1
Please refer to important disclosures at the end of this report
1
1
Neogen Chemicals Limited (NCL) is one of the leading Indian manufacturers of
bromine & lithium based specialty chemicals. The company manufactures
specialty organic bromine-based chemical compounds (bromine compounds) and
other specialty organic chemical compounds coupled with specialty inorganic
lithium-based chemicals compounds (lithium compounds).
Marquee client base with long relationships: Over the last 25 years, Neogen has
established a customer base of about 1,363 customers, of which about 1,237 are
domestic customers and 126 are international customers. Neogen has
established relationship of over a decade with large producers of Bromine
Source and Lithium Source such as Divi’s Lab, Austin Chemical, Thermax and
Voltas.
Focus on advanced specialty intermediates which offer higher value addition:
Over the last few years Neogen has not only been focusing on manufacturing
Bromine Compounds but also combining bromination with other chemistries
to make advance intermediates, which otherwise would have been
manufactured by its customers internally. Such forward integration has
enabled Neogen to offer higher value addition and generate higher margins
along with increased profitability.
Specialized business model with high entry barriers: Company’s products are
used for specialty applications in the pharmaceutical, agrochemical, aroma
chemical, construction chemical, specialty polymer and electronic-chemical
industries where they are used to manufacture high value proprietary and
specialized products. Given the nature of the application of their products,
company’s processes and products are subject to, and measured against,
exacting quality standards and stringent impurity specifications this technicality
makes tough entry barrier for other players to enter in segment.
Outlook & valuation: In terms of valuations, PE works out to be 31x annualized
FY19 EPS of `7 post listing (at the upper end of the issue price band) and there is
no listed peer available with similar products for comparison. Moreover, NCL is
operating at optimum level of utilization and company has not planned any
defined capacity expansion in near term. Therefore we believe investors should
wait for price discovery before taking any investment decision. Hence, we have
NEUTRAL view on the issue.
Key Financial
Y/E March (` cr)
FY15
FY16
FY17
FY18
FY19E*
Net Sales
91
109
121
164
212
% chg
-
19
12
35
29
Net Profit
5
5
8
10
16
% chg
-
2
48
37
57
EBITDA (%)
13.8
13.0
16.5
17.7
18.5
EPS (Rs)
2
2
3
4
7
P/E (x)
99
97
66
48
31
P/BV (x)
21
18
12
9
7
RoE (%)
22
19
18
21
27
RoCE (%)
38
38
22
28
32
EV/EBITDA
40
36
27
19
14
Source: Company ,Angel Broking,*Annualized
Note: Valuation ratios based on post--issue outstanding shares and at upper end of the price band
NEUTRAL
Issue Open: April 24, 2019
Issue Close: April 26, 2019
QIBs 50% of issue
Non-Institutional 15% of issue
Retail 35% of issue
Promoters 70%
Others 30%
Post Issue Sh areholdin g Pattern
Post Eq. Paid up Capital: `23.33cr
Issue size (amount): *`131cr -**132.35
cr
Price Band: `210 - `215
Lot Size: 65 shares and in multiple
thereafter
Post-issue implied mkt. cap: *`490cr -
**`502cr
Promoters holding Pre-Issue: 96%
Promoters holding Post-Issue: 70%
*Calculated on lower price band
** Calculated on upper price band
Book Bu ilding
Issu e Deta ils
Face Value: `10
Present Eq. Paid up Capital: `20.85cr
Offer for Sale: `62cr*
Neogen Chemicals Ltd.
IPO Note | Specialty Chemicals
April 22, 2019
2
April
22,
201
NCL | IPO Note
April 22, 2019
2
Company background
Neogen Chemicals Limited (NCL) is one of the leading Indian manufacturers of
bromine and lithium-based specialty chemicals. Specialty chemicals are those
chemicals that impart different properties to a variety of products (i.e. the effect that
specialty chemicals have varies based on the product) and have a high degree of value
addition. Specialty chemicals are, also generally, in the Indian context, manufactured in
smaller volumes when compared to non-specialty chemicals. NCL manufactures
specialty organic bromine-based chemical compounds (Bromine Compounds) and
other specialty organic chemical compounds coupled with specialty inorganic lithium-
based chemicals compounds (Lithium Compounds). Company commenced its business
operations in 1991, at Mahape, Navi Mumbai manufacturing facility with a few
Bromine Compounds and Lithium Compounds. Over the years, NCL has expanded its
range of products and, presently, manufactures an extensive range of specialty
chemicals which find application across various industries in India and globally. As on
February 28, 2019, Company had manufactured an aggregate of 198 products
comprising 181 organic chemicals and 17 inorganic chemicals.
