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Neogen Chemicals Ltd>
  • CMP : 1,674.8 Chg : 28.95 (1.76%)
  • Target : 1,645.0 (15.68%)
  • Target Period : 12-18 Month

09 Aug 2022

Strong numbers; outlook upbeat…

About The Stock

Commencing operations in 1991, Neogen Chemicals manufactures specialty organic bromine-based chemical compounds as well as specialty inorganic lithium-based chemicals compounds.

  • The company’s products find application in pharmaceutical intermediates, agrochemical intermediates, engineering fluids, polymers additives and water treatment chemicals, to name a few
  • Neogen has two segments viz. (i) organic chemicals, (ii) inorganic chemicals of which organic chemical constitute ~80% of overall revenue while the rest comes from inorganic chemicals
Q1FY23 Results

The top-line was better than our estimates but margins came in below our estimates

  • Reported revenue growth of 74.7% YoY to ₹ 147.9 crores, led by higher growth from both organic chemicals (up 32% YoY) and inorganic chemicals (up 241% YoY)
  • Gross margins declined 20 bps YoY to ~44.8% while EBITDA margin fell 180 bps YoY to 16.7%
  • EBITDA was up 58% YoY to ₹ 24.7 crore
  • PAT increased 50% YoY to ₹ 11.1 crore
What should Investors do?

The stock appreciated at 60.5% CAGR in last three years.

We retain BUY rating on the back of better growth outlook from custom synthesis business besides legacy businesses

Target Price and Valuation

We value Neogen Chemicals at 50x P/E FY24E EPS to arrive at a revised target price of ₹ 1645/share (earlier ₹ 1870/share).

Key Triggers for future price performance
  • Phase 1 and Phase 2 capex at Dahej bodes well for advance intermediates and custom synthesis revenue growth
  • Higher share of value added business portfolio to improve margins profile of the business
  • Allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further
Alternate Stock Ideas

Apart from Neogen Chemicals, in our chemical coverage we also like Sumitomo Chemicals.

  • Trigger for Sumitomo Chemical’s future revenue growth would be increasing CRAMS opportunity from SCC Japan and Nufarm
  • BUY with a target price of ₹ 520

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Revenue 239.1 306.1 336.4 487.3 32.0 706.2 812.9 29.2
EBITDA 43.4 58.1 64.4 86.6 34.1 125.0 150.4 31.8
EBITDA Margins (%) 18.2 19.0 19.1 17.8 - 17.7 18.5 -
Adj.PAT 21.0 28.6 31.3 44.6 42.2 67.9 82.1 35.6
Adj. EPS (|) 10.4 12.3 13.4 17.9 - 27.2 32.9 -
EV/EBITDA 68.4 59.4 54.7 41.8 - 30.2 25.0 -
P/E 136.3 115.8 105.9 79.5 - 52.2 43.2 -
ROE (%) 29.8 18.3 17.1 10.2 - 13.6 14.3 -
ROCE (%) 22.2 18.4 15.1 12.0 - 15.0 16.2 -
Source: Company, ICICI Direct Research

Disclaimer

ANALYST CERTIFICATION

I/We, Siddhant Khandekar, Inter CA, Dhavan Shah, MS (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation... 

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