For years, Neogen Chemicals has been known as a niche, high-return specialty chemicals player. But the company is moving from a pure-play specialty chemicals company to a critical supplier for the lithium-ion battery ecosystem.
₹1,500-Crore Bet on India’s EV Future
Neogen Chemicals is investing in the future. With a ₹1,500 crore capex plan, the company is setting up capacities for:
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32,000 MT of electrolytes
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5,500 MT of lithium electrolyte salts and additives
Why does this matter?
India’s EV battery market is projected to explode to 160 GWh by FY30. Translating that into chemistry:
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Electrolyte demand will exceed 150,000 MT
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Lithium electrolyte salt demand will be in the 15,000–22,500 MT range
Two global tie-ups catapult Neogen into the league of world-class battery chemical producers:
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Licensing deal with MU Ionic Solutions (Japan) — the gold standard in electrolyte technology.
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Joint venture with Morita Chemicals — pioneers in LiPF₆ production, the single most critical lithium salt for batteries.
These partnerships deliver:
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Proven, cutting-edge technology
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Strong safety systems
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Faster customer approvals, including international players
This de-risks execution and gives Neogen an enviable first-mover advantage in India.
Built-In Economics: Formula Pricing + High ROCEs
Neogen is designing the business model to protect returns. Formula-based pricing shields margins from raw material volatility, and management is targeting ~20% pre-tax ROCE from the battery venture itself.
With long-term customer contracts likely over the next 12–18 months, the company could be looking at ₹2,500–₹2,950 crore in peak revenues with 16–18% EBITDA margins.
Advanced Intermediates & CSM
While the battery story grabs headlines, Neogen’s Advanced Intermediates (AI) and Custom Synthesis Manufacturing (CSM) remain its profit engines:
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CSM currently contributes 14–15% of revenues
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Advanced Intermediates + CSM = ~30% of FY25 sales
Management aims for both CSM and Advanced Intermediates to individually reach 20% of the non-battery business — bringing their combined contribution to 40%.
These two segments are higher-margin, IP-driven businesses, creating a stable foundation under the battery chemicals growth.
Margin Expansion:
If Neogen executes well, this mix shift toward AI and CSM could lift EBITDA margins above 20%
The Investment Case
Neogen Chemicals is no longer just a specialty chemical maker — it’s becoming a critical enabler of India’s clean energy transition, with a base business that’s still growing and a transformative, high-margin battery chemicals arm being built from scratch.
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Structural Growth: EV battery demand rising exponentially
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Global Tech Partnerships: Instant credibility + safety + speed
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Protected Returns: Formula pricing + targeted ~20% ROCE
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Optionality: Base chemical business margin uplift beyond 20% EBITDA
Neogen’s strategic moves—such as the acquisition of BuLi Chem and the JV with Morita Chemicals—reflect a clear push towards backward integration into key lithium intermediates like lithium metal handling, N-Butyl Lithium, and LiPF₆. This reduces dependency on third-party suppliers for critical raw materials, ensures supply chain reliability, improves gross margin stability, and deepens process-level IP.
More importantly, it aligns perfectly with Neogen’s plans to scale battery-grade electrolyte solutions, enabling end-to-end control from lithium salts to finished electrolyte formulations—a rarity among domestic peers.
|
Rs in Cr |
FY25 | FY26E | FY27E | FY28E | FY29E | 4 YR CAGR |
| Sales | ₹ 778 | ₹ 1,100 | ₹ 2,300 | ₹ 3,320 | ₹ 4,400 |
54% |
|
Expenses |
₹ 641 | ₹ 902 | ₹ 1,886 | ₹ 2,722 | ₹ 3,608 | |
|
Operating Profit |
₹ 136 | ₹ 198 | ₹ 414 | ₹ 598 | ₹ 792 |
55% |
| OPM % | 18% | 18% | 18% | 18% |
18% |
Valuation
With multiple growth levers—such as battery chemicals, advanced intermediates, and custom synthesis—coming into play, we estimate Neogen’s Revenue and EBITDA to grow at a CAGR of 54% and 55% respectively over FY25–FY29E. While the stock currently trades at ~33x TTM EV/EBITDA, applying conventional valuation multiples to a business with non-linear growth potential and proven execution capabilities can be misleading.
Overemphasis on short-term valuation metrics risks missing out—or exiting too early—from businesses that could be long-term compounders. In our view, Neogen is evolving into one of those rare category creators where patience and vision may be more rewarding than price anchoring.
ROCE Recovery Key to Re-rating Potential
Neogen’s ROCE has moderated to single digits (~9%), down from historically robust levels of 20%+, primarily due to the ongoing capex cycle and ramp-up in new segments like battery chemicals.
However, we believe margin expansion, operating leverage, and higher asset turnover will drive a meaningful ROCE recovery over the next few years. As ROCE moves back into double digits, the case for valuation re-rating strengthens significantly, especially given the non-linear growth potential and strong execution track record.
Key Financial Summary
COMPANY BACKGROUND
NEOGEN is one of India’s leading manufacturers of bromine-based and lithium-based specialty chemicals which go into a host of end-user industries like pharma, agrochemicals, engineering liquids, electronic chemicals, aroma chemicals, flavours and fragrances, specialty polymers and cooling medium.
With a marquee set of customers that includes global innovators, Neogen is consistently moving up the technical curve through its R&D initiatives, particularly in the organic chemical segment. The company is slowly transitioning into a manufacturer of products with complex chemistry, with custom synthesis and manufacturing services, which allows Neogen to solve complex customer problems, build stickier relationships, and command higher margins.
Neogen Key customer
Maintaining consistent quality remains paramount given that its products find use in regulated industries. This plays a key role in maintaining sticky customer relationships. Around 50% Neogen’s customers have been with the company for more than a decade, while 75% revenue is from those who have been purchasing from it for more than 5 years.
Key Risks
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Execution Risk: Delays or cost overruns in ₹1,500-crore battery chemicals capex could dent margins and ROCE recovery.
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Technology/Approval Risk: Battery electrolyte qualification with OEMs may take longer than expected, delaying revenue ramp-up.
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Raw Material Dependence: Lithium and other critical inputs still rely on global supply chains, vulnerable to price and geopolitical shocks.
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Customer Concentration: Heavy exposure to a few large pharma/agro clients increases dependency.
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Regulatory & Safety Compliance: Stricter environmental or safety norms could raise costs or slow expansion.
