Detailed Narrative
Q2 FY25 Consolidated Performance Overview
Neogen Chemicals reported a robust Q2 FY25, with consolidated revenues growing 20% YoY to Rs. 193 crore. EBITDA increased by 33% YoY to Rs. 35 crore, leading to an EBITDA margin of 17.9%, an expansion of 180 basis points. Profit after tax (PAT) also saw a significant rise of 30% YoY, reaching Rs. 11 crore, demonstrating resilience amidst a challenging market characterized by weak demand and geopolitical tensions.
Segmental Performance and Raw Material Impact
The organic chemicals segment was a key driver, reporting a strong 34% revenue growth YoY to Rs. 164 crore. In contrast, the inorganic chemicals segment experienced a 24% decline in revenue to Rs. 29 crore, primarily due to lower lithium prices. Management noted that adjusting for the steep decline in bromine and lithium raw material prices, organic revenue would have been higher at Rs. 186 crore and inorganic revenue at Rs. 55 crore.
Battery Chemicals Expansion and Revised FY25 Outlook
The company is actively progressing its battery chemicals expansion. The first 200 MTPA of the new 400 MTPA lithium electrolytes, salts, and additives capacity has been commissioned, with the remaining 200 MTPA undergoing trial production. The 2,000 MT electrolyte plant at Dahej has also started with 200 MT capacity. However, due to longer approval times in the first six months, the FY25 battery chemical revenue guidance has been revised downwards to Rs. 50-75 crore from the earlier Rs. 75-100 crore.
Long-Term Battery Chemicals & Base Business Targets
Despite the short-term revision, Neogen maintains an ambitious long-term outlook for battery chemicals, targeting Rs. 400-500 crore in revenue for FY26 and above Rs. 1,000 crore for FY27. The Greenfield battery material facility with Mitsubishi is on track for commissioning in FY26. For the base business, including BuLi Chemicals, the company aims for Rs. 950-1,000 crore revenue by FY26 and Rs. 1,150-1,200 crore by FY27, with BuLi Chem capacity expected to double by next year.
Working Capital Management and Operational Efficiencies
Management is focused on improving working capital, targeting 130-140 days for the base business by FY26 and around 90 days for the battery chemicals segment. This is expected to be achieved through fewer customers, dedicated plants, and financial arrangements like factoring. The company also highlighted improved EBITDA margins due to higher plant throughput and better operational efficiencies, despite the weak pricing environment.
Strategic Focus and Market Opportunity
Neogen is committed to scaling its organic and inorganic chemical businesses and sees good progress in its Custom Synthesis Manufacturing (CSM) business, targeting 20% CSM share by next year. The company believes India's expanding EV industry presents a significant opportunity for locally sourced electrolytes, driven by the need for supply chain diversification away from China, a factor that customers prioritize even amidst potential changes to policies like the IRA.