Neogen Chemicals Limited.

Market Leader:
Neogen Chemicals is the market leader in Bromine chemistry and manufactures organic chemical compounds – Bromine compounds and other organic compounds containing chlorine, fluorine and iodine-based and combination – used in application industries such as pharmaceutical, agrochemical, flavour and fragrance and electronic chemicals.

Besides, it makes inorganic chemicals primarily comprising Lithium compounds. These compounds are used in vapour absorption machines (VAM) and in heating ventilation and air-conditioning (HVAC) and refrigeration, construction chemicals, pharmaceutical and specialty polymer. Organic chemicals account for 60-70 per cent of the company’s revenues while the rest comes in from inorganic chemicals.

In addition to manufacturing its standard products, the company also undertake custom synthesis and contract manufacturing. In custom synthesis the product is developed and customized primarily for a specific customer, but process know-how and technical specifications are developed in-house. Further, the company has, more recently, also commenced contract manufacturing where, the product is developed under confidentiality for a single customer using the process know-how and the technical specifications provided by the customer. Contract manufacturing has enabled us to increase bouquet of product offering.

Large variety of products:
Neogen started operations in 1991 manufacturing 4 products viz., lithium bromide, n-propyl bromide, potassium bromide and meta-phenoxy benzaldehyde. As of September 30, 2018, the company have manufactured an aggregate of 187 Products comprising 170 organic chemicals and 17 inorganic chemicals. Of these, our Product bouquet comprises:

• 125 Bromine Compounds;
• 10 Lithium Compounds;
• 28 non-bromine specialty chemical compounds comprising 21 organic specialty chemical compounds;
• 24 types of Grignard reagents.

Specialized business model with high entry barrier:
The specialty chemicals industry is highly knowledge intensive. Products are used for specialty applications in the pharmaceutical, agrochemical, aroma chemical, construction chemical, specialty polymer and electronic-chemical industries where they are used to manufacture high value proprietary and specialized products. Given the nature of the application of products, the processes and products are subject to, and measured against, exacting quality standards and stringent impurity specifications. Further, where these products are used has been formally recognized in filings with regulatory agencies, any change in the vendor of the product may require significant time and cost for the customer. These factors create significant entry barriers.

Moreover, some of the chemicals that the company use such as bromine, fluorine and lithium are highly corrosive and toxic chemicals. Therefore, handling these chemicals requires a high degree of technical skill and expertise, and operations involving such hazardous chemicals ought to be undertaken only by personnel who are qualified and proficient. We believe that the level of technical skill and expertise that is essential for handling such chemicals can only be achieved over a period creating further barrier for new entrants.

Established and stable relationship with suppliers:
Consistent track record of business growth over the years and repeated business from existing customers has enabled Neogen to develop long standing relationship with its suppliers. The company have relationship of over a decade with large producers of Bromine Source and Lithium Source. Based on its relationships with its suppliers the company can enter into annual contracts thereby offering stability in pricing to its customers. Also, during times of shortages, they are ensured of continuous supplies at competitive rates and hence productivity and commitment to customers is not affected even under such difficult situations.

Further, due to large volume of annual contracts the company is also able to negotiate attractive pricing as compared to our local competitors which gives them a competitive advantage.

Expanding production capacities:
The company over the years have increased its production capacities through organic and inorganic growth. Set out below is a table depicting the growth of our capacity for the production of organic chemicals at Mahape Facility.

Further, in Fiscal 2016, the company acquired the Vadodara Facility for augmenting our organic chemicals manufacturing capability. Presently, it proposes to further increase manufacturing capacity at Vadodara facility by an additional 126,000 litres (reactor volume in litres) which will nearly double organic chemicals manufacturing capacity from 130,400 litres to 256,400 litres.

Further, Vadodara Facility is spread over approximately 39 acres and on completion of the Proposed Vadodara Facility it will still have over 32 acres of freehold land which we can use for further growth and expansion.

In addition, the company also propose to set up the Proposed Dahej Facility, a green-field manufacturing facility for manufacturing inorganic chemical products. When completed the Proposed Dahej Facility will increase inorganic chemicals manufacturing capacity by 1,200,000 kg per annum, which will double total inorganic specialty chemical manufacturing capacity. The Proposed Dahej Facility is expected to cater to the anticipated increase in demand for lithium compounds.

We believe that the Proposed Vadodara Facility and the Proposed Dahej facility will enable significantly increase product offering and will also benefit from the economies of scale.

Increasing contract manufacturing portfolio:
Contract manufacturing business will enable the company to enter into long term contracts with assured margins and product off-take which will helps them to strengthen repeat business year on year. At present, the company has entered into contract manufacturing arrangements with a few international companies, who are engaged in the pharmaceutical, agrochemical, aroma and specialty polymer industries and Neogen has already delivered products under some of these arrangements.

Neogen aims to increase the size and scale of contract manufacturing business over the next few years. The company is in discussions with various companies in Europe and Japan to develop their proprietary products for which have already executed nondisclosure and secrecy agreements. Further, they also propose to increase focus on custom synthesis business by augmenting the share of their business with innovator companies.

Focus on advanced specialty intermediates which offer higher value addition:
Over the last few years Neogen has been focusing not only on manufacturing Bromine Compounds but also combining bromination with other chemistries to make advance intermediates which otherwise would have been manufactured by its customers internally. Such forward integration allows customers to reduce processing at their end freeing up their specialized capacity for making final molecules such as APIs, specialty polymers, electronic chemicals etc. Such forward integration enables the company to offer higher value addition and generate higher margin and increased profitability. We believe that with proposed augmentation in capacity would be able to cater to the increasing demand for such advanced intermediates.