INITIATING COVERAGE REPORT

Neogen Chemical Limited

Anant Jain 24020341010

Yogakshema Joshi 24020341130
Shantanu Dev 24020341184
Shreyansh Thapliyal 24020341186
Mohd Danish 24020341207
 Neogen Chemical
HOLD
Limited
Date: July 25, 2025 GICS Sector: Materials Current Price: INR 1,571.60
Stock Exchange: NSE/BSE Industry Group: Chemicals Target Price: INR 1,610.05
Ticker: NSE: NEOGEN Industry: Specialty Chemicals Upside: 2.45%
BOM: 542665

Neogen Chemicals, poised for long-term growth driven by its strategic Stock Information
battery chemicals expansion and resilient performance, despite
temporary operational headwinds. Closing Market Price INR 1,571.60
Neogen Chemicals warrants a BUY rating, given its strategic long-term upside in Market Cap (Mn) INR 41,461
the burgeoning battery chemicals sector. Despite a challenging Q4 FY2025 52 wk High/Low INR 2420/1392
performance, the full FY2025 showcased resilience with 13% revenue growth and NOSH (Mn) 26.38
24% EBITDA improvement. Crucially, the vital Neogen Ionics facility, dedicated to
Free Float % 46.75%
battery chemicals, was unaffected by the recent Dahej plant fire, with its 2,000
MTPA electrolyte plant now commissioned and commercial production
6m Avg t/o (Rs Mn) 1542
anticipated by Q2 FY2026. Management's confident FY2026 revenue guidance of Div yield (%) 0.13%
₹950-1,000 crore, alongside a strategic joint venture, underpins robust growth Bloomberg Code NEOGEN:IN
visibility. Substantial insurance claims for the fire, combined with production NSE Code NEOGEN
flexibility, are mitigating near-term operational impacts, positioning Neogen for a
Face Value INR 10
strong rebound and re-rating as its high-growth segments scale.
Source: Refinitiv Workspace

Investment Thesis Returns

Neogen Chemicals - HOLD
Neogen is a "Hold" due to its high-risk, high-reward expansion. The company
issacrificing near-term profitability for massive long-term growth.
Why it's not a "Buy": Source: Student Research
The company faces significant risks in the immediate future(2026-2028), including
Share Price Performance (YTD)
projected net losses, negative EPS, and a sharp spike indebt to fund its new plants.
Why it's not a "Sell":
If the expansion succeeds, the company is positioned fortremendous growth and
a much higher valuation post-2029. Selling now wouldmean missing out on this
potential upside just as the strategy begins to [Link] thesis is to wait and see
if management can successfully execute its planbefore committing new capital.

