IPO Review - Clean Science and Technology Ltd - ICICI Direct

Incorporated in 2003, Clean Science and Technology manufactures critical specialty chemicals such as performance chemicals (MEHQ, BHA, AP), pharmaceutical intermediates (Guaiacol, DCC), and FMCG chemicals (4-MAP and Anisole). The company's products are used as key starting level materials, as inhibitors, or as additives, by customers, for products sold in regulated markets. Key customers include Bayer AG, SRF Ltd, Gennex Laboratories, Nutriad International NV and Vinati Organics. It has two certified production facilities with a combined installed capacity of 29,900 MTPA in India strategically in Kurkumbh (Maharashtra), in close proximity to the JNPT port.

Investment Rationale

Increase in capacity for existing/newer products bode well for future growth

The differentiation in the process manufacturing between Clean science and peers assisted company to offer products at competitive price and thereby helped it gain meaningful market share across its product portfolio. Going ahead, it plans to expand overall capacity of existing products, which should translate into improvement in the market share further. Moreover, it also plans to set up a fourth unit, which could have asset turn in the similar range of present business segments with decent OPM visibility. The management has not outlined any capex details yet. Thus, any announcement can improve revenue visibility further.

Healthy financial performance likely to sustain ahead

The company recorded revenue growth of 14% CAGR in FY19-21 supported by higher volume growth across the segments. With changes in the anisole manufacturing technology, it was able to improve gross margins, to a certain extent, and thereby OPM. Going ahead, with sustainability in gross margins along with better working capital management and operating leverage likely to play out, it can aid FCF considerably. In turn, this would help the company to incur capex from internal accruals. Since newer businesses should have better/similar RoCE, incremental cash can sustain group RoCE and thereby help it to demand better valuations ahead.

For details, click on the link below: Link to the report

Source : Equity Bulls

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