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New product launches ramping up steadily

Clean Science’s 4QFY24 earnings print was better than our and consensus expectations. During the quarter, reported EBITDA was ~4%/3% higher than JMFe and consensus on account of robust volume growth. Going forward, volume recovery in the base business is likely to continue. This along with ramp-up of HALS series of products along with new pharma intermediate should result in a 35% sales growth in FY25. For FY26 and FY27, higher utilisation of the HALS unit along with contributions from 2 new performance and pharma intermediate chemicals are likely to drive 32% sales CAGR over FY24-27E. Even after assuming EBITDA contraction from 42% in FY24 to 40% in FY25 and 38% in FY27, company would still be able to post a 29% EBITDA/EPS CAGR over FY24-27E. In fact, in order to achieve our FY25 EBITDA estimates, company will only need to do additional INR 460mn of EBITDA on 4QFY24 annualised run-rate. In case there is a pick-up in product prices, there could be an upside risk to our estimates while any delay in new product approvals could be a downside risk to our estimates. We maintain BUY with a revised Sep’25 TP of INR 1,765 (from Mar’25 TP of INR 1,805 earlier).

* EBITDA beat on account of higher sales: Clean Science's 4QFY24 consolidated gross profit, of INR 1.5bn was 10% above JMFe, (up 15% QoQ while down 2% YoY) as revenues were 6% higher than JMFe and stood at INR 2.3bn (up 17%/5% QoQ/YoY) and gross margin of 65.7% was higher than JMFe of 63.5% (and down from 66.8% in 3QFY24). During the quarter, other expenses were higher at INR 415mn (vs. JMFe of INR 340mn and INR 319mn in 3QFY24). As a result, EBITDA came in 4%/3% above JMFe/Consensus at INR 945mn (up 9% QoQ while down 10% YoY). Further, PAT was 9% above JMFe and stood at INR 703mn (up 12% QoQ while down 13% YoY).

* Additional HALS series of products to start ramping up in FY25; >INR 1.5bn capex in FY25: During the quarter, sequential revenue growth was on account of higher volumes. Moreover, company’s HALS 701 and 770 are currently are receiving good response. In fact, for 770, company has achieved a run-rate of 100MT/month and wants to take this run-rate to 200MT by Mar’25 (India imports ~200-220MT/month). Further, for 701, company intends to achieve a 100MT/month over the next 3-5 months (where it is the first manufacturer outside China). On unit 4, it was indicated that 3,000MT (~30% of the capacity) of HALS series (622, 944, 119, 2020) is expected by FY25. On top of this, revenue contribution from INR 300mn capex for pharma intermediate will commence from Sep’24. Additionally, company will incur INR > 1.5bn for two performance chemicals which are currently at pilot stage. ? Expect 29% EPS CAGR over FY24-27E; maintain BUY: Company has indicated a 15% EBITDA margin for HALS in FY25 with a gradual ramp-up to 25% with optimum utilisation. Factoring in 4QFY24 results and management commentary, we have lowered our FY25E/FY26E EBITDA and EPS estimates by ~4%. We expect Clean to register a 29% EPS CAGR over FY24-27E. We maintain BUY with a revised Sep’25 TP of INR 1,765 (from Mar’25 TP of INR 1,805 earlier) (based on 40x Sep’26E EPS).

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