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A Pioneer in in-house specialty chemical manufacturing…

Clean Science and Technology Ltd (CSTL), incorporated on November 7, 2003 in Pune, Maharashtra is one of the fastest growing and among the most profitable specialty chemical manufacturing companies globally, with innovative chemical processes developed in-house. CSTL manufactures functionally critical specialty chemicals such as Performance Chemicals, Pharmaceutical Intermediates and FMCG Chemicals. CSTL has two manufacturing facilities in India located at Kurkumbh (Maharashtra), with a combined installed capacity of 29,900 MTPA and capacity utilisation rate of 72% in FY21.

* The overall market for specialty chemicals is valued at US$ 800 billion in 2019 and is expected to record a growth rate of 5% to 6% over the next five years. 

* As of FY21, CSTL has emerged as the largest manufacturer globally of certain specialty chemicals (like MEHQ, BHA, Anisole etc.) in terms of installed manufacturing capacities.

* Enjoys strong customer base with key customers like Bayer AG, SRF Ltd, Vinati Organics Ltd, etc. As of FY21, ~48% of revenue is contributed from its top 10 customers.

* Revenue and PAT grew at a CAGR of ~14% and ~43% over FY19-FY21 backed by increase in exports, rise in demand for specialty chemicals and better operating performance.

* CSTL enjoys superior EBITDA margins (~51%) and PAT Margins (~39%) in FY21 led by economies of scale, competitive pricing, in-house capabilities, and adoption of cost optimisation techniques.

* The company has a healthy balance sheet with D/E ratio of 0.1x as of FY21. Moreover, the return ratios RoE and RoCE remain healthy at ~38% & ~26% (3-year Avg.).

* CSTL is well positioned to capitalize on opportunities in specialty chemical sector backed by its process innovation, catalyst development, significant scale of operations & strategic backward integration.

* At the upper price band of Rs.900, CSTL is available at a P/E of 48x (FY21) which appears to be fully priced in. However, we assign a “Subscribe” rating for the issue on a long-term basis considering its technical expertise, process innovation, consistent focus on R&D, positive industry outlook, superior margin profile and healthy return ratios.

Purpose of IPO

At the upper price band, total issue size stands at Rs 1,547cr. The issue consists of only offer for sale (OFS), wherein the promoters and existing shareholders will dilute 10.62cr shares of the company. The prime purpose of the issue is to enhance visibility, brand, provide liquidity to existing shareholders and achieve the benefits of listing shares on stock exchanges.

Key Risks

* As of FY21, Top 10 customers contribute ~48% of total revenue. However, CSTL intends to grow its customer base by expansion plans & product diversification going ahead.

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