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Home >Markets >Stock Markets >This specialty chemical stock surges 24% in 5 days. HDFC Securities has 'Buy'

Shares of Neogen Chemicals Ltd (NCL) were trading over 8% higher to 1,190 per share on the BSE in Wednesday's early deals, with the stock registering a surge of nearly 24% in the last five trading sessions. Neogen Chemicals is a leading manufacturer of bromine and lithium-based derivatives in India with technocrat promoters at the helm. 

Brokerage firm HDFC Securities believes the improvement in the share of custom synthesis manufacturing (CSM) and advanced intermediates will result in strengthening of the company's balance sheet and manifest earnings visibility.

“The tripling of its organic chemicals manufacturing capacity will not only allow it to fulfil commitments of the two long-term contracts, but also bestow flexibility in selection of new molecules. Capacity expansion will accelerate the pace of growth, which was previously curtailed by limited infrastructure," the brokerage said in a note on Tuesday. It has initiated coverage on the stock with a Buy rating and has a target price of 1,220 per share.

HDFC Securities expects expansion in RoCE from 11.3% in FY21 to 16.6% in FY24E, driven by improvement in profitability. It also expects the working capital cycle to improve with reduction in inventory days.

“The organic chemicals capacity will rise from 1,30,400 litres to 3,90,000 litres with the commissioning of the ongoing expansion project by Oct-21. Post this expansion, ample capacity will be available with NCL to allow it to fulfil commitment given in the two long-term contracts and those that are expected to be signed in the near future," it added.

Neogen Chemicals has >40 acre of freehold land available for future expansion at Dahej and Vadodara. At this juncture, it has invested in capacity building, and now onwards, HDFC Securities in the note said that it is time for the chemical company to tap new customers and enter more industries and markets.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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