Avendus SPARK has initiated coverage on Neogen Chemicals, giving it a ‘Buy’ rating with a one-year target price of ₹3,600 and a long-term three-year target price of ₹4,500. The stock is currently trading at ₹1,711.40, up 6.71%, following the positive outlook from Avendus. The stock opened at ₹1,650, reached a high of ₹1,729.95, and a low of ₹1,590.05, with the previous close at ₹1,603.75.
Key highlights:
- Existing business: Stable but mature, with 6-8% volume growth and 16-18% EBITDA margins. High working capital needs (187 days) limit RoCE to 14-16%.
- Battery chemicals expansion: Neogen is focusing on lithium electrolyte salts (LiPF6), capitalizing on export opportunities, especially in the US and Europe, benefiting from regulatory support.
- Domestic market: Projected EV battery demand in India is set to reach 54 GWh by 2030, offering a $430 million opportunity.
- Financial outlook: Expected revenue CAGR of 46%, EBITDA CAGR of 56%, and EPS CAGR of 61% for FY24-28. Battery business revenue is projected to hit ₹19 billion by FY28.
- Valuation: Avendus assigns a 10x multiple to the existing business and 30x to the battery business, leading to a three-year target price of ₹4,500.
While the company faces risks such as slower EV adoption and execution challenges, its strong positioning in the battery chemicals market supports its long-term growth potential.
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Neogen Chemicals