Issue Details
The company is raising ~`62.35cr through an offer for sale and fresh issue of `70cr in
the price band of `210-215. The fresh issue will constitute ~13.95% of the post-issue
paid-up equity share capital of the company, assuming the issue is subscribed at the
upper end of the price band. The company is offering 0.29cr shares that are being sold
by promoters.
Pre and Post-IPO shareholding pattern
No of shares (Pre-issue)
%
No of shares (Post-issue)
%
Promoter (GOI)
1,92,33,453
96%
1,63,33,453
70%
Other
8,45,340
4%
70,01,154
30%
Total
2,00,78,793
100%
2,33,34,670
100%
Source: RHP, Angel Research; Note: Calculated on upper price band
Objects of the offer
Description
Amt. Rs cr
Prepayment or repayment of all or a portion of certain borrowings availed by
the company
21
Early redemption of the 9.8% fully redeemable cumulative preference shares
(“FRCPS”)
11.5
Long term working capital
20
General Corporate Purposes
-
Source: RHP, Angel Research
Outlook & valuation:
In terms of valuations, PE works out to be 31x annualized FY19 EPS of `7 post
listing (at the upper end of the issue price band) and there is no listed peer
available with similar products for comparison. Moreover, NCL is operating at
optimum level of utilization and company has not planned any capacity
expansion in near term. Therefore we believe investors should wait for price
discovery before taking any investment decision. Hence, we have NEUTRAL view
on the issue.
3
April
22,
201
NCL | IPO Note
April 22, 2019
3
Key Risks
Operates and manufacture hazardous chemicals
NCL’s manufacturing process involves the use of hazardous and flammable industrial
chemicals which entails significant risks and could also result in enhanced compliance
obligations.
Income Statement
Y/E March (` cr)
FY15
FY16
FY17
FY18
FY19E*
Total operating income
91
109
121
164
212
% chg
-
19
12
35
29
Total Expenditure
79
95
101
135
173
Raw Material
50
61
64
95
122
Personnel
5
5
5
9
11
Others Expenses
24
29
32
31
40
EBITDA
13
14
20
29
39
% chg
-
11
42
45
36
(% of Net Sales)
14
13
16
18
19
Depreciation& Amortization
1
1
1
2
3
EBIT
12
13
19
27
37
% chg
-
12
42
45
35
(% of Net Sales)
13
12
15
16
17
Interest & other Charges
5
5
8
10
11
Other Income
1
0
0
1
1
(% of PBT)
12
2
3
4
3
Extraordinary Items
0
0
0
1
2
Share in profit of Associates
-
-
-
-
-
Recurring PBT
8
8
11
16
24
% chg
-
5
35
42
46
Tax
3
3
4
7
10
PAT (reported)
5
5
8
9
14
% chg
-
2
48
24
51
(% of Net Sales)
6
5
6
6
7
Basic & Fully Diluted EPS (Rs)
2
2
3
4
7
% chg
-
2
48
37
57
Source: Company, Angel Research
Note *Annualized number
4
April
22,
201
NCL | IPO Note
April 22, 2019
4
Balance Sheet
Y/E March (` cr)
FY15
FY16
FY17
FY18
FY19E*
SOURCES OF FUNDS
Equity Share Capital
4.5
20.0
20.0
20.0
20.1
Reserves& Surplus
19.0
7.5
22.0
30.1
41.4
Shareholders’ Funds
23.5
27.5
42.0
50.1
61.5
Total Loans
7.3
7.4
43.8
46.4
52.4
Other Liab & Prov
0.0
0.0
0.0
0.0
0.0
Total Liabilities
30.8
34.9
85.7
96.5
113.9
APPLICATION OF FUNDS
Net Block
13.2
17.4
56.3
66.7
81.1
Capital Work-in-Progress
0.1
0.7
1.3
1.4
0.0
Investments
0.0
0.0
0.0
0.0
0.0
Current Assets
53.1
60.9
89.7
106.8
149.1
Inventories
24.3
31.8
40.0
50.0
77.2
Sundry Debtors
18.0
15.8
32.2
41.4
42.5
Cash & Bank
2.4
2.5
3.1
1.8
1.0
Other Assets
0.9
1.4
4.4
4.2
6.5
Current liabilities
38.0
45.6
66.6
83.6
123.5
Net Current Assets
15.1
15.3
23.1
23.2
25.6
Other Non Current Asset
1.4
0.1
0.6
1.1
0.7
Total Assets
30.8
34.9
85.7
96.5
113.9
