Neogen Chemicals IPO Opens. Should You Subscribe?

Neogen Chemicals' IPO or initial public offer open for subscription on Wednesday. Mumbai-based Neogen Chemicals aims to raise up to Rs 132 crore from the IPO, which comprises a fresh issue of shares worth Rs 70 crore and an offer for sale (OFS) worth Rs 62 crore, according to the company's red herring prospectus filed with market regulator Sebi. Neogen Chemicals is a manufacturer of bromine- and lithium-based specialty chemicals. Neogen Chemicals was founded by HT Kanani, a chemical engineer from IIT Mumbai, according to the company's website.

Here are key things to know about the Neogen Chemicals IPO:

Neogen Chemicals IPO - Important dates

The Neogen Chemicals IPO will remain open till Friday, April 26.

Neogen Chemicals IPO - Price band

The chemicals manufacturer has set a price band of Rs 212-215 for the IPO.

Neogen Chemicals IPO - Lot size

The Neogen Chemicals IPO can be subscribed in lots of 65 shares. At the lower end of the price band, a lot will cost the investor Rs 13,780.

Neogen Chemicals IPO - Fund utilization

The company aims to utilize the proceeds towards repayment of borrowings, early redemption of fully redeemable cumulative preference shares and long-term working capital.

Neogen Chemicals - company profile

Neogen Chemicals commenced business operations in 1991, at its manufacturing facility in Mahape, Navi Mumbai. Over the years, the company has expanded its range of products, which find application across various industries within the country and abroad. As of February 28, 2019, Neogen Chemicals has manufactured an aggregate of 198 products comprising 181 organic chemicals and 17 inorganic chemicals, according to its red herring prospects.

Neogen Chemicals - risk factors

Here are some of the risk factors listed by Neogen Chemicals in its red herring prospectus with Sebi:

The chemicals manufacturer is heavily reliant on demand from application industries such as pharmaceuticals, agrochemicals, refrigeration and construction chemicals. Any downturn in the application industries could have an adverse impact on Neogen Chemicals' business.

Neogen Chemicals does not have long-term agreements with suppliers for raw materials and an increase in cost or shortfall the supply could have an adverse effect on the company's business.

Neogen Chemicals is heavily reliant on certain customers and  a significant part of its revenue is generated from select clients. The company does not have long-term contracts with these customers.

Should you subscriber to Neogen Chemicals IPO?

Brokerage Anand Rathi has assigned a “subscribe” rating to the Neogen Chemicals IPO. “At the higher end of the issue price, the stock is valued at around 20.1 times FY18EV/EBITDA and around 47.8x P/E,” Anand Rathi said in a note. The higher multiple is justified given the company's ability to grow profitably and command better return ratios, according to the brokerage.