Neogen: Kotak Institutional recommends buying the stock, says firm has first-mover advantage in EV battery chemicals

In its caller report, the brokerage initiated sum connected Neogen banal with a 'buy' standing and a people terms of ₹1,840 apiece. 

The brokerage views Neogen arsenic 1 of the astir credible maturation stories successful the Indian speciality chemicals industry, citing factors specified arsenic the company's experienced and reputable promoters, including PI's ex-ED Anurag Surana, its past of accelerated maturation driven by innovation and enterprise, and its strategical partnerships with manufacture leaders similar Mitsubishi and planetary customers.

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The brokerage said the institution is connected way to go the archetypal mover successful the artillery chemicals conception successful India owing to the extended enactment it has done successful this abstraction implicit the past fewer years—further validated by the exertion concern it has managed to onslaught with MUIS (Japan). 

Neogen is targeting an implicit 30% marketplace stock wrong artillery electrolytes successful India by 2030—a ample opportunity. Separately, successful its basal business, the institution continues to put successful caller merchandise improvement (both organically and inorganically) and is seeing traction successful the CSM business.

The institution forecasts revenues of ₹9.0–10.5 cardinal from its halfway concern by FY2026, and an further ₹25–29.5 cardinal from the artillery chemicals conception by FY2028–29. Brokerage estimates align much intimately with the little extremity of the guidance range.

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Kotak anticipates that the institution volition support EBITDA margins successful the scope of 18–20% erstwhile its caller capacities for artillery chemicals are afloat utilised by FY2029. While the brokerage expects the company's Return connected Capital Employed (RoCE) to look unit successful the adjacent word until utilisation increases, it foresees a betterment toward 20% successful the consequent years, driven by beardown underlying economics.

Retaining a affirmative outlook connected the company, the brokerage has underscored cardinal risks associated with it. One country of interest is the equilibrium expanse leverage, attributed to the company's prolonged moving superior rhythm and ambitious maturation strategies. 

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“While absorption has been guided to trim the nett moving superior rhythm to 120 days (from 170-180 astatine present), advancement has been dilatory amid manufacture challenges. The assertive capex program volition exert further unit connected the equilibrium expanse (peak nett debt-to-EBITDA of 5X successful FY2026E); immoderate hold successful task commissioning oregon ramp-up are cardinal risks," it stated. 

Additionally, the imaginable for dilution for equity holders is recognised arsenic a existent anticipation successful the future, though the allure of the maturation communicative is deemed to outweigh this concern.

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Stellar rebound

Following a play of sustained selling unit from October 2023 to March 2024, resulting successful a 34% decline, Neogen Chemicals' shares person rebounded successful April, registering a summation of 27% frankincense far. Reflecting connected its semipermanent performance, the banal has yielded a singular instrumentality of 604% implicit the past 5 years.

Disclaimer: The views and recommendations fixed successful this nonfiction are those of idiosyncratic analysts. These bash not correspond the views of Mint. We counsel investors to cheque with certified experts earlier taking immoderate concern decisions.

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Published: 26 Apr 2024, 12:36 PM IST