Neogen Chemicals Ltd. - Agro Chemical & Pharma based theme

Neogen Chemical Ltd - Company Overview & Indian Chemical Industry Synopsis

Twitter Handle: @shuchi_nahar

Company Overview

India’s one of the largest manufacturers of Bromine-based compounds, Inorganic Lithium Salts, which mainly find applications in Pharmaceutical, Agrochemical, Specialty Polymer, Heating, Ventilation and Air Conditioning (HVAC) and Flavors and Fragrance Chemicals. Operating since 1991 with strong portfolio of Organic and Inorganic products. 

Customers across multiple industries including Pharma, Engineering, and Agrochem Key export geographies include the USA, Europe, Japan and Middle East Growing contribution from Custom Synthesis and Contract Manufacturing Executing Brownfield manufacturing capacity expansion Promoters are pioneering technocrats with substantial domain expertise cumulative experience of more than six decades Developed strong R&D capabilities with dedicated in-house team.

Source: Neogen Chemical AnnualReport & Investor Presentation

Company has a product portfolio of 205 products comprising 188 Organic chemicals and 17 Inorganic chemicals. Its specialty chemicals product offerings are used in pharmaceutical and agrochemical intermediates, engineering fluids, electronic chemicals, polymer additives, water treatment, construction and aroma chemicals, flavors and fragrances, specialty polymers, Chemicals and Vapor Absorption Chillers – original-equipment manufacturers.

In addition to manufacturing specialty chemicals, Neogen undertakes custom synthesis and contract manufacturing. This includes developing a product and customizing it primarily for a specific customer, with the process know-how and technical specifications, developed in- house.

Source: Neogen Chemical AnnualReport & Investor Presentation

85% Revenue – Agro and Pharma

Company is focused on working with new customers in the agro and pharma segment bearing fruit, as the company gains newer opportunities for molecules with tremendous business potential, stable revenue projections, and better margin profiles. Almost 85% of Neogen’s revenue is derived from pharma and agrochemical industries. specialty organic chemical compounds find use in application industries such as pharmaceutical, agrochemical, flavor and fragrance and electronic-chemical.

Source: Neogen Chemical AnnualReport & Investor Presentation

Neogen market and sell their products in India and export our products primarily to Europe, the USA, and Japan. Advanced intermediaries combine bromination with other chemistries to create forward integrated value-added products to be used as intermediates for manufacturing of Active Pharmaceutical Ingredients (API), Agrochemical Active Ingredients (AI) and other Specialty Chemicals like Aroma Chemicals Polymer Additives etc.

Capacity Expansion - Capturing future demands

In light of higher demand from exports for lithium-based products, Neogen undertook the expansion of its Inorganic Lithium salt manufacturing capacity at the site in SEZ at Dahej with a land area of approx. 50,000 m. Executing Brownfield manufacturing capacity expansion, Neogen has also invested in setting up of a large plant for manufacturing of Advanced Intermediates at Dahej. 

Neogen commissioned its greenfield manufacturing unit for inorganic chemicals at Dahej SEZ in February 2020. Neogen also received new customer approval for Lithium salts and has already started exporting from the plant.

Capacity in Phase - I is going to be Rs. 500 crore capacity of which, the original target was to achieve Rs. 450 crore in FY22. Two Long-term contracts for innovative molecules, the company has signed with international customers.

Indian Chemical Industry – Upcoming Growth Ahead

India’s chemical industry is a global outperformer in returns to shareholders and remains an attractive hub for chemical companies. This outperformance has resulted in high expectations for sustained, continual growth of the industry’s top line and bottom line. The macro perspective on India indicates that while the short-term outlook is challenging, the country’s long-term growth story remains positive.

Specialty chemicals are a niche segment of relatively high-value low-volume chemicals, which are targeted at various applications in specific end-user industries. According to a recent report by Allied Market Research, the global specialty chemicals market was valued at USD 711.0 billion in 2019 and is estimated to reach USD 953.9 billion by 2027 - with a Compound Annual Growth Rate (CAGR) of 5.0%.

Increasing investible opportunities in India

According to McKinsey report  India’s trade flow in the chemical sector to identify and better understand investible themes in the domestic industry. Chemicals are a significant part of India’s overall trade flow, consistently ranking third in imports and fourth in exports for the past five years.

Today, India has a chemical trade deficit of USD 15 bn. Analysis of India’s chemical exports and imports, coupled with a review of opportunities emerging from global trends, suggests two investible themes:

1. Building self-sufficiency in petrochemicals to plug the domestic supply shortfall of 52% (by volume) in petrochemical intermediates: Six value chains make up around 77%  of this shortfall, creating an opportunity worth about USD 11 bn.
2. Ramping up exports in select areas, such as specialty chemicals, to obtain a larger share of global value. The chemical industry already contributes significantly to India’s trade volume. Capturing emerging opportunities in the near term could make a positive difference to Indian chemical companies and to the industry overall. Chemicals rank fourth in imports, after mineral fuels and oils, precious stones and metals, and electrical machinery, also with a 9% share.

India’s trade flow breakdown in 2018

Source: McKinsey Research Report

Indian Specialty Chemical Industry

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the specialty chemical industry in India had a market size of USD 35.9 billion in FY 2018-19. FICCI further projected a CAGR of 12%-14% for the specialty chemical industry to reach a market size of USD 59 billion by FY 2023-24. The specialty chemical industry contributes about 22% of the total chemical industry.

Source: Neogen Chemical AnnualReport & Investor Presentation

The industry has a domestic as well as an export market. India’s specialty chemical manufacturing sector with its availability of good academic talent, low operating overheads, better manufacturing and compliance standards, stringent environmental policy, availability of feedstock, and skilled labor can be the next preferred exporter for global players. 

Despite the current pandemic situation, the Indian chemical industry has numerous opportunities considering the supply chain disruption in China and trade conflict among the US, Europe, and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments.

Sources: Neogen Chemical Ltd. (Annual Report, Presentation)

Mckinsey Annual Report

IBEF

Disclaimer: The information provided on Shuchi Nahar’s Weekend Blog is for educational purposes only. The articles  may contain external links , references and compilation of various publicly available articles. Hence all the authors are given due credit for the same. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purpose only. 

Twitter Handle: @shuchi_nahar