The initial public offering (IPO) of Neogen Chemicals Ltd (NCL) is opening today for subscription. The Rs 132 crore IPO has been priced at Rs 212-215 per share. The issue is a combination of fresh issuance of shares and offers for sale (OFS). The promoter currently holds 95.79% stake in the company, which will subsequently come down to 70% post IPO. Public holding will increase from the current 4.21% to 30%. If you are considering subscribing to the Neogen IPO, please read what these five market experts are saying about the issue.
Choice Broking: At the higher price band of Rs 215 per share, NCL’s share is valued at a P/E multiple of 47.8x (to its restated FY18 EPS of Rs 4.5), which is at a premium to its peer average of 38.8x. However, considering its historical growth profile, proposed expansion activities and the demanded valuations we feel that the issue is fully priced. Thus we assign a ‘'avoid’ rating for the issue. The issue size is lower than Rs 250 crore, the shares will be listed in T-group. Hence, there will be some restrictions on price movements.
SP Tulsian: Other than planned doubling of capacity in the future, there is no attraction in the issue – the small scale of operations, slim margins, high debt, poor working capital management, aggressive pricing and a ‘small cap’ tag. Given better opportunities in the listed space (even when the market is at all-time high levels), this issue is best avoided.
Dalal Street Investment Journal: At the higher price band of Rs215, the offer is demanding market cap to sales (FY18) of 3 times, which is lower than that of Paushak (almost 6 times) and equal to that of Atul Industries (3.14 times). In terms of PE, the offer is made at around 30 times after annualizing its 9MFY19 EPS and post-dilution of equity. This is in line with other listed peers and but expensive compared to some larger players.
Looking at the weak balance sheet along with fair valuation, we believe that nothing is left in the table for subscribers and hence it is risky to invest in the issue.
Dilip Davda: Neogen has created a niche place in the bromine and lithium product segment. The issue appears fully priced on the basis of given financial data. As the company is now in fast forward mode with enhanced capacities, it holds a promising future. Considering these aspects, investors may consider investing in the long term.
Anand Rathi: The brokerage advises investors to ‘subscribe’ to the IPO. They believe the higher multiple is justified given the company’s ability to grow profitably and command better return ratios. Risks are slow growth in underline sectors such as pharma, high working capital intensity and high debt, great dependence on certain customers.
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