Source: Company, Angel Research
Cash Flow
Y/E March (` cr)
FY15
FY16
FY17
FY18
FY19*
Profit before tax
8.1
8.5
11.5
17.3
17.0
Depreciation
0.9
1.0
1.3
1.9
2.1
Change in Working Capital
(2.0)
(2.8)
(14.9)
(13.4)
(31.5)
Interest / Dividend (Net)
(0.2)
(0.2)
(0.2)
(0.3)
(0.1)
Direct taxes paid
(2.6)
(3.1)
(3.9)
(4.0)
(2.6)
Others
4.4
5.3
6.5
10.2
8.7
Cash Flow from Operations
8.7
8.6
0.2
11.8
(6.3)
(Inc.)/ Dec. in Fixed Assets
(2.2)
(4.0)
(32.4)
(13.9)
(17.1)
(Inc.)/ Dec. in Investments
0.4
(0.4)
(0.5)
1.2
(0.2)
Cash Flow from Investing
(1.8)
(4.4)
(32.9)
(12.7)
(17.3)
Issue of Equity
-
-
-
-
-
Inc./(Dec.) in loans
(1.8)
1.7
29.6
12.0
33.4
Others
(4.5)
(5.9)
3.8
(12.5)
(10.6)
Cash Flow from Financing
(6.3)
(4.1)
33.3
(0.4)
22.7
Inc./(Dec.) in Cash
0.6
0.1
0.6
(1.3)
(0.8)
Opening Cash balances
1.8
2.4
2.5
3.1
1.8
Closing Cash balances
2.4
2.5
3.1
1.8
1.0
Source: Company, Angel Research
5
April
22,
201
NCL | IPO Note
April 22, 2019
5
Valuation Ratios
Y/E March
FY15
FY16
FY17
FY18E
FY19E
Valuation Ratio (x)
P/E (on FDEPS)
98.7
96.9
65.6
48.0
30.7
P/CEPS
83.3
81.2
56.0
40.5
26.1
P/BV
21.4
18.2
12.0
8.6
7.0
EV/Sales
5.6
4.7
4.5
3.3
2.6
EV/EBITDA
40.3
36.2
27.4
18.9
14.1
EV / Total Assets
16.6
14.6
6.4
5.7
4.9
Per Share Data (Rs)
EPS (Basic)
2.5
2.6
3.8
5.2
8.2
EPS (fully diluted)
2.2
2.2
3.3
4.5
7.0
Cash EPS
2.6
2.6
3.8
6.2
9.6
DPS
0.4
0.4
0.2
1.4
1.3
Book Value
10.1
11.8
18.0
24.9
30.6
Returns (%)
ROCE
38.1%
37.6%
21.8%
28.0%
32.1%
Angel ROIC (Pre-tax)
42%
41%
23%
29%
32%
ROE
21.7%
18.8%
18.2%
20.9%
26.7%
Turnover ratios (x)
Asset T/O
6.9
6.2
2.2
2.5
2.6
Inventory / Sales (days)
97
106
120
120
120
Receivables (days)
72
53
97
97
97
Payables (days)
65
73
93
93
93
Working capital cycle (ex-cash) (days)
103
86
124
124
124
Source: Company, Angel Research
6
April
22,
201
NCL | IPO Note
April 22, 2019
6
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
DISCLAIMER:
Angel Broking Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited, Bombay
Stock Exchange Limited, Metropolitan Stock Exchange Limited, Multi Commodity Exchange of India Ltd and National Commodity &
Derivatives Exchange Ltd It is also registered as a Depository Participant with CDSL and Portfolio Manager and Investment Adviser with
SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Limited is a registered entity with SEBI for Research
Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not
been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its
associates/analyst has not received any compensation / managed or co-managed public offering of securities of the company covered
by Analyst during the past twelve months.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make
such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies
referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and
risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals. Investors are advised to refer the Fundamental and Technical Research Reports available on our website to evaluate the
contrary view, if any
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,
nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While
Angel Broking Limited endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory,
compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in
connection with the use of this information.
Disclosure of Interest Statement
NCL
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or
relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No