Neogen chemical CMP 937
The company manufactures bromine and lithium-based organic and organo-metallic compounds, used in the pharmaceutical, agricultural chemicals, and engineering industries.
Financial
- ROE and ROCE is around 24% and 22% respectively (Positive)
- P/BV - 13, Face Value: INR 10, MCAP: 2200 Crs.
- Forward PE - 75 which is high
- Operating profit margin is around 19-20% which is on increasing trend (positive)
- Q3FY21 topline growth was up around 3.6% and QoQ growth was 4.4%. Topline per quarter is under 100 Cr
- Q3FY21 bottomline growth was up around 4% in YoY and 15% in QoQ.
- Share capital - 23 Cr small equity, Promoter hold around 64.3% which was reduced from 70% in March 2020 to 64% in June 2020. FIIs increased their stake to 0.55 to 4.8% in June 2020 quarter. DIIs hold around 14.8% which was slightly reduced in Dec 2020. Public shareholding increased in Dec 2020 quarter.
- Debt is around 129 Cr as of Dec 2020. Capex is around 29 Crs.
Key Positive
- Capacity enhancement in the organic chemical segment (incremental capacity of 1,26,000 litres) is expected to commence in the last quarter of fiscal 2021 and further capex of Rs 55-60 crore planned in fiscal 2022.
- Revenue grew by 28% in fiscal 2020 and likely to improve by 10-11% in fiscal 2021, despite pandemic related disruptions. Backed by further enhancement in capacities, addition of new customers and molecules.
- Extensive experience of the promoter and the proven track record in developing bromine and lithium derivatives continues to support the business risk profile.
Concern Area
- Operating cash flow badly impacted in the year 2020 majorly on account of delays for receivables and inventory in account of disruption due to lockdown.
- Foreign exchange volatility risk due to 50% sales comes from export although same imports of around 50% so it can be hedged.
- Regulatory risk: Bromine, being a corrosive and hazardous material, is subject to environmental and other government regulations, any adverse change in these regulations. Although this can be favourable also since entry barrier for any new player being a specialized chemical.
View: Share is currently trading at all time high 970 level. Based on the strong momentum and growth in upcoming years Investors can continue with the company any declined in price can be good accumulated at lower rate as well.