Neutral Clean Science & Technology Ltd For Target Rs.1,450 by Motilal Oswal Financial Services Ltd
Volume-led growth; capacity ramp-up remains key.
* Clean Science (CLEAN)’s reported EBITDA in 3QFY25 was above our estimate at INR985m (+14% YoY), with a gross margin of 63.5% (vs. 66.8% in 3QFY24). EBITDAM contracted to 40.9% from 44.5% in 3QFY24. Revenue contribution of Performance Chemicals increased 2% YoY in 3QFY25, while that of Pharma & Agro Intermediates declined 1% and 2% YoY, respectively. PAT increased 5% YoY to INR656m during the quarter.
* A strong YoY growth was observed across various segments, fueled by higher volumes, with the markets in India, China, and RoW seeing 20%+ growth in their absolute revenue YoY. The mix fairly remained similar to the year-ago period. The utilization level for the Performance segment stood at 65-70%, while the same for the Pharma segment was 65% and that of the FMCG segment was 80%. New products in HALS and Pharma led to robust revenue in 3QFY25.
* HALS’ volumes in 3QFY25 reached 190tpm, exiting Dec’24 at 200tpm with a USD4.5/kg realization in 3Q. Sales grew from 125tpm in 1QFY25 to 570t in 3QFY25, with 4QFY25 expected at 600-650t, driven by HALS 701, 770, 622, 944, 119, and 783. FY26 volumes are expected at 3-4ktpa with a USD5.5-6/kg realization. HALS 119 (USD8-9/kg) serves agricultural films, and HALS 944 (USD7-8/kg) is used in polyolefin films, with customers across multiple regions.
* CLEAN commercialized DHDT for Lamivudine, enabling import substitution and DCC cross-selling, with samples sent in 3QFY25 but no revenue yet. It also launched BHT, expanding its antioxidant portfolio, targeting 2-3ktpa volumes at USD3/kg, with peak revenue of INR600-800m, approvals in six months, and 1.5 years to reach 70-80% utilization. It is also setting up a Barbituric Acid plant used to make Yellow Pigment with a customer already approving its pilot plant.
* We broadly retain our estimates for FY25-27 despite the beat in 3QFY25 as we rationalize our HALS assumptions for the same period. We have also accounted for the commissioning of all new capex during FY25-27 announced in the previous quarter as well as this quarter (except for Barbituric Acid). The stock currently trades at ~40x FY26E EPS of INR35.1 and ~29x FY26E EV/EBITDA. We value the stock at 35x Dec’26E EPS to arrive at our TP of INR1,450. Reiterate Neutral.
Beat led by lower-than-expected opex; margin expands YoY
* The company reported revenue of INR2.4b (+24% YoY). Gross margin stood at 63.5% (+110bp YoY). EBITDA margin was at 40.9% (+320bp YoY). Margin expansion on a sequential basis was because of a favorable product mix.
* EBITDA was at INR985m (our est. of INR863m, +14% YoY) with PAT at INR656m (our est. of INR603m, +5% YoY).
* The Board approved an interim dividend of INR2/share.
* For 9MFY25, revenue was at INR7b (+25% YoY), EBITDA at INR2.8b (+19% YoY), and PAT at INR1.9b (+10% YoY). EBITDAM was at 40.2% (-190bp YoY).
Other highlights
* Volumes grew YoY in 3QFY25. CLEAN incurred a total capex of INR50m in 3QFY25, primarily in its subsidiary, Clean Fino Chem.
* It commercialized DHDT and BHT products in the quarter. HALS volume scale-up and product diversification have gathered momentum. Contributions from newly launched products have been improving.
* Revenue from Performance Chemicals stood at INR1.7b (+27% YoY). Revenue from Pharma Chemicals was INR433m (+17% YoY), while the revenue from FMCG Chemicals was INR267m (+5% YoY), led by increased volumes.
* Revenue from the domestic business stood at 31%, while the rest was exports.
Valuation and view
* CLEAN is actively pursuing R&D activities and has entered the HALS series, which has an estimated global market size of USD1b. While the commercial production from CFCL has commenced, management expects HALS to ramp up in the next three years.
* The company is expected to generate INR5.4b in FCF during FY25-27, with a planned capex of INR5.9b over the same period. The stock is currently trading at ~40x FY26E EPS of INR35.1 and ~29x FY26E EV/EBITDA. We value the stock at 35x Dec’26E EPS to arrive at our TP of INR1,450. Reiterate Neutral.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
