Neogen Chemicals completes preferential share allotment; details inside

Neogen Chemicals, one of India’s prominent manufacturers of speciality chemicals, specializes in the production of Bromine-based and Lithium-based compounds.

Their diverse range of products includes both organic and inorganic chemicals. These chemicals find applications in a wide array of industries, from pharmaceuticals and agrochemicals to engineering fluids, electronic chemicals, polymer additives, water treatment, construction chemicals, aroma chemicals, flavours, fragrances, specialty polymers, and Vapour Absorption Chillers.

Elevating growth initiatives through strategic share allocation 

Neogen Chemicals recently executed a preferential share allotment, successfully issuing 14,42,358 equity shares with a face value of Rs 10 each at a price of Rs 1,754.07 per share, including a premium of Rs 1,744.07 per share. The company secured approximately Rs 253 crore through this allocation from esteemed institutional investors. Notable names among these investors include SBI Mutual Fund, Quant Mutual Fund, Tata India Mutual Fund, India Acorn Fund Ltd., Ashoka India Equity Investment Trust PLC, Invesco India Mutual Fund, and Alchemy Ventures Fund. This strategic move follows approval by the company’s Board of Directors in October 2023 and subsequent shareholder support at the Extraordinary General Meeting in late October.

Fueling growth initiatives and debt reduction 

Neogen Chemicals has earmarked the net proceeds from this preferential share allotment to propel its growth initiatives in the Battery Materials segment while maintaining its growth trajectory in existing business segments, including specialty Bromine-based derivatives, Advanced Intermediates, and Custom Synthesis Manufacturing. A portion of the funds will also be strategically deployed to retire existing debt, ensuring the company maintains a balanced financial structure. This approach positions the company to swiftly adapt to evolving market conditions and seize growth opportunities.

Dr. Harin Kanani, Managing Director of Neogen Chemicals Limited, expressed his contentment with the successful fundraise. He emphasized the company’s commitment to execute planned growth initiatives and extended gratitude to both existing and new institutional investors. Dr. Kanani underlined the company’s proficiency in manufacturing and research and development, highlighting the current priority of implementing a defined growth strategy to consistently enhance value for all stakeholders.

Strategic Acquisition: BuLi Chemicals 

In May 2023, Neogen Chemicals achieved a significant milestone by acquiring a 100% stake in BuLi Chemicals, a specialist manufacturer of Organolithium products situated in Hyderabad. BuLi Chemicals plays a pivotal role in the pharmaceutical and agrochemical industries, boasting advanced technology and a skilled workforce. This strategic acquisition not only offers export opportunities but also capitalizes on cost efficiency through innovative lithium waste utilization. Neogen Chemicals can now provide enhanced value to existing customers and explore global markets. The acquisition unlocks substantial revenue potential, particularly from external markets and captive consumption, with additional growth avenues in the Custom Synthesis Manufacturing (CSM) business.

Diversification and Expansion: Entry into Electrolyte Manufacturing 

Post-acquisition, Neogen Chemicals stands as the exclusive global producer of organolithium products, which it employs to manufacture complex pharmaceutical intermediates. Beyond pharmaceuticals and agrochemicals, a vast export opportunity emerges from the polymerization industry. The company’s entry into electrolyte manufacturing represents a transformative step, opening doors to distinct markets and product characteristics compared to its legacy business. The advantages include access to Japanese technology expertise, a critical role in battery manufacturing, early mover advantage, customer loyalty rooted in quality and customization, improved working capital efficiency, and a transition towards a marketing-driven approach. These strategic elements are expected to augment shareholder value and provide a competitive edge in the dynamic electrolyte market.

Future Expansion and Promising Projections 

Neogen Chemicals has further announced substantial capital expenditure plans, with the goal of expanding its electrolyte capacity to 5,000 Metric Tonnes, operational by June 2024. Simultaneously, the lithium electrolyte salts capacity will be increased to 1,000 Metric Tonnes, or 232 cubic meters, and will also be operational by the same date. In addition, the company is embarking on a greenfield expansion project, establishing facilities for electrolytes and lithium electrolyte salts at a new site dedicated to battery materials. This expansion includes an additional 5,000 Metric Tonnes of electrolyte capacity and an extra 1,000 Metric Tonnes (232 cubic meters) of lithium electrolyte salts, set to be operational by September 2025.

Neogen Chemicals remains steadfast in maintaining its revenue guidance, projecting revenues in the range of Rs 900-1,050 crore by FY25/26 in the Existing Business segment and Rs 1,000-1,200 crore by FY27 in the Battery Chemicals Business segment. The cumulative capital expenditure for these transformative projects is estimated at approximately Rs 450 crore, with the company’s Debt to Equity ratio expected to remain below 1.25x. 

In conclusion, Neogen Chemicals’ strategic share allotment and its diversified growth initiatives underscore its commitment to capitalizing on emerging opportunities in the dynamic world of speciality chemicals.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.