Five brokerages have a median 12-month target of Rs 1,350 on the stock, suggesting single-digit upside potential ahead.
A key manufacturer of bromine-based and lithium-based specialty chemicals in India, Neogen deals in organic and inorganic chemicals. The former alone accounts for nearly 80 per cent of the company’s revenue.
For the September quarter, the specialty chemicals producer reported a 51 per cent jump in profit at Rs 11.2 crore on a 38 per cent rise in sales at Rs 113.20 crore. Gross margins declined 184 bps YoY to 43.3 per cent, while Ebitda margin fell 80 bps YoY to 18.1 per cent, due to absorption of fixed overheads, analysts said.
During the quarter, the company commenced phase-I and -2 of commercial operations of organic chemicals at Dahej SEZ (in September) and also phase-II of an expansion project in October. The second phase was earlier planned to come on stream towards the end of FY22. The management said it was also undertaking some initiatives in the lithium-ion battery materials segment. For this, the company had approved a capex of Rs 35 crore to set up 250 mt of electrolyte capacity for lithium ion batteries’ advanced chemistry cells at the Vadodara facility.
The aim is to increase revenues to Rs 700 crore-725 crore by FY24, which translates to a CAGR of 29 per cent, driven by Dahej phase-II ramp up and strategic capex announced for lithium electrolyte.
“We remain positive on Neogen due to strong demand for its OC segment products, focus on value-added products in advanced intermediates, which involves complex chemistries and synthesis, ramp up of newly commissioned Dahej Phase II and, (d) strategic capital deployment into newer opportunities like Lithium electrolyte,” said Edelweiss Securities.
Advance intermediates account for 25-30 per cent of overall revenue. Neogen said it expects that to increase to 40 per cent.
ICICIdirect has valued the Neogen Chemicals stock at 40 times FY24 EPS to arrive at a revised target price of Rs 1,570 from Rs 1,515 earlier. “Phase-1 and Phase-2 capex at Dahej bodes well for advanced intermediates and custom synthesis revenue growth. Higher share of value-added business portfolio to improve margins profile of the business while allocation of incremental FCF towards organic/inorganic growth are likely to expand return ratios further,” the brokerage said.
Edelweiss has kept its FY22 EPS forecast but increased FY23’s one by 4 per cent to arrive at a target of Rs 1,375 per share.
HDFC Securities has initiated coverage on this stock. But this brokerage asked investors to buy the stock in the band of Rs 1,130-1,140 and further add on dips at Rs 1,009 for a base case fair value of Rs 1,251 and bull case fair value of Rs 1,322 for a time horizon of two quarters. “We expect the momentum to further accelerate and CSM is likely to contribute 20 per cent of overall revenues by FY24 which will be driven by new incremental capacity and already signed long-term contracts. After this expansion, it will have potential to generate a revenue of Rs 650-675 crore by FY24,” it said.
HDFC Securities said Neogen would see a revenue growth of 26 per cent and PAT growth of 37 per cent compounded annually over FY21-24, driven by a ramp up in capacity and higher traction in margin accretive CSM business.
“Along with this, we expect the company to benefit from strong operating leverage and generate consistent FCF with improvement in working capital and report higher ROCE from 11.3 per cent in FY21 to 16.6 per cent by FY24E,” it added.