Broker’s call: Neogen Chem (Buy)

Target: ₹1,936

CMP: ₹1,585.55

Neogen Chemicals’ (NCL’s) earnings will grow at a CAGR of 43 per cent over FY24-30 while RoE will improve from 6% in FY24 to 23 per cent in FY30E. New-age chemicals from its battery material business will drive growth.

Post commissioning of the Mitsubishi Ionic Solution (MUIS) technology-based electrolyte manufacturing plant in H2FY26, the electrolyte manufacturing capacity of NCL will jump 16x to 32,000MTPA. Domestic electrolyte demand of about 10,600 MTPA in FY24 was largely fulfilled through imports of battery packs directly. This demand is expected to grow at a CAGR of a whopping 39 per cent to reach about 77,000 MTPA by FY30.

NCL has a first-mover advantage in this new-age chemicals industry and will become the largest player in the domestic market. Revenue from battery materials business revenue shall jump up to ₹3,000 crore (72 per cent of total revenue) by FY30.

High working capital requirements currently putting strain on NCL’s balance sheet. The battery chemical material business shall reduce the working capital cycle from 210 days in FY24 to 32 days in FY30. ROCE for NCL is expected to improve from 6 per cent in FY24 to 13 per cent in FY30.

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