Clean Science & Technology Ltd. - IPO - Healthy Growth Prospects with Reasonable Valuations - Reliance Securities

About the Company

Clean Science & Technology Ltd. (CSTL), incorporated in 2003, is among the few global companies focused on developing newer technologies using in-house catalytic processes, which are eco-friendly and cost-effective. This has enabled CSTL to emerge as the largest global manufacturer of certain specialty chemicals in terms of installed capacities as of 31st Mar'21. CSTL manufactures functionally-critical specialty chemicals such as performance chemicals (i.e. MEHQ, BHA and AP), pharmaceutical intermediates (i.e. Guaiacol and DCC) and FMCG chemicals (i.e. 4-MAP and Anisole). CSTL's specialty chemicals have a wide range of applications across diverse industries globally. The company has 2 certified production facilities in India at Kurkumbh near the JNPT in Maharashtra. Each facility has an on-site R&D unit, quality control department, warehouse and effluent treatment system that treats effluent to make them zero liquid discharge (ZLD) units. CSTL's facilities have dedicated production lines for its products with a combined installed capacity of 29,900 MTPA with capacity utilization rate of 72% in FY21.

Financials in Brief

CSTL's financial performance has been impressive over the years on the back of strong traction in specialty chemical segment and consistent improvement in margin. While its consolidated revenue and EBITDA recorded 14% and 38% CAGR, respectively through FY19-FY21, its net profit recorded 43% CAGR during the same period. Notably, its EBITDA margin has improved remarkably from 24.8% in FY19 to 38.7% in FY21. Further, it has been maintaining a strong balance-sheet with D/E and D/EBITDA of -0.03x and -0.06x, respectively as of FY21-end. Further, its working capital cycle remains comfortable in the range of 47 days in FY21. Additionally, the company has generated cumulative OCF and FCF of Rs4.4bn and Rs2.6bn, respectively over FY19-FY21.

Our View: SUBSCRIBE

The IPO is valued at 42.2x of FY21 earnings, which looks to be reasonably priced. However, peers like Vinati Organics and Fine Organic trade at ~75x FY21 earnings, which offers valuation comfort for CSTL. We note CSTL's RoE at 37% is superior to its peers, which along with healthy asset turnover ratio at 3.8x FY21 (at utilization of 72%) and better OCF yield offer an edge. Further, strong growth prospects for domestic specialty chemical manufacturers on the back of China+ One strategy may eventually aid CSTL to sustain strong earnings momentum, going forward. Hence, we recommend SUBSCRIBE to the IPO.

Link to the report

Source : Equity Bulls

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