About the company:
Clean Science and Technology is the latest among the slew of IPOs to hit the market this week. The company is coming out with an offer for sale aggregating to Rs. 1546.62 crore. The price band has been set between Rs. 880 to Rs. 900 per share for a lot of 16 shares. Post the issue, the implied market capitalization of the company is expected to stand between Rs. 9,347 and 9,560 crores based on the lower and upper price bands, respectively. Currently, the promoters hold 94.65 percent of the shares. Post listing the shares held by promoters will be diluted to 78.51 percent.
Company Overview:
Clean Science and Technology Ltd (CSTL), incorporated in 2003, manufactures functionally critical specialty chemicals such as Performance Chemicals, Pharmaceutical Intermediates and FMCG Chemicals. The specialty chemicals manufactured by the company are used as key starting level materials, inhibitors or additives by customers from different industries. Key customers include Bayer AG, SRF Ltd, Gennex Laboratories Ltd, Vinati Organics and Nutriad International NV.
Financial Snapshot:
|
(in Rs.
Crore)
|
FY19
|
FY20
|
FY21
|
3 - year CAGR
|
|
Revenue
|
393.3
|
419.3
|
512.4
|
14.2%
|
|
EBITDA
|
147.6
|
196.2
|
284.6
|
24.5%
|
|
EBITDA Margin
(%)
|
37.5%
|
46.8%
|
55.5%
|
-
|
|
PAT
|
97.7
|
139.7
|
198.4
|
42.5%
|
|
PAT Margin (%)
|
24.8%
|
33.3%
|
38.7%
|
-
|
|
EPS
|
9.19
|
13.15
|
18.68
|
26.67%
|
|
ROE
|
35.9%
|
40.8%
|
36.8%
|
-
|
|
ROCE
|
50.8%
|
58.5%
|
73.9%
|
-
|
|
EV/EBITDA
|
1.93x
|
1.80x
|
2.02x
|
-
|
|
Debt/Equity
|
0.01x
|
0.01x
|
0.00x
|
-
|
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Revenue grew at 14.2 percent CAGR over the last three years. This growth is completely organic and is more on account of volume rather than value. EBITDA and PAT margins have also improved consistently, making it one of the most profitable specialty chemicals maker globally. The company’s efforts to improve production efficiency through R&D and backward integration of a strategic raw material has ensured improvement in profitability.
The company has provided consistently better returns to capital providers by posting an ROE of 36.8 percent and ROCE of 73.9 percent, the highest return ratios among its direct competitors. Moreover, the company has zero debt and plans on maintaining this status as of now.
Products Overview:
The products manufactured by the company have a wide range of applications in different industries. The following table briefly describes the key products, their application, ranking and key peers:
Manufacturing & R&D Facilities:
The company currently has two manufacturing facilities strategically located at Kurkumbh, Maharashtra, in close proximity to the JNPT port with a combined capacity of 29,900 MTPA. CSTL has also recently set-up a third manufacturing facility that is being constructed adjacent to the existing facilities at Kurkumbh. Recently, land was acquired for a fourth facility. The entire capex was funded by internal accruals. Captive solar plants with a capacity of 5.42 MW as on March 31, 2021 meet a part of their power requirements, which improves cost efficiencies and results in better utilization of resources.
CTSL’s competitive position in the industry is mainly on account of cost-efficiencies and R&D improvements. It has two R&D units within the premises of their manufacturing facilities and intends to expand its capabilities by setting up a dedicated R&D unit at the third facility. R&D has led to identification, design and customization of catalysts that are utilized across processes in order to improve yields, reduce effluents and increase cost competitiveness. However, expense on R&D related assets comprised of a mere 0.13 percent, 0.18 percent and 0.18 percent of revenue from operation in FY19, FY20 and FY21, respectively.
Strengths:
-Track record of strategic process innovation through consistent R&D initiatives.
-Among the largest producers globally (in terms of manufacturing facilities) of functionally critical specialty chemicals.
-Strong and long-standing relationships with key customers. Some of the customers have been associated with the company for over 10 years.
-Strong and consistent financial performance in the last three years.
-Clean Balance sheet with sturdy cash flows which help in expansion and growth.
-Dedicated production lines for key products, automated manufacturing facilities and captive solar power plants has enabled CSTL to limit losses and capacity reduction as well as boost profitability.
Conclusion:
TSL has a P/E at par with Camlin Fine Sciences, its closest competitor, but provides superior returns to its shareholders as compared to peers. Moreover, the company is a market leader, debt-free and exhibits strong financial health which makes it a good buy at the price offered.
Thus, we recommend investors who are looking for listing gains to subscribe to the IPO.
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