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IPO Note - Clean Science & Technology Ltd By Nirmal Bang
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Company Overview
Clean Science & Technology Ltd (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). It is among the few companies globally focused entirely on developing newer technologies using in-house catalytic processes, which are eco-friendly and cost competitive. This has enabled the company to emerge as the largest manufacturer globally of certain specialty chemicals. Some of these technologies have been developed and commercialized for the first time globally.
Details and Objects of the Issue
The full issue of Rs 1547 cr is Offer for Sale
Investment Rationale:
* Innovative process backed by R&D initiatives
* Diversified portfolio
* Global Leadership
* Strong relationships with customers
* Healthy Financials
Valuation and Recommendation
The tightening of environmental norms in China and the recent trade dispute between China and the United States has reduced Chinese exports and resulted in shifting the source of key raw materials from China to India.
The company has grown at a CAGR of 29% over FY18-21 which is fastest among the peer. The company started using anisole captively in FY18 and later introduced in-house developed vapor-phase technology in FY19. Both the factors helped the company in improving in margins. Further in FY20, it increased the capacity of anisole by 3x. the benefit of which was seen in FY21 as well. From FY18, CSTL managed to increase its EBITDA margins from 30.5% to 50.5% in FY21 and the management believes that there is no one-off in these margins, and are likely to continue in future as well. CSTL stands out among the peer group with robust ROE, fastest sales growth and one of the highest margins. Considering the healthy balance sheet, robust revenue growth and strong cash flow generations we have a positive view on the company. At upper band of Rs 900, the PE comes to 48.2x FY21 earnings, which looks attractive. We recommend “Subscribe”.
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