IPO Note - Clean Science and Technology Ltd By Choice Broking
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Salient features of the IPO:
* Clean Science and Technology Ltd. (CSTL), incorporated in 2003, is among the few companies globally focused entirely on developing newer technologies using in-house catalytic processes which are ecofriendly and cost competitive.
* Within 17 years of incorporation, the company has grown to be the largest manufacture globally of MEHQ, BHA, Anisole and 4-MAP in term of installed capacity.
Valuation:
At the higher price band of Rs900, the issue is valued at P/E of 48.2x on FY21 EPS.
Below are a few key observations of the issue:
* CSTL, incorporated in 2003, is among the few companies globally focused entirely on developing newer technologies using in-house catalytic processes resulting in lower effluent generation.
* Through its superior R&D and technical expertise, CSTL has developed in-house catalytic technology. The company developed unconventional processes by employing clean technologies to manufacture speciality chemicals at global scale capacities, which the company believes difficult to replicate and create significant barriers for new entrants. For instance, CSTL manufactures sulphur-free BHA and sulphur-free DCC.
* CSTL has a diversified product portfolio serving critical end-user industries. The company operates under three segments include 1) performance chemical 2) pharmaceutical intermediates and FMCG chemicals.
* Performance chemicals segment accounted for 69.2% of operating revenue for FY21 and consists three products MEHQ, BHA and AP. Under pharmaceutical intermediate segment, which represents 16.2% of revenue, CSTL manufactures Guaiacol and DCC. Chemicals namely 4-MAP and Anisole are included in FMCG segment which accounted for 12.3% for operating revenue in FY21.
* The company has grown to be the largest manufacture globally of MEHQ, BHA, Anisole and 4-MAP in term of installed capacity.
* As per the mgmt, the company has incurred lot of catalytic transformations over the years, which is very rare to Indian chemical industry. The process involves usage of a catalyst ‘a unique chemical’ which if made correctly use properly in manufacturing can result in desired product, reduce impurity, by-products and effluents. In 2009, CSTL used this technology for manufacturing MEHQ and Guaiacol using Anisole as the starting material (key strategic raw material). In 2011, the company produced another key chemical product 4-MAP with Anisole as the staring material in the process. CSTL manufactured high margin product BHA using as MEHQ though forward integration process.
* As Anisole became key strategic raw material for the company, CSTL employed vapour phase technology (from liquid phase technology), first time in globally’ which is more efficient with only water as effluent. Usages of this technology has streamlined the operating process and thereby providing a boost to margin and profitability.
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