Detailed Narrative
FY25 Performance Amidst Headwinds
Neogen Chemicals reported a robust FY25 performance with revenue growing 13% YoY to ₹778 crores and EBITDA increasing 24% YoY to ₹136 crores. The EBITDA margin expanded by 160 basis points to 17.5%. This growth was achieved despite a difficult global industry backdrop characterized by weak pricing trends for bromine and lithium, and a fire incident at the Dahej facility. PAT for FY25 stood at ₹35 crores, a 2% decline, primarily due to an exceptional charge📎 of ₹14 crores related to the fire.
Impact and Mitigation of Dahej Fire Incident
On March 5, 2025, a fire at the Dahej facility impacted the main manufacturing plant (MPP-3), warehouse, and tank farms, leading to production suspension. The total loss is estimated at ₹360 crores, with ₹160-180 crores related to inventory and the balance in physical assets. The company is fully covered by insurance for both asset damage and business interruption. Production of certain products has been shifted to other sites, and a replacement plant is under construction, expected to be operational by Q4 FY26. This incident necessitated a revision of FY26 revenue guidance for the base business to ₹775-850 crores.
Strategic Expansion in Lithium-Ion Battery Materials
Neogen is making significant strides in the lithium-ion battery materials segment. New capacity of 400 metric tonnes per annum (MTPA) for lithium electrolyte salts and additives, and 2,000 MT of electrolyte for Dahej, has been commissioned. Trial production is ongoing for additional salt capacity, with further expansions planned for 1,100 MT by September 2025 and 1,000 MT by March 2026. Commercial production for electrolyte is expected by Q1 or Q2 FY26, with a major ACC battery manufacturer commencing trials.
Formation of Neogen Morita New Materials JV
The company is incorporating a wholly-owned subsidiary, Neogen Morita New Materials Limited, to facilitate a joint venture with Japan's Morita Chemical Industries Company Limited. This JV aims to address growth opportunities in lithium-ion battery material space, particularly electrolyte salts. Morita's 30 years of experience in LiPF6 manufacturing, including in China, is expected to bring superior technology, quality systems, and market access, positioning Neogen as a key non-China supplier with a target ROCE of 20% in this business.
FY26 and FY27 Financial Outlook
For FY26, the revised revenue guidance for the base business is ₹775-850 crores, with battery chemicals revenue expected to be closer to ₹300 crores. For FY27, the legacy business is projected to achieve around ₹1,100 crores in revenue, with battery chemicals aspiring to exceed ₹1,000 crores. The company targets an EBITDA margin of 18.5% +/- 1% for the base business at full utilization, with FY26 margins expected to be 17-18% despite fire impacts, and FY27 margins in the 16-18% range at normal lithium prices.
Capital Expenditure and Funding Strategy
The total CAPEX for lithium-ion battery materials is projected to be ₹1,500 crores, expected to be capitalized by March 2026. Funding for the fire-affected plant's reconstruction will primarily come from insurance claims (replacement value of ₹200-225 crores). For the battery business, funding will be sourced from equity raised, bank term loans, and contributions from the new JV partnership. Total debt for Neogen Chemicals is currently around ₹400-500 crores, with Neogen Ionics' debt funding expected to be ₹1,100-1,200 crores (70% of its CAPEX).
Working Capital and Operational Efficiency
Neogen demonstrated significant improvement in working capital management in FY25, driven by better inventory and payables. The long-term target for the standalone working capital cycle is to reduce it to 110-120 days, and for Neogen Ionics, to keep it below 90 days, aiming for a consolidated working capital cycle below 100 days over the next 2-3 years. This focus on operational efficiency and balancing debtors and creditors is a key strategic priority.