Neogen Chemicals Ltd.

Neogen Chemicals IPO is looking to raise Rs 70 crore by issuing fresh equity shares and also comprises of secondary share sale worth Rs 69 crore by the promoter group. The price band for the Neogen Chemicals IPO is Rs. 212-215 per share. Neogen Chemicals is a manufacturer of bromine-based and lithium-based specialty chemicals.

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Neogen Chemicals IPO Details

Issue PeriodWed, April 24- April 26, 2019
Anchor Investor Dt.Apr 23, 2019
Face Value10
Issue  Equity Shares upto Rs.70 Cr +
+ Offer for Sale of 2,900,000 Equity Shares
Issue in Cr. Rs.132.35 Cr
Price BandRs.212 – 215
Bid Lot65 Equity Shares and multiple 
Issue Structure :
QIB50% of the offer 
NIB15% of the offer
Retail35% ,  2,154,535 Shares- Rs.46.32 Cr
Appls for 1x retail33146
BRLMsInga Advisors, Batlivala & karani Securities
RegistrarLink Intime India Pvt. Ltd.

About Neogen Chemicals Limited

  • Neogen Chemicals Ltd is a 27 year old company specializing in Bromine based compounds, Grignard Reagents and Inorganic Lithium Salts.
  • The company was founded by Mr H T Kanani, a chemical engineer fromIIT Mumbai. Given his long association with Bromine he is known as the “Bromine Man of India.
  • one of the largest Manufacturers of Bromine Derivatives, Lithium Salts and Grignard Compounds in India.. The major products of the company are lithium bromide, n-propyl bromide, potassium bromide and meta-phenoxy benzaldehyde.
  • Apart from Bromination and Grignard chemistry, Neogen has also developed competencies in other related chemistries like Alkylation, Acylation, Friedel Craft, Couplings Chlorination etc.

Neogen Chemicals: Financials

Particulars9m FY19FY18FY17FY16
Revenue from Operations Gr159.23164.01121.47108.89
EBITDA27.1328.9919.9914.11
EBITDA Margin (%)16.99%17.60%16.41%12.93%
Profit Before Tax17.0517.3411.518.48
Net Profit12.2210.57.685.18
NPM7.67%6.40%6.32%4.76%
Equity Share Capital20.08202020
Reserves 41.4130.0621.977.55
Net worth61.4950.0641.9727.55
Long Term Borrowings44.0638.536.764.77
Short Term Borrowings67.741.2230.1520.06
EPS (present equity)6.095.253.842.59
RONW(%)19.88%20.97%18.31%18.80%
Net Asset Value (Rs.)30.6225.0320.9813.77
FV10
IPO Price215.00
Post Issue Eq.23.34
EPS (FY18)4.50
PE 47.79
EPS FY19 ann6.98
PE FY 19 ann30.80
P/BV35.30
CAGR Sales fy16-1822.73%
CAGR NP Fy16-1842.37%
Market Cap501.81
Mcap/Sales3.06

Neogen Chemicals: Pros

  • The products manufactured by Company find diverse uses in varied application industries including pharmaceuticals, agrochemicals and construction chemicals.
  • The specialty chemicals industry has entry barriers due to low volumes and products are specialized products.
  • Company has a diversified product range and manufactures 198 Products comprising 181 organic chemicals and 17 inorganic chemicals.
  • a significant part of it revenue comes from the sale of specialty chemical compounds and is generated from sales to the pharmaceuticals industry.
  • The proposed expansion at Vadodara and Dahej facility will enable the company to increase its product offering and benefit from the economies of scale.
  • Company has been making continuous investment in R&D
  • Major customers include Austin Chemical Company Inc., USA, CBC Co. Ltd., Japan, Divi’s Laboratories Ltd., Laurus Labs Ltd., Solvay Specialties India Pvt. Ltd, Thermax  Limited and Voltas Limited.
  • Company intends to increase its contract manufacturing business

Neogen Chemicals IPO: Cons

  • Fluctuation in raw material prices
  • Volatility in forex
  • Neogen Chemicals Business is working capital intensive
  • Competition from other players

Objectives of the Issue:

  • Prepayment or repayment of all or a portion of certain borrowings.
  • Early redemption of 9.8% FRCPS.
  • Long term working capital.
  • General corporate purposes.

Peer Group Comparison

Company NameFY18 salesNPMPE Ratio
Neogen Chemicals Ltd164.016.447.79
Aarti Industries Ltd 3699.31 8.55 31.97
Atul Industries 3107.49 8.724.80
Navin Flourine International 873.41 20.4922.59
Paushak Ltd104.7520.223.09
Vinati Organics Ltd 743.35 19.3635.25

Neogen Chemicals IPO: Assessment

  • Neogen Chemicals is engaged in specialty chemicals which have low volumes and the field has entry barriers.
  • Neogen could benefit for shutting of several chemical units in China on environmental concerns.
  • Neogen Chemicals is a small cap company and in general small cap companies are given lower valuations by Market.
  • Unlike some of its peers, Neogen Chemicals may continue to be a leveraged company due to its present debt and planned expansions.
  • As Neogen Chemicals IPO issue size is less than Rs. 250 crore, the shares will be listed in “T” group with restrictions on price movements.
  • At the higher price band of Rs. 215 per share, it P/E multiple based on FY18 earning stands at of 47.8x on its Post issue equity capital. This is at a premium to its stated peers. If 9mFY19 earnings are annualized the PE ratio is ~31. Thus overall the Neogen Chemicals IPO issue seems to be fully priced. Being a small issue and good sentiments for specialty chemical sector, issue is like to sail through.
  • At this point of time I do not intend to apply in Neogen Chemicals IPO.
  • 25-04-19, Neogen Chemicals IPO is a small size IPO and seem to be getting good response at least on the subscription from. I will put in some applications in Neogen Chemicals IPO.

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. Iam a postgraduate in engineering and Certified in some exams like NISM-Series-V-A: Mutual Fund Distributors Certification, NISM-Series-X-A: Investment Adviser (Level 1) Certification and NISM-Series-X-B: Investment Adviser (Level 2)  Examination. This post is my view on the subject matter and is only academic and exploratory in nature. It is not meant to influence investment decisions of investors.  I may have bias/vested interest in covered Stock/Mutual Funds/NCD etc. due to my own investment or  leaning. Further my understanding of the areas on which I write may be imperfect or incomplete and data could be wrong due to limited time and resources at my disposal. Please do your own due diligence as stock market/MF investments have high degree of inherent risk.