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HDFC Securities Institutional Equities
Neogen Chemicals Ltd.'s earnings will grow at a compound annual growth rate of 43% over FY24- 30E while return on equity will improve from 6% in FY24 to 23% in FY30E. New-age chemicals from its battery material business will drive growth.
Post commissioning of the Mitsubishi Ionic Solution technology-based electrolyte manufacturing plant in H2 FY26, the electrolyte manufacturing capacity of Neogen Chemicals will jump 16 times to 32,000 mtpa.
Domestic electrolyte demand of ~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% to reach ~77,000 mtpa by FY30.
Neogen Chemicals 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 Rs 30 billion (72% of total revenue) by FY30E.
High working capital requirements currently putting strain on Neogen Chemicals' 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 Neogen Chemicals is expected to improve from 6% in FY24 to 13% in FY30. We are maintaining Buy on Neogen Chemicals with a target price of Rs 1,936.
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