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Neogen Chemicals IPO: Here's why analysts have mixed recommendations

Neogen Chemicals IPO: Here's why analysts have mixed recommendations

Neogen Chemicals IPO: Here's why analysts have mixed recommendations
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By Mousumi Paul  Apr 24, 2019 12:38:40 PM IST (Updated)

Neogen Chemicals' initial public offering (IPO) will open for subscription from April 24-26. The price band of the IPO is at Rs 212-215 per share, with lot size of 65 shares.

Neogen Chemicals' initial public offering (IPO) will open for subscription from April 24-26. The price band of the IPO is at Rs 212-215 per share, with lot size of 65 shares.

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Through the IPO, the company is looking to raise about Rs 70 crore by issuing fresh equity shares, with promoters offloading 29 lakh shares. Post the IPO issue, the promoters shareholding will be at 70 percent and public shareholding will be at 30 percent.
Chairman and managing director of Neogen Chemicals Haridas Kanani said, "The company’s majority revenue is derived from the sale of specialty chemicals to the pharma industry. Current debt stands at Rs 110 crore. Mahape capacity utilization is 80-85 percent and Vadodara is at 65 percent."
Here’s what top brokerages have to say about the IPO:
Anand Rathi
recommends ‘Subscribe’ considering the company’s ability to grow profitably and command better return ratios.
It says, "Neogen Chemicals has an installed capacity for 1,30,400 litres of organic chemicals with capacity utilization of 64 percent. The company plans to double capacity to ~256,000 liters and 2,400 tons of organic and inorganic chemicals to cater to mounting demand."
Neogen
The company is trying to forward integrate bromination with other chemistries to make advanced intermediates, otherwise being manufactured by customers in-house, added the brokerage's analyst.
It further said that Neogen’s debt-based capex funding led to its net-debt-to-equity touch 1.9x in FY18, up from 1.2x in FY15. Its cash-conversion cycle was a lengthy 145 days in FY18 due to business requirements of maintaining higher inventory for operational benefits.
Choice Broking Research says ‘Avoid’ the IPO as it is valued at a P/E multiple of 47.8x which is at a premium to its peer average of 38.8x.
Considering its historical growth profile, proposed expansion activities and the demanded valuations we feel that the issue is fully priced, said the analyst.
Neogen
Based on the product profile there is no apple-to-apple comparison between the company and its peers. The issue size (around Rs. 1,300 million) being lower than Rs. 2,500 million, the shares will be listed in “T” group, there will be some restrictions on the price movements, it further added.
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