Buy Clean Science and Technology Ltd For Target Rs. 1,780 By JM Financial Services
Slightly weak quarter a blip
Clean Science’s 1QFY26 EBITDA was in line with JMFe and 5% below consensus. During the quarter, although the company faced demand issues, it continued to retain its market share across its key products. We expect the subsidiary to start contributing positively from 3QFY26 driven by the ramp-up of value-added HALS grades. Besides HALS, the company’s two new performance chemical capacities are on-track to be commercialised with one set to see commercial production in Sep’25 and the other in 4QFY26. We expect meaningful contribution from the two performance chemicals to flow through from FY27. Further, the company has built a pipeline of other smaller products to continue its growth momentum. Based on 1QFY26 results and management commentary, we have lowered our FY26/27/28 EBITDA estimates by ~2-3% and EPS estimates by ~2-4%. We now expect ~26% sales CAGR over FY25-28E on the back of – i) ~INR 3.2bn incremental sales from two new performance chemicals, ii) ~INR 4.4bn incremental contribution from HALS, and iii) ~INR 2bn from legacy products and new products like DHDT, barbituric acid, etc. Further, with margin contraction due to new products, we expect ~23%/26% EBITDA/EPS CAGR over FY25-28E. In case of any delay in new product approvals, there could be a downside risk to our estimates. We maintain BUY with a revised Sep’26 TP of INR 1,780/share (from INR 1,820 earlier) (based on 40x Sep’27E EPS).
* EBITDA in line with JMFe: Clean Science’s 1QFY26 consolidated gross profit came in line with JMFe at ~INR 1.6bn (down 5% QoQ, up 9% YoY) as gross margin was higher than anticipated at 65.5% (vs. JMFe of 63.5% and 63.7% in 4QFY25) while revenue came in 3%/7% below JMFe/consensus at ~INR 2.4bn (down 8% QoQ while up 8% YoY). During the quarter, other expenses were lower at ~INR 440mn (vs. JMFe of INR 450mn and INR 481mn in 4QFY25). As a result, EBITDA came in line with JMFe while 5% below consensus at ~INR 1bn (down 5% QoQ while up 5% YoY). Further, PAT was 2%/5% below JMFe/consensus at INR 701mn (down 5% QoQ while up 6% YoY).
* Less-than-expected pharma and agro intermediates and FMCG chemicals sales: During the quarter, performance chemicals sales stood at ~INR 1.8bn (slightly higher than JMFe of ~INR 1.75bn and ~INR 1.82bn in 4QFY25, down 1% QoQ, up 16% YoY). Pharma and agro intermediates sales declined to INR 389mn (vs. JMFe of INR 450mn and INR 571mn in 4QFY25, down 32%/4% QoQ/YoY). FMCG chemicals sales stood at INR 243mn (vs. JMFe of INR 315mn and INR 246mn in 4QFY25, down 1%/17% QoQ/YoY).
* Expect 26% EPS CAGR over FY25-28E; maintain BUY: In 1QFY26, the company’s subsidiary registered a negative EBITDA of INR 8mn at an annualised revenue run rate of ~INR 0.9bn. The company continues to target subsidiary EBITDA breakeven at annualised revenue run rate of ~INR 1.2bn. For the full year FY26, we build in incremental sales of i) ~INR 1.3bn from HALS, ii) ~INR 350mn from the base business, and iii) ~INR 500mn from new products. Factoring in 1QFY26 results and management commentary, we have lowered our FY26/27/28 EBITDA estimates by ~2-3% and EPS estimates by ~2-4%. We expect Clean Science to register ~23%/26% EBITDA/EPS CAGR over FY25-28E. We maintain BUY with a revised Sep’26 TP of INR 1,780 (from INR 1,820 earlier) (based on 40x Sep’27E EPS).
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SEBI Registration Number is INM000010361