Source: Refinitiv Workspace

Shareholding Pattern

Source: Student Research, Company Annual Reports Source: Student Research, Company Annual Reports
Business Description
Company Overview
Neogen Chemicals Ltd. (NCL), founded in 1989 by IIT Mumbai alumnus Mr. Haridas Shareholding Pattern
Kanani and now managed by Dr. Harin Kanani, is a leading Indian manufacturer of
specialty chemicals. With decades of operational expertise and leadership continuity, the
company is strategically positioned in the niche space of bromine-based compounds,
Grignard reagents, and lithium-based inorganic salts. These chemicals serve diverse
applications in pharmaceuticals, agrochemicals, electronic chemicals, engineering,
construction, and flavors & fragrances. In recent years, Neogen has strategically
expanded into lithium-ion battery materials—an essential component of India’s Source: Student Research,
emerging electric vehicle (EV) and energy storage markets. Despite industry-wide pricing Company Annual Reports
pressure and a major fire incident at its Dahej facility in FY25, the company EBITDA % Sale
demonstrated operational resilience with a 13% revenue growth to ₹777 crore and
EBITDA margin improvement to 17.5% from 15.9% the previous year. While PAT fell 2%
YoY due to exceptional losses, the underlying business fundamentals remained strong,
underscoring robust cost control and diversified industry exposure.
Product Portfolio Spanning Legacy and Future Segments
Neogen’s portfolio spans organic chemicals (85% of FY25 revenue), lithium/inorganic
compounds (10%), and emerging battery materials. The organic segment includes
Source: Student Research,
bromine derivatives and Grignard reagents, used in pharma, agrochemicals, and
Company Annual Reports
engineering polymers. The battery materials segment, though nascent, saw ₹12 crore
revenue in FY25 and is backed by a ₹1,500 crore (₹470 crore deployed in FY25) capex
Major Customers
plan. The company’s capability in reactive chemistries, IP-driven formulations, and
custom synthesis gives it a structural edge in niche, high-margin verticals.
Business Seasonality
Neogen’s business also exhibits seasonal characteristics, with stronger financial
performance typically in the second half of the year (October to March). This is driven by
higher order volumes from Europe beginning in October–November and accelerating
post-holiday in January. Demand for lithium-based chemicals tends to peak in Q4 due to
HVAC-linked sales. Agrochemical-related demand is also higher in H2, aligning with the
crop cycle.
Diversified Client Base with High Stickiness
Neogen derives 25% (Q4 FY25) of revenue from exports across 31 countries, with key
markets including the U.S., Europe, Japan, and Korea. Domestic clients include leading
pharma names like Sun Pharma and Aurobindo. Over 77% of revenues come from long-
term clients (>5 years), enabled by complex product qualifications and strong technical
integration. The company also imports and distributes lithium compounds, deepening its
relationship with global lithium suppliers—an edge for its forward integration into
battery materials.
Strategic Pivot into Lithium Battery Ecosystem
Neogen Chemicals is executing an aggressive strategic expansion into the lithium-ion
battery materials space through its wholly owned subsidiary, Neogen Ionics Ltd. In FY25,
the company generated ₹12 crore in revenue from this vertical despite temporary
disruptions due to a fire incident. The pivot is anchored by a multi-phase capacity
buildout across electrolyte salts and electrolytes—two critical inputs for lithium-ion
battery manufacturing. The company has already commissioned a 2,000 MTPA
electrolyte plant and initiated production of lithium electrolyte salts and additives with a
combined capacity of 400 MTPA (200 MTPA operational, 200 MTPA under trials). Further
additions of 1,100 MTPA by September 2025 and 1,000 MTPA by March 2026 are
underway. A large-scale greenfield facility at Pakhajan (Dahej PCPIR) is also in progress,
with 30,000 MTPA electrolyte and 3,000 MTPA lithium salt capacity using Japanese MUIS
technology.
The total capex outlay is ₹1,500 crore, with ₹470 crore already deployed. Peak revenue
potential is estimated at ₹2,500–2,950 crore depending on lithium pricing. Neogen is also
forming a joint venture with Morita Chemical Industries (Japan) for lithium salt
manufacturing. This initiative positions Neogen as one of India’s earliest integrated
suppliers of lithium battery materials, targeting both domestic and export markets
aligned with the rising EV, HVAC, and semiconductor demand.
Industry Analysis
Fragmented Industry with Significant Entry Barriers Favors Established
Players Like Neogen
The Indian specialty chemicals sector, a pivotal component of the nation's manufacturing Porter’s 5 Forces
landscape, is characterized by significant fragmentation, with numerous smaller entities
typically reporting annual sales under US300million. Despite this fragmented structure,
the sector is on a robust growth trajectory, projected to reach over US60 billion by 2026
and demonstrating a Compound Annual Growth Rate (CAGR) of 11-12%. This expansion
notably outpaces the growth of commodity chemicals, underscoring the segment's
higher value proposition. High capital expenditure requirements, the intricate nature of
process chemistry, and demanding regulatory compliance standards collectively form
Source: Student Research
substantial barriers to entry, particularly for new players seeking to penetrate complex,
high-value segments. This environment favors established, specialized companies with
strong technical expertise and financial capacity, enabling them to consolidate market
share and dominate high-margin niches. For a company like Neogen, its existing
proficiency in specialized bromine and lithium compounds, coupled with its strategic
capital expenditure for capacity expansion, strengthens its market position against
potential new entrants in these intricate chemical areas.
Robust Demand from High-Growth End-Use Sectors & "China+1" Strategy
Drive Expansion
The Indian specialty chemicals sector is experiencing robust demand, driven by the
expansion of several key end-use industries and significant global supply chain shifts. Key
growth sectors include agrochemicals, projected to grow at a 7.10-9% CAGR from 2025-
2030 , and pharmaceuticals, with an anticipated 5.92% CAGR from 2025-2030. The
burgeoning electric vehicle (EV) market is a substantial driver, with EV battery
manufacturing alone expected to see an 11% CAGR from 2024-2032. A powerful
structural tailwind for Indian specialty chemicals is the global "China+1" diversification
strategy, wherein international companies are actively reducing their reliance on China by
seeking alternative, stable, skilled, and cost-effective manufacturing bases like India. This
strategic realignment is creating new export corridors and bolstering domestic
manufacturing opportunities for Indian chemical producers. Neogen's diversified yet
specialized product portfolio positions it to capitalize on multiple high-growth demand
vectors.
Sustainability, ESG, and Capital Access
Environmental sustainability is fast emerging as a strategic differentiator rather than a
compliance cost. India’s push for Zero Liquid Discharge (ZLD), green chemistry, and
renewable input adoption is aligned with global ESG investment mandates. Companies
with robust ESG practices are seeing preferential access to capital, enhanced brand
value, and lower operational volatility. Neogen’s forward investment in water
conservation, sustainable inputs, and safe manufacturing practices aligns well with this
narrative. In an environment where capital is increasingly ESG-screened, this could drive
valuation premia and reduce funding constraints for future expansion.
Competitive Analysis
Market Positioning and Product Portfolio
Neogen Chemicals Ltd. operates in the high-growth Indian specialty chemicals sector with Major Competitors
a strong focus on bromine and lithium-based compounds, advanced intermediates, and
custom synthesis. The company is strategically positioned in niche high-value segments,
enabling it to leverage deep chemistry expertise and long-standing client relationships.
Unlike larger diversified players such as SRF or Aarti Industries, Neogen concentrates on
fewer verticals but dominates them through product depth and process specialization. Its
entry into lithium-based battery materials, aligned with the EV revolution and India’s
strategic push for self-reliance in critical minerals, positions it uniquely among mid-sized
players. Moreover, its expanding custom synthesis and contract manufacturing
(CDMO/CRAMS) offerings are set to gain from global supply chain shifts away from
China, providing a long-term growth tailwind. Neogen’s competitive edge stems from its
ability to scale niche chemistries while maintaining regulatory compliance for export
markets.
Competitive Landscape and Strategic Differentiators
While peers like Deepak Nitrite, Navin Fluorine, and Clean Science have gained traction
through scale, integration, or green chemistry, Neogen differentiates itself via innovation
in bromine and lithium segments, consistent capex execution, and strong governance. Its
R&D investment (~3% of revenue) is relatively high for a company of its size,
underpinning its agility in new molecule development. The company's asset-light Source: Student Research
approach in bromine chemistry, combined with strategic capex in Dahej and Vadodara,
enhances operating leverage without overexposing the balance sheet. However, unlike
some larger competitors, Neogen lacks backward integration in raw materials like
bromine or lithium, making it vulnerable to price volatility and supply chain risks. Still, its
export orientation and strong client retention in pharma and agrochemical intermediates
provide stability. As global clients seek de-risked, compliant manufacturing partners,
Neogen’s delivery track record, coupled with India's policy incentives and supply
diversification narrative, bolsters its competitive position in a rapidly evolving landscape.

