Neogen Chemicals Ltd made a stellar debut on stock exchanges on Wednesday, listing at over 22% premium over its issue price. The stock opened at Rs 251 on BSE and later rose to Rs 263.55, up 22.6% from the issue price of Rs 215. The Rs 132-crore initial public offer (IPO) was oversubscribed by 41.18 times.
Neogen Chemicals IPO was open for subscription from 24 April to 26 April in a price band of Rs 212-215 per share. The company is a manufacturer of bromine-based and lithium-based speciality chemicals. The company has posted compounded annual growth rate (CAGR) of 20% in revenue and 30% in profit in the last five years.
The net proceeds from the fresh issue were proposed to be utilised for prepayment or repayment of loans, long-term working capital and general corporate purposes.
Most of the brokerages were suggesting avoiding the issue given its high valuation. Choice Broking said at the higher price band of Rs 215 per share, Neogen Chemicals 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. It also said that since the IPO size is lower than Rs250 crore, the shares will be listed in T-group, thereby restricting price movements in the stock.
Dalal Street Investment Journal said, “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.”
However, Anand Rathi advised investors to ‘subscribe’ to the IPO. It believed the higher multiple was justified given the company’s ability to grow profitably and command better return ratios.
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