Neogen Chemicals Limited (NCL) shares were trading up over 8% ₹1,190 per share on the BSE in early deals on Wednesday, the stock registered a rise of nearly 24% in the last five trading sessions. planning chemistry Technocrat is a leading manufacturer of bromine and lithium-based derivatives in India with promoters.
Brokerage firm HDFC Securities believes that the improvement in the share of Custom Synthesis Manufacturing (CSM) and Advanced Intermediates will result in strong balance sheet and visible earnings visibility of the company.
“Tripling its organic chemistry manufacturing capacity will not only allow it to meet the commitments of two long-term contracts, but will also provide flexibility in the selection of new molecules. The capacity expansion will accelerate the pace of growth, which was earlier curtailed by limited infrastructure,” the brokerage said in a note on Tuesday. It has started coverage on the stock with a buy rating and has a target price of Rs. ₹1,220 per share.
HDFC Securities expects ROCE to expand from 11.3% in FY11 to 16.6% in FY14, driven by improvement in profitability. It also expects the working capital cycle to improve with reduction in inventory days.
“The capacity of organic chemicals will increase from 1,30,400 liters to 3,90,000 liters with the commissioning of the ongoing expansion project by October-21. Post this expansion, sufficient capacity will be available with NCL to meet the commitments made in two long term contracts which are expected to be signed in the near future.
Neogen Chemicals has over 40 acres of freehold land available for future expansion in Dahej and Vadodara. At this point in time, it has invested in capacity building, and henceforth it is time for the chemical company to tap new customers and enter more industries and markets, HDFC Securities said in the note.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.
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