Over FY14-18, it reported revenue, Ebitda and PAT CAGRs of 22%, 26% and 30%, respectively.
Commencing operations in 1991, at Mahape, Navi Mumbai, with a few bromine-based compounds and lithium salts, now Neogen has became one of India’s leading manufacturers of bromine and lithium-based derivatives.
Over the years, it has broadened the number of its products to 198, comprising 181 organic and 17 inorganic chemicals. The company has installed capacity for 130,400 litres of organic chemicals and 1,200 tonne of inorganic chemicals,with utilisation at 64% and 94%, respectively.
It plans to double capacity to 256,000 liters and 2,400 tonne of organic and inorganic chemicals to cater to mounting demand. It is trying to forward-integrate bromination with other chemistries to make advanced intermediates, otherwise being manufactured by customers in-house.
Over FY14-18, it reported revenue, Ebitda and PAT CAGRs of 22%, 26% and 30%, respectively. Its Ebitda margin expanded 244bps to 18%. Debt-based capex funding led to its net-debt-to-equity touching 1.9x in FY18, up from 1.2x in FY15. Its RoE and RoCE have averaged 20% and 15% respectively, over FY14-18. Its cash-conversion cycle was a lengthy 145 days in FY18 due to business requirements of maintaining higher inventory for operational benefits.
At the higher end of the issue price of `215 a share, the stock is valued at 20.1x FY18EV/Ebitda and 47.8x P/E. Arti Industries and Atul Industries trade at FY18 P/E multiples of 38-42, while Vinati Organics and Navin quote at 21x and 63x, respectively. On the annualised M9FY19 EPS of Rs 7, the stock priced at 28.5xPE and 17.4x EV/Ebitda.
We believe the higher multiple is justified given the company’s ability to grow profitably and command better return ratios. Risks: Slow growth in underline sectors such as pharma, high working capital intensity and high debt great dependence on certain customers.