Fortune Scrip     

Published: September 15, 2024
Updated: September 15, 2024

Neogen Chemicals

LEADING THE SMALL CAP BRIGADE!: Thriving On Its Speciality Solutions

This fortnight, we have picked a unique small cap speciality chemicals company which has tremendous growth potential going ahead. It is Neogen Chemicals, which commenced operations in 1991 and is today a leading player in the manufacture of bromine-based and lithium-based speciality chemicals. With the passage of time, the company has developed competencies in other related chemistries such as alkylation, acylation, amination, oxidation, dehalogenation, sialylation, halk reaction, friedelcraft, couplings, and chlorination.

During the last three decades, the company has expanded its range of products to over 250, which find applications across various industries in India and globally. By now, its products have gained a strong footprint in around 30 countries, including the US, the UK, France, Germany, Spain, Italy, Japan, Mexico, Canada, South Korea, the Netherlands, Denmark, Belgium, Switzerland, Sweden, Greece, Poland, the Czech Republic, the UAE, Saudi Arabia, Israel, Egypt, Taiwan, Australia, Iceland and China.

The company functions out of its four state-of-the-art manufacturing facilities located at Mhape, Navi Mumbai (Maharashtra), Karakhadi in Vadodara (Gujarat), Dahej special economic zone (Gujarat), and Sangareddy in Hyderabad (Telangana).

FINANCES BOOM

Neogen Chemicas has been going from strength to strength in its financial performance. During the last 11 years, its sales turnover has expanded more than 9 times from Rs 74 crore in fiscal 2014 to Rs 691 crore in fiscal 2024, with operating profit spurting 10 times from Rs 11 crore to Rs 110 crore, and net profit shooting up over 11 times from Rs 4 crore to Rs 45 crore. The company's financial position is also very strong, with reserves at the end of March 2024 standing at Rs 73 crore - over 28 times its equity capital of Rs 26 crore.

PRODUCT RANGE

• Neogen has been growing at a fast pace. Though it started operations in 1991 at Mhape, Navi Mumbai, manufacturing four products -- lithium bromide, n-propyl bromide, potassium bromide and metaphonoxy benzaldehyde -- it has continuously expanded its product range with the help of innovation and hard work, pushing up the number of products from 4 to around 250, comprising around 220 organic chemicals and around 25 inorganic chemicals. This wide product range has enabled the company to expand its topline as well as bottomline.
• Again, this wide range of products helped the company build a diversified and stable customer base. Today, it caters to diverse customers across a wide array of user industries such as pharmaceuticals, agrochemicals, electronic chemicals, construction chemicals, speciality polymer and VAM original equipment manufacturers. By now, the company has established a customer base of over 1,500 customers, including around 1,350 domestic customers and around 150 international customers. Major customers include Austin Chemical Company Inc, US, CBC Company Ltd, Japan, Divi's Laboratories India, Laura's Laboratories India, Solvay Specialities India and Voltas India.
• Besides manufacturing and marketing a wide array of speciality chemicals, it has plans to carry out multi-step synthesis in equipment of various sizes. Neogen is also focusing on custom synthesis and manufacturing. In fact, work has already commenced in this area with customers in Japan and Europe.

JAPAN TECH

• Further, Neogen has obtained the licence from Mu Ionic Solutions (MUIS), a JV between Mitsubishi Chemicals Corporation (MCC) and UBE Corporation, for availing its proprietary and confidential manufacturing technology for making Neo Solutions at its manufacturing facility in India, with a planned maximum installed capacity of upto 30,000 mtpa. These electrotypes will be targeted by Neogen to meet the growing demand of lithium-ion cell manufacturers in India. This technology licence will allow Neogen to ensure that the manufacturing plant meets stringent global standards for quality, reliability, safety and efficiency for electrolytes production. It will also help Neogen greatly reduce approval times with lithium-ion battery makers. Neogen is the recipient of this firstever licence issues by MUIS, the part of MCC of electrolyte manufacturing technology anywhere in the globe. The group's 3-decade long electrolyte manufacturing experience will be extremely beneficial for Neogen to build a robust global quality and safety standards-approved electrolyte plant in India.
• In addition, the company has plans to utilise its three decades of expertise in lithium chemistry for manufacturing speciality lithium salts and additives for electrolytes used in lithium-ion batteries and advanced chemistry cells, to produce electrolytes and lithium salts required for electrolytes
• Apart from catering to the domestic market, Neogen has so far exported to over 30 countries, including the US, the UK, France, Germany, Spain, Korea, the Netherlands, Belgium, Switzerland, Sweden, Denmark, the UAE, Saudi Arabia, Israel, Egypt, Taiwan, Australia and China

E.V. BATTERIES

• According to a Kotak Equity research report, Neogen is on track to emerge as the first mover in the battery chemicals segment in the EV segment at India owing to the work it has done in this space, validated by the technology partnership with MUIS- Japan. Neogen is targeting a marketshare of more than 30 per cent within battery electrolytes in India by 2030 -- a large opportunity. Additionally, in its base business, Neogen is continuing to invest in new product development and is seeking traction in the CSM business. The company management expects a revenue of Rs 900-1,000 crore from its base business by fiscal 2026 and another Rs 2,500-Rs 2,900 crore from the battery chemicals business by 2029. The company has started receiving committed volumes for battery chemicals from Exide, Amara Raja, Rajesh Exports and others. Kotak Institutional Equities estimates 34 per cent revenue and 40 per cent EPS CAGRs for Neogen over fiscals 2024 to 2029, led by commencement of battery chemical revenues and supported by continued healthy growth in the base business of bromine and lithium derivatives. As there is good demand for Neogen Chemicals shares, the price has moved up from Rs 1,148 to Rs 1,850 before settling in the Rs 1,500-1,530 range. With the commencement of battery chemical sales, the share price is expected to move up to cross the Rs 2,000 mark.