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Volume-led recovery drives beat

* CLEAN’s reported EBITDA in 4QFY24 beat our estimate at INR945m (-10% YoY), with a gross margin of 65.7% (vs. 70.5% in 4QFY23). EBITDAM contracted to 41.5% from 48.5% in 4QFY23. Revenue contribution of FMCG Chemicals increased YoY, while that of Performance Chemicals and Pharma & Agro Intermediates declined YoY. PAT declined 3% YoY to INR703m.

* There was strong sequential growth in both Performance and Pharma & Agro Intermediates on the back of volume growth. The management highlighted that DCC and TBHQ, which were running at lower utilization, picked up pace in 4Q. Capacity utilization for Performance Chemicals and Pharma & Agro Intermediates stood at 70%, while it stood at 75% for FMCG Chemicals.

* Revenue share of principal products declined to 76% from 84% in 3QFY24. The management highlighted that it is on track to commercialize one product in Pharma Intermediates by 3QFY25 (capex of INR300m). Clean Fino-Chem (CFCL, tax rate for the subsidiary at 15%) was also commercialized in Mar’24 and most of the volume growth is expected to be driven by new products in FY25.

* CLEAN has a market share of 50% in the domestic market in HALS770 and is aiming for 60-70% market share. Although the product is more domestic focused, it is already being shipped to Europe and the Middle East. HALS701 is an export-oriented product, which is primarily used in water treatment. Samples are being sent to customers currently for approvals

* We expect a CAGR of 23%/19%/22% in revenue/ EBITDA/ PAT during FY24-26, with EBITDAM declining to 39.5% on consolidated basis in FY26. CLEAN is currently trading at 38.5x FY26E EPS of INR34.4 and 29.5x FY26E EV/EBITDA. We value the stock at 40x FY26E EPS to arrive at our TP of INR1,375.

Beat our estimates but margins decline YoY

* CLEAN reported revenue of INR2.3b (+5% YoY).

* Gross margin stood at 65.7% (-470bp YoY). EBITDA margin came in at 41.5% (-690bp YoY).

* EBITDA was INR945m (our est. of INR813m, -10% YoY). PAT stood at INR703m (our est. of INR568m, -13% YoY)

* For FY24, revenue stood at INR7.9b (-15% YoY), EBITDA at INR3.3b (-17% YoY) and PAT at INR2.4b (-17% YoY). EBITDAM stood at 42% (-100bp YoY).

* The board has declared a final dividend of INR3 per share for FY24.

Segmental and other highlights

* The 4Q performance was driven by volume-led growth. Progressive recovery in revenue continued, while contribution from new products increased. CFCL was commercialized in Mar’24

* Revenue from Pharma Chemicals was INR432 (+1% YoY), DCC contributed to growth. Revenue from Performance Chemicals was INR1.5b (-4% YoY), realization impacted the growth. Revenue from FMCG Chemicals was INR259m (+21% YoY), growth was volume led.

* Revenue from the domestic market stood at 36%, while the rest came from exports. In exports, China’s share increased, while the share of the Americas and Europe declined.

* CLEAN incurred a total capex of INR2.4b in FY24, including INR2.2b investment in subsidiary.

Valuation and view

* CLEAN is actively pursuing R&D and has entered the HALS series, which has an estimated global market size of USD1b. Commercial production from CFCL has commenced and the management expects HALS utilization to reach 80% in three years.

* CLEAN is expected to generate INR2.7b in FCF during FY25-26, with a planned capex of INR4b for the same period. The company plans to finance this capex through internal accruals and is projected to maintain a net cash position in the future.

* The stock is currently trading at 38.5x FY26E EPS of INR34.4 and 29.5x FY26E EV/EBITDA. We value the stock at 40x FY26E EPS to arrive at our TP of INR1,375

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