Neogen Chemicals soars 26% in 2 days, hits record high on improved outlook

HDFC Securities believes the improvement in the share of custom synthesis manufacturing and advanced intermediates will result in strengthening of the balance sheet and manifest earnings visibility

Shares of Neogen Chemicals hit a new high of Rs 1,223.70, surging 11 per cent on the BSE in intra-day trade, in an otherwise weak market on Wednesday. In the past two trading days, the stock of the specialty chemicals company has rallied 26 per cent on improved outlook. The company had made a stock market debut on May 8, 2019 and has appreciated 469 per cent from its issue price of Rs 215 per share.

At 01:09 pm, Neogen Chemicals was trading 8 per cent higher at Rs 1,184.50, as compared to a 0.53 per cent decline in the S&P BSE Sensex. Trading volumes on the counter jumped four-fold with a combined 1.04 million equity shares having changed hands on the NSE and BSE.

Brokerage firm HDFC Securities initiated coverage on the counter on Tuesday, September 7, with a 'Buy' call and a target price of Rs 1,220.

"We believe the improvement in the share of custom synthesis manufacturing (CSM) and advanced intermediates will result in strengthening of the balance sheet and manifest earnings visibility. The tripling of its organic chemicals manufacturing capacity will not only allow it to fulfil commitments of the two long-term contracts, but also bestow flexibility in selection of new molecules.  Capacity expansion will accelerate the pace of growth, which was previously curtailed by limited infrastructure. We expect strong EBITDA and PAT CAGRs of 35/47% over FY22-24E," it noted in the report.

That apart, as per the American Chemistry Council (ACC), global chemical output is expected to grow by 3.9 per cent in 2021, following a decline of 2.6 per cent in 2020. The specialty chemical industry’s revenue is expected to improve in 2021, supported by higher oil prices and a rebound in demand in end-user industries.

Neogen is India’s one of the leading manufacturers of specialty chemicals, especially Bromine-based compounds, inorganic Lithium Salts and Grignard Compounds and other Advanced Intermediates which mainly find applications in pharmaceutical, agrochemical, specialty polymer, Heating ventilation and air conditioning (HVAC) and flavours and fragrance chemicals.

"The industry is expected to grow at 9.3 per cent to reach US$ 304 billion by 2025 on the back of rising demand in the end-user segments for specialty chemicals and petrochemicals. India is set to be a key beneficiary of structural shifts in the global supply chain. “The specialty chemicals market has been on the increase in various applications which has helped in boosting the total market in multiple regions. The major driving factors for the market growth are growing demand from the end-user industries, such as, food, textiles, and automobiles,” Neogen said in the financial year 2020-21 (FY21) annual report.