Kotak Institutional Equities has initiated coverage on Neogen Chemicals with a 'buy' rating and kept the target price at Rs 1,840 a share.
Kotak sees Neogen as a credible growth story in India's specialty chemicals sector, thanks to its esteemed promoters led by PI’s former executive director Anurag Surana, a history of rapid growth driven by innovation, and strategic partnerships with Mitsubishi, and a clutch of global clients.
Neogen is poised to lead in battery chemicals space with its early entry and technology partnership with MUIS (Japan), aiming at over 30 percent market share in India by 2030. Additionally, its core business sees traction in the CSM segment.
Neogen projects revenues of Rs 900-1,050 crore from its base business by FY2026 and Rs 2,500-2,950 crore from battery chemicals by FY2028-29. Kotak said expectations lean towards the lower end of this range. EBITDA margins are forecast to sustain at 18-20 percent once battery chemical capacities are fully utilised by FY2029. RoCE may face pressure initially but is expected to recover towards 20 percent as utilisation improves.
"(The firm) is gearing up for a multifold scale-up in the coming years by virtue of being the first mover and arguably the most credible entrant in India’s promising EV battery chemicals space. We estimate 34 percent/40 percent revenue/EPS CAGRs for Neogen over FY2023- 29, led by commencement of battery chemical revenues and supported by continued healthy growth in the base business of bromine/lithium derivatives," a Kotak report said.
Kotak said balance sheet leverage remains a concern due to the company's long working capital cycle and ambitious growth plans. The management aims to reduce the net working capital cycle to 120 days from 170-180 days, but progress has been sluggish amid industry challenges. The aggressive capex plan will add pressure to the balance sheet, with peak net debt-to-EBITDA expected to reach 5X by FY2026. Risks include delays in project commissioning or ramp-up. Further equity dilution is a possibility, yet the compelling growth story outweighs this concern.
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