This Small Cap Chemicals Stock Grew 270.34% In Years, Buy For 34% Returns, Says ICICI Direct

ICICI Direct suggests buy the stock of Neogen Chemicals Limited with a revised target price of Rs 1,680 per share. According to the given target price, the stock is likely to jump 34% from its current level. Neogen Chemicals is a small cap Chemical sector stock. Commencing operations in 1991, Neogen Chemicals manufactures specialty organic bromine-based chemical compounds as well as specialty inorganic lithium-based chemicals compounds.

Business Overview

The company's products find application in pharmaceutical intermediates, agrochemical intermediates, engineering fluids, polymers additives and water treatment chemicals, to name a few. Neogen has two segments viz. (i) organic chemicals, (ii) inorganic chemicals of which organic chemical constitute ~80% of overall revenue while the rest comes from inorganic chemicals.

Stock Outlook & Returns on Investments

The stock's current market price (CMP) of Neogen Chemicals stock on the NSE is Rs. 1,412.65 per share. On Monday, the stock fell 6.10% compared to its previous close. The stock recorded its 52-week high level on 4 January 2022 at Rs 1,930, and 52 week low on 22 August 2022 at Rs 1,200, respectively. 

The stock was listed on the stock exchange on May 8, 2019, according to the NSE. Since its listing on NSE, it has given 436.01% multibagger returns. However, in the past 1 year, the stock didn't perform well in terms of returns compared to 3 years returns. The stock has given a 5.51% negative return in the past 1 week, whereas, in 1 and 3 months, it has given negative returns of 5.38% and 4.39%, respectively. In the past 6 months, the stock gave 7.89% negative returns, whereas, in a year 12.3% positive returns on investments. In the past 3 years, it gave a multibagger return of 270.34%.

Q2FY23 Results

The brokerage said, "Numbers were solid on a like-to-like basis but below our estimates due to lower-than-expected growth in the inorganic segment." 

Revenue grew 31% YoY to Rs 148.1 crore, led by higher growth from both organic chemicals (up 9% YoY) and inorganic chemicals (up 123% YoY). Gross margins rose 345 bps YoY to ~46.8% while EBITDA margin declined 178 bps YoY to 16.7%. Absolute EBITDA was up 18% YoY to Rs 24.3 crore. PAT declined 12% YoY to Rs 9.9 crore.

Buy stock for a target price of Rs 1,680 per share

The stock appreciated at 55.7% CAGR in the last three years. "We retain BUY rating on the back of better growth outlook from both organic and inorganic segments tracking capex and visibility. We value Neogen Chemicals at 45x P/E FY24E EPS to arrive at a revised target price of Rs 1680/share (earlier Rs 1645/share)," the brokerage has said.

Key triggers for future price performance

Phase 1 and Phase 2 capex at Dahej bodes well for advance intermediates and custom synthesis revenue growth. Higher share of value added business portfolio to improve margin profile of the business. Allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.