to agro, there's a bit more flexibility for customers to change over, because, you know, there's no registration or U.S. FDA approval or anything like that required. In a non-regulated pharma and agro, little bit it becomes more easier. In case of regulated pharma it's not so much. Right. Thank you so much, sir. Thank you. Thank you. As there are no further questions, I now hand the conference over to management for closing comments. Thank you all the participants for joining the call. I hope we were able to address your queries. If you have any further questions, please feel free to reach out to our investor relations team and we will address them. Thank you once again. Stay safe, and we look forward to connecting with you again in the next quarter. Thank you. On behalf of Neogen Chemicals, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.