Neogen Chemicals IPO: Here’s All You Need To Know

Neogen Chemicals Ltd. will launch its three-day initial public offering on Wednesday as promoters of the specialty chemicals maker look to pare holdings and the company plans to repay debt.

The maker of bromine and lithium-based derivatives plans to raise Rs 132.35 crore by selling 61.6 lakh equity shares at Rs 212-215 apiece, according to its red herring prospectus. The maiden offer—the third this month—consists of a fresh issue and an offer-for-sale by two promoters Haridas Thakarshi Kanani and Beena Haridas Kanani.

• Fresh issue of shares: 32.6 lakh
• Offer-for-sale: 29 lakh

The IPO values the company at nearly Rs 502 crore at the upper end of the price band, according to BloombergQuint’s calculations. After the listing, the promoters’ shareholding will fall to 70 percent from 95.8 percent. The rest will be held by public.

The company said it would use the proceeds from the fresh issue to prepay or repay of all or part of certain borrowings, early redemption of 9.8 percent fully redeemable cumulative preference shares, long-term working capital and general corporate purposes.

Neogen Chemicals raised Rs 39.7 crore from seven anchor investors at Rs 215 apiece, according to its exchange filings. These investors include SBI Funds, Axis Mutual Fund Trustee, Sundaram Mutual Fund and L&T Mutual Fund.

Business

Commencing operations in 1991 at Mahape, Navi Mumbai with a few bromine-based compounds and lithium salts, Neogen Chemicals now has a range of 198 products in pharmaceutical and agrochemical intermediates and engineering fluids, among others.

The company operates in two key segments—organic chemicals contributes nearly 70 percent to its revenue and the rest comes from inorganic chemicals. It manufactures and sells its products in the domestic and global markets, particularly the U.S., Europe and Japan. The domestic and global markets each contribute 50 percent to its revenue (including 16 percent deemed exports where the company supplies its products to customers who will eventually export the end-product).

Financials

The company’s revenue grew at an annualised rate of 21.6 percent over financial years 2014-18. Its net profit reported a compounded annual growth rate of 30.3 percent during the period, the company said in its red herring prospectus.

Neogen Chemicals earnings before interest, tax, depreciation and amortistion margin expanded to 18 percent from 15.5 percent over financial years 2014 to 2018.

Customers

The company’s customers are spread across a wide array of application industries such as pharmaceutical, agrochemical, aroma chemical, electronic-chemical, specialty polymer, construction chemicals and vinyl acetate monomer original equipment manufacturers.

Over the last 25 years, Neogen Chemicals has established a customer base of about 1,363. Of these, 1,237 are domestic and 126 are international customers that include Austin Chemical Company Inc., U.S., CBC Co. Ltd., Japan, Divi’s Laboratories Ltd., Laurus Labs Ltd., Solvay Specialties India Pvt. Ltd, Thermax Ltd. and Voltas Ltd., according to its red herring prospectus.

Peers And Valuation

Aarti Industries Ltd., Atul Ltd., Navin Fluorine International Ltd. and Vinati Organics Ltd. are among the closest peers to Neogen Chemicals.

In the four years through March 2018, Neogen Chemicals has reported higher growth compared to its peers.

After the issue of new shares, Neogen Chemicals’ annualised earnings per share for financial year 2018-19 would be close to Rs 7. At the upper-end of the price band, its price-to-earnings ratio stands at 28.5 times, according to BloombergQuint’s calculations.