Business Risk
Financial Risks (FR)
FR1: Declining Profitability and Margin Compression
Neogen’s net profit margins fell significantly in FY24 and Q4 FY25 due to pricing Business Risk
pressures, raw material volatility, and underutilization of new capacities. The trend
indicates unresolved structural margin challenges.
FR2: Increased Finance Costs and Liquidity Strain
Finance costs rose 45.3% YoY in FY24 due to capex-driven borrowing, reducing the
interest coverage ratio. This increases financial risk amid rising debt and uncertain
returns.
FR3: Negative Operating Cash Flow and High Capex
Neogen reported negative operating cash flow in FY23 and FY24. Aggressive expansion
(Neogen Ionics) is being funded primarily by debt, creating sustainability concerns.
Operational Risks (OR)
OR1: Raw Material Price Volatility & Supply Chain Risk Source: Student Research

Global price swings in lithium and bromine can sharply affect Neogen’s input costs.
Although it has diversified suppliers, it remains exposed to commodity-driven cost
shocks.
OR2: Capacity Expansion Execution Risk
Delays or low utilization in new facilities (e.g., Dahej, Neogen Ionics) could raise fixed
costs without revenue backing, impacting profitability. Q4 FY25 results reinforce this
concern.
OR3: Intense Competition in Specialty Segments
Despite niche focus, Neogen faces pressure from other domestic and global players in
custom synthesis and Grignard reagents, threatening margins and client retention.
Technological Risks (TR)
TR1: Pace of Technological Change and R&D Demands
The chemical industry is rapidly evolving. Though Neogen has strong R&D, insufficient
speed or depth could risk product obsolescence or reduced competitiveness.
TR2: Reliance on Licensed Technology
Neogen depends on MU Ionic Solutions’ licensed tech for battery electrolytes. While
strategic, it limits innovation autonomy and may weaken future differentiation.
TR3: Gaps in India’s Li-ion Battery Ecosystem
Neogen's battery segment depends on imports due to India's lack of local battery raw
material supply chains. This exposes it to external supply shocks.
Political Risks (PR)
PR1: Shifts in Trade Policies & Export Incentives
Withdrawal of export schemes or duty exemptions could increase input costs and reduce
competitiveness, especially for export-reliant segments.
PR2: Geopolitical Disruptions to Global Supply Chains
Tensions in lithium-rich regions or global trade disruptions may affect Neogen’s raw
material procurement, especially for lithium-based products.
Regulatory Risks (RR)
RR1: CMSR Compliance Burden (2025/26)
Upcoming Indian chemical safety rules (CMSR) aligned with EU REACH will impose
extensive documentation and testing burdens, raising compliance costs.
RR2: Rising Environmental Regulation
Stricter environmental norms and sustainability demands require Neogen to invest in
green chemistry. Failure to comply risks penalties and reputational damage.
RR3: Minor Non-Compliance Events
Repetitive governance lapses (e.g., SEBI warnings) signal weak internal controls. Under
tighter future norms, these could escalate into larger issues.

