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Neogen Chemicals Ltd>
  • CMP : 1,645.8 Chg : 19.55 (1.20%)
  • 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

Financial Summary

Profit and loss statement crore

ParticularsFY_21 ()FY_22 ()FY_23E ()FY_24E ()
Total Operating Income 336.4487.3706.2812.9
Growth (%) 9.944.844.915.1
Raw Material Expenses 197.6275.0395.5451.2
Gross Profit 138.8212.3310.7361.7
Employee Cost 20.131.541.048.8
Other Operating Expenses 54.494.2144.8162.6
EBITDA 64.486.6125.0150.4
Growth (%) 10.934.544.420.3
Other Income 0.51.31.51.7
EBITDA, including OI 64.987.8126.5152.1
Depreciation 6.911.715.520.7
Net Interest Exp. 13.819.123.926.1
Other exceptional items 0.00.00.00.0
PBT 44.257.187.1105.3
Total Tax 12.912.419.223.2
Tax Rate 0.30.20.20.2
PAT 31.344.667.982.1
Adj.PAT after Minority interest 31.344.667.982.1
Adj. EPS (₹) 13.417.927.232.9
Shares Outstanding 2.32.52.52.5
Source: Company, ICICI Direct Research

Key ratios crore

ParticularsFY21 ()FY22E ()FY_23E ()FY_24E ()
Per share data (₹)
Adj. EPS 13.417.927.232.9
Adj. Cash EPS 16.422.633.441.2
BV 78.4176.1200.6230.8
DPS 2.32.82.82.8
Operating Ratios (%)
Gross Margin (%) 41.343.644.044.5
EBITDA Margin (%) 19.117.817.718.5
PAT Margin (%) 9.39.29.610.1
Debtor Days 85.282.080.080.0
Inventory Days 123.7145.8130.0120.0
Creditor Days 71.774.175.075.0
Cash Conversion Cycle 137.2153.7135.0125.0
Return Ratios (%)
Return on Assets (%) 6.45.67.07.6
RoCE (%) 15.112.015.016.2
Core RoIC (%) 21.415.017.616.3
RoE (%) 17.110.213.614.3
Solvency Ratios
Total Debt / Equity 1.10.50.50.4
Interest Coverage 4.24.04.65.0
Current Ratio 1.42.31.81.8
Quick Ratio 0.71.40.90.9
Valuation Ratios (x)
EV/EBITDA 54.741.830.225.0
P/E 105.979.552.243.2
P/B 18.18.17.16.2
EV/Sales 10.57.45.34.6
Source: Company, ICICI Direct Research

Balance Sheet crore

ParticularsFY_21 ()FY_22 ()FY_23E ()FY_24E ()
Liabilities
Share Capital 23.324.924.924.9
Reserves 159.7414.3475.4550.6
Total Shareholders Funds 183.0439.2500.3575.6
Minority Interest 0.00.00.00.0
Long Term Borrowings 116.1121.5151.5151.5
Net Deferred Tax liability 8.210.610.610.6
Other long term liabilities 7.75.812.614.5
Long term provisions 3.04.06.97.9
Current Liabilities and Provisions
Short term borrowings 85.876.286.286.2
Trade Payables 66.198.9145.1167.0
Other Current Liabilities 20.941.159.668.7
Short Term Provisions 1.11.92.73.1
Total Current Liabilities 173.9218.1293.7325.0
Total Liabilities 492.0799.3975.61,085.1
Assets
Net Block 126.7285.1330.3479.6
Capital Work in Progress 114.710.6100.00.0
Intangible assets under devl. 0.00.00.00.0
Goodwill on Consolidation 0.00.00.00.0
Non-current investments 0.81.01.01.0
Deferred tax assets 0.00.00.00.0
Long term loans and advances 7.38.512.514.3
Other Non Current Assets 2.31.613.916.0
Current Assets, Loans & Advances
Current Investments 0.080.80.00.0
Inventories 114.0194.6251.5267.3
Sundry Debtors 78.6109.5154.8178.2
Cash and Bank 1.245.215.017.5
Loans and Advances 0.00.00.00.0
Other Current assets 46.462.496.7111.4
Current Assets 240.2492.5518.0574.3
Total Assets 492.0799.3975.61,085.1
Source: Company, ICICI Direct Research

Cash flow statement crore

ParticularsFY_21 ()FY_22 ()FY_23E ()FY_24E ()
PBT & Extraordinary 44.257.187.1105.3
Depreciation 6.911.715.520.7
After other adjustments
(Inc) / Dec in Working Capital 36.6-70.1-77.5-23.4
Taxes -10.4-9.8-19.2-23.2
Others 6.212.623.926.1
CF from operating activities 83.61.429.8105.5
Purchase of Fixed Assets -135.0-66.2-150.0-70.0
Others 0.4-79.680.80.0
CF from investing activities -134.6-145.9-69.2-70.0
Proceeds from issue of shares 0.0217.70.00.0
Borrowings (Net) 69.6-4.240.00.0
Others -18.9-25.1-30.8-33.0
CF from financing activities 50.7188.49.2-33.0
Net cash flow -0.344.0-30.22.5
Effects of foreign currency translation 0.00.00.00.0
Opening Cash 1.51.245.215.0
Closing Cash 1.245.215.017.5
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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