IPO Details

Neogen Chemicals Limited is looking to aggregate up to Rs 70 crore from fresh issue and will make an offer of sale (OFS) of up to 16,99,600 and 12,00,400 equity shares by promoters Haridas Thakarshi Kanani and Beena Haridas Kanani respectively.

The issue price band is fixed at a range of Rs 212-215 a share. The minimum lot size for bids is fixed at 65 equity shares and multiple of 65 equity shares thereafter.

The anchor investor offer will be open for one day only, that is 23 April.

The company will be aiming to raise Rs 131.48 crore at the lower end of the price band and Rs 132.35 crore at the upper end.

The promoter group currently holds 95.79 percent stake in the company and their share post-IPO will fall to 70 percent.

Company Background

It is a 27-year-old manufacturer of bromine-based, and lithium-based, specialty chemicals. Its client base include pharmaceutical, agrochemical and other specialty chemical companies in India, Europe and Japan.

NCL manufactured an aggregate of 198 products as of 28 February 2019, that includes 181 organic chemicals and 17 inorganic chemicals.

Apart from its standard products, NCL also undertakes custom synthesis and contract manufacturing. It has commenced its work on custom sand contract manufacturing for customers in Europe and Japan.

It commenced its business in Mahape, Navi Mumbai in 1991. It has another manufacturing unit in Karakhadi, Vadodara. NCL has a customer base of 1,237 domestic and 126 international customers.

It will be coming up with a third site to manufacture specialty inorganic Lithium compound at the Dahej SEZ in Gujarat and expects the plant to be operational in the current financial year.

Financials

NCL reported a 19.7 percent year-on-year CAGR in consolidated operating revenue over FY14-18 to Rs 164.01 crore in FY18. It was at Rs 159.23 crore for FY19.

A 30.3 percent CAGR rise was reported on PAT (profit after tax) over FY14-18 to Rs 10.5 crore in FY18.

The company's average business from organic and inorganic compounds stood at 68 percent and 32 percent, respectively, over FY14-18.

Should you invest?

Companies in the specialty chemical business are expected to increase their capacities following the shutdown in China, thus driving the demand from Indian companies. The industry is estimated to grow at 5.47 percent CAGR to $970.55 billion by 2022.Analysts see immense growth potential in this space.

As for Neogen Chemicals, it faces tough competition from Aarti Industries, Atul, Navin Fluorine International and Vinati Organics. The company has a large and diverse array of products, diversified and stable customer base along with potential for growth with its continued investment in R&D.

Choice Broking on the other hand said, "considering its historical growth profile, proposed expansion activities and the demanded valuations we feel that the issue is fully priced. Thus we assign a "AVOID" rating for the issue. The issue size (around Rs. 1,300mn) being lower than Rs. 2,500mn, the shares will be listed in "T" group, there will be some restrictions on the price movements."