FINANCIAL ANALYSIS
Revenue Performance

Neogen's revenue story shows three clear phases.

First, a High-Growth Era (2016-2023) saw revenue
explode from ₹100 crores to nearly ₹700 crores,
marking a period of aggressive expansion.
This is followed by a Transitional Phase (2024-2026)
where growth abruptly halts, even dipping slightly in
the 2026 forecast. This slowdown is critical as it
coincides with the company taking on massive new
costs from major investments.

Finally, the forecast projects a Strong Recovery (2027-2035), with revenue expected to climb towards ₹3,000 crores. This future
growth is entirely dependent on the successful ramp-up of the company's new production capacity.
In short, the company is navigating a high-risk, high-reward strategy, pausing its growth for a transformative investment that it
expects to fuel its next expansion phase.
Profitability Margin

The EBITDA Margin, which reflects core operational

profitability, remains remarkably stable and healthy
throughout the entire period, hovering between
15% and 18%. This indicates the underlying
business is expected to remain efficient.
However, the Net Profit Margin tells a story of
severe pressure. After a healthy historical
performance, it is projected to collapse, turning
negative from 2026 to 2028. This is not due to
operational failure but is caused by a massive spike
in interest and depreciation costs from the
company's large-scale investments.

In essence, while the business operations remain profitable, the heavy cost of expansion is expected to wipe out all profits at
the net level for a few years, with a slow recovery forecasted from 2029 onwards.

The "profit squeeze" refers to the critical period from 2026 to 2028 where Neogen's projected net profit turns into
significant losses.
This squeeze is not caused by a failure in the core business—operating profits (EBITDA) remain healthy. Instead, it is driven
by two key factors hitting the income statement simultaneously:
[Link] Spike in Depreciation: A result of large-scale new assets and factories coming online.
[Link] Interest Costs: Indicates that these major investments were financed heavily with debt.
Essentially, the company is projected to bear the full cost of its massive expansion before it can generate enough new
revenue to cover them, leading to a temporary but severe squeeze on the bottom line.
Debt to Equity

The Debt-to-Equity ratio for Neogen Chemicals

highlights a significant increase in financial risk as
part of its expansion strategy.
Historically, the company maintained a manageable
level of debt. However, the forecast shows a
dramatic and sharp increase in leverage, with the
Debt-to-Equity ratio projected to peak at a high of
1.50 in 2027.

This spike is a direct result of the company taking on substantial long-term debt to fund its large-scale capital expenditure.
Following this peak, the forecast assumes a period of steady deleveraging, where the company is expected to use its cash
flows to pay down this debt, bringing the ratio back to more conservative levels by the end of the forecast period.
This period of high leverage represents the peak financial risk in the company's strategy.

Balance Sheet Growth

The balance sheet of Neogen Chemicals shows a

story of aggressive and continuous expansion.
Historically, Total Assets grew steadily, reflecting
consistent reinvestment into the business. However,
the forecast period shows a dramatic acceleration,
with the balance sheet size expected to nearly double
between 2023 and 2027.
This rapid growth is driven by a massive, debt-funded
capital expenditure program to build new assets. In
short, the expanding balance sheet visually
represents the company's huge strategic bet on
future capacity, transforming it into a much larger,
but also more leveraged, entity.
Valuation
DISCOUNTED CASH FLOW METHOD
We used the Free Cash Flow to Firm (FCFF) method to estimate the intrinsic value
of Neogen Chemical. Our estimates suggest an intrinsic value per share of INR 1,652.07
Beta: Nifty 500 vs Neogen
Terminal Growth rate
We have assumed a terminal growth rate of 3%.
Cost of Equity
We used the CAPM model to estimate the cost of equity of Neogen. Attached Figure
shows our CAPM model results which estimates the cost of equity to be 16.34%.
Relative Valuation
EV/EBITDA Ratio
Source: Student Research
Neogen Chemicals’ EV/EBITDA multiple is below the sector median
(33.6x), standing at 26.3x, reflecting a relatively conservative
valuation. Despite aggressive capex and expansion into lithium
segments, the market hasn't fully priced in the long-term EBITDA
growth visibility.
P/E Ratio. At a projected P/E of 49.9x, Neogen is valued around the
sector median, indicating investor confidence in forward earnings
potential.
This premium reflects its custom synthesis capabilities, battery
material plans, and export-driven demand. Source: Student Research

