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IDBI Capital Report
Key Highlights and Investment Rationale
Positive developments on Battery Chemicals:
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Neogen Chemicals Ltd. has commenced discussion for Memorandum of Understanding with respect to commercial terms for Electrolyte with multiple Indian cell manufacturers. The company has also initiated dialogue for Lithium Electrolyte Salt Supplies with more than ten overseas customers.
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Neogen had earmarked Rs 4.5 billion of capex for catering to the flourishing battery chemicals business maintaining debt/equity of less than 1.25 times. However this capex may be revised upwards post the MU Ionic Solutions Corporation agreement taking into account the demand projections of the customers.
Valuation and outlook:
Both advanced intermediates and custom synthesis manufacturing (pharma and agro as key customers) are expected to contribute healthy proportion of sales in the coming years and would remain solid growth drivers even beyond. AI and CSM are the two more profitable businesses and would drive improvement in profitability.
However in the light of valuations being rich, we maintain our 'Hold' rating with a target price of Rs 1,700.
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