By Lithin Reddy
Publishes: Thursday, January 27, 2022, 9:30 AM [IST]
HDFC Securities, a renowned brokerage company, has initiated a buy call on Neogen Chemicals. In a target period of 12 months, the brokerage anticipates a significant increase in the stock’s current market price.
HDFC Securities has given a buy call on Neogen Chemicals with a share price target of Rs. 2,150, the current market price of the stock is 1,652. Neogen Chemicals has given an exceptional return of 80% in the last 6 months and more than 130% in the last 1 year. The company has also shown a good profit growth of 43.27% for the past 3 years, good revenue growth of 27.80%, a healthy ROE of 26.20% over the past 3 years, and a healthy ROCE of 21.42% over the past 3 years.
Target price
| Stock Outlook | |
|---|---|
| Current Market Price (CMP) | Rs. 1,652 |
| Target Price | Rs. 2,150 |
| 1 Year Return | 30%+ |
Key triggers for future price performance as per the brokerage
Leveraging on its competencies in manufacturing advanced lithium-based salts, Neogen chemicals has announced the establishment of a 250 MT electrolyte formulation capacity. The company will invest INR350m to set up an electrolyte formulation capacity and produce advanced lithium-based salts required in electrolyte manufacturing.
The Indian government has announced a USD 2bn production linked incentive scheme to support manufacturing and localization of advanced chemistry cell (ACC) production units, with the aim of localizing the supply chain. The company has taken a quantum leap in order to capitalize on the opportunities that lie in lithium-ion batteries and ACC manufacturing. Currently, the company is making these lithium salts for non-electrolyte applications formulation. HDFC Securities believes that over the next 5-6 years, the company will prudently invest in the augmentation of electrolyte formulation manufacturing and organic chemical business applications.
Business Opportunities for Neogen Chemicals
In electrolyte manufacturing, Neogen has a presence across the value chain. The company is highly integrated and can produce an entire range starting from lithium. Carbonate, a naturally occurring salt of lithium, to advanced intermediates of salts required for electrolytes, the final lithium salts, and electrolyte formulation. It can sell advanced intermediates and final lithium salts to electrolyte manufacturers.
further, the company can sell electrolyte formulations to battery manufacturers. Selling electrolyte formulations to battery manufacturers will be the company’s primary source of revenue in the business. While selling salts to electrolyte manufacturers will be a secondary source. With this initial invste=ment of INR 350m in the electrolyte manufacturing business, Neogen expects an incremental revenue of INR 500m per annum by FY24. Thus, it expects to reach a topline of INR 7.25bn by FY24.
SWOT of Neogen lithium ion and electrolyte formulation business
- Strength: Highly backwardly integrated plant of Neogen Chemicals.
- Weakness: Volatility of lithium prices.
- Opportunity: Electrolyte and cell manufacturers.
- Threat: Sodium-ion based batteries or ICE running on hydrogen.