EV/Revenue Ratio
Neogen’s EV/Revenue multiple is close to the peer average (8.7x),
calculated at 8.65x based on FY25 projections.
This suggests a fair valuation relative to specialty chemical peers like
Aarti and Deepak, with potential for rerating upon successful
commercialization of new chemistries.
P/B Ratio. The company’s P/B ratio is 7.1x, notably higher than
legacy players, driven by strong ROE expectations and book value
growth.
Investors may be factoring in its clean balance sheet and expansion
into high-margin, future-ready verticals.
Overall [Link] some ratios trade at or near sector averages,
Neogen’s strong positioning in niche chemistries and expansion into
battery materials could justify a premium going forward.
The weighted average price per share derived from relative
valuation comes to ₹1,484, reflecting balanced market optimism
toward its fundamentals.
Environmental, Social, Governance Analysis
Enviromental
Zero Liquid Discharge (ZLD) Systems
Neogen operates ZLD-compliant units at Dahej and Vadodara, enabling 100% recycling of
treated wastewater.
Effluent is evaporated, and condensate is reused in the process, minimizing freshwater
dependence.
Energy Conservation Initiatives
Solar panels and LED lighting have been installed across plants to improve energy
efficiency.
No specific energy consumption data (in kWh) or renewable energy share is disclosed.
Air Emission & Resource Recovery Systems
Fume extraction systems, wet scrubbers, and carbon filters are used across plants to
control emissions.
Bromine recovery units ensure reduced chemical losses and environmental impact.
Social
Safety Training and Awareness
In FY24, Neogen conducted 14,298 man-hours of safety training across all operational
sites.
Regular drills, ERT programs, and PPE compliance audits were also implemented
monthly.
Zero Fatalities Reported
The company achieved zero fatal accidents in FY2023–24 across all manufacturing units.
This reflects effective safety systems and proactive hazard management.
Diversity and Inclusion Practices
Neogen has two women directors on its Board and follows equal opportunity hiring
policies.
No numerical workforce diversity data was disclosed in the report
Governance
Board Structure and Independence
The Board consists of 8 directors, including 4 Independent and 2 Women Directors.
It complies with SEBI LODR norms and has designated Audit, CSR, and Risk committees.
Ethics and Code of Conduct
The company has an established Code of Conduct and Whistleblower Policy.
All employees are required to annually affirm their compliance with these policies.
ESG Integration into Risk Governance
ESG considerations are overseen at the Board and Risk Committee level.
No third-party ESG rating (e.g., MSCI, CDP) is disclosed in the report
 APPENDIX
Appendix 1 - Projected Balance Sheet

Appendix 2 - Projected Income Statement

Appendix 3 - Projected Cashflow Statement
Appendix 4 - Board of Directors

First Key
Independ Promoter Tenure
Name Current Role Board- Committe
ent? family (yrs)*
seat Year es**

CSR

Haridas T. Chairman & Yes (Chair),

No 1989 36
Kanani Managing Director (founder) Risk

(Chair)

Dr Harin H. Audit,
Managing Director No Yes (son) 2013 12
Kanani Risk

Shyamsunder Whole-time Stakehold

No No 2015 10
Upadhyay Director ers, Risk

Nom.&Re
Non-Exec., Non-
Anurag Surana No No 2017 8 m., CSR,
Ind.
Risk

Audit,

Nom.&Re
Prof. Ranjan K.
Independent Yes No 2018 7 m.,
Malik
Stakehold

ers

CSR,
Avi Sabavala Independent Yes No 2018 7
Audit

Audit

(Chair),
Manoj K. Pati Independent Yes No 2024 1
Nom.&Re

m. (Chair)

Rajeshkumar B.
Independent Yes No 2024 1 Risk
Shah
Appendix 5 - Altman Z-score

Appendix 6 - Beneish M Score

Appendix 7 - Piotroski F Score

Appendix 7 - Piotroski F Score