Shares of Neogen Chemicals have underperformed in the last six months, but analysts at HDFC Securities think the stock can turn things around in the coming 12 months.

The Neogen Chemicals Analyst: The Nilesh Ghuge-led analyst team at HDFC Securities maintained the “buy” rating for the stock raising the price target to ₹2,127 from ₹2,114. The revised target reflects a 67% upside from the stock’s last closing price of ₹1,267.20.

The Neogen Chemicals Thesis: The brokerage said that the company’s December quarter performance was affected by initial expenses in the battery chemical business and the one-time impact of liquidating high-cost inventory in both the subsidiary and parent company. This led to increased raw material costs, with an additional ₹4.5-5 crore in BuLi chemicals and ₹2.5 crore in the standalone entity.

However, the analysts remarked that despite facing challenges such as softening product prices and global headwinds like inventory destocking and market slowdowns in regions like the EU, Neogen Chemicals managed to achieve revenue growth, reporting ₹164.4 crore.

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The analysts said that despite the underwhelming Q3 results it remains positive on the stock because of four reasons. Firstly, the company’s strategic entry into the new-age electrolyte manufacturing business. Secondly, the growing contribution of the high-margin CSM (Custom Synthesis and Manufacturing) business to revenue.

Additionally, the capacity-led growth momentum in the legacy business underscores the company’s ability to scale operations efficiently and meet growing market demand. Lastly, anticipated improvements in return ratios and a robust balance sheet are also a big positive.

Price Action: Neogen Chemicals’ share price was up 2.97% to trade at ₹1,304.80 in early trade on Wednesday.

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