Neutral Clean Science & Technology Ltd For Target Rs.770 by Motilal Oswal Financial Services Ltd
Margin headwinds persist due to elevated raw material prices Operating performance in line
* Clean Science (CLEAN) reported a muted operating performance, with gross margin contracting to 57.3% (from 60.7% in 2QFY26) and EBITDA margin contracting to 30.8% (from 35.6% in 2QFY26), primarily due to elevated raw material prices amid geopolitical tensions in the Middle East and higher crude-linked feedstock costs. The company was unable to fully pass on the increase in input costs to customers, as Chinese competitors continued to offer products at lower prices, limiting pricing flexibility.
* Macroeconomic headwinds, elevated raw material prices, and intense competition from Chinese players are expected to persist in the near term. However, backward integration, a higher contribution from advanced-grade HALS products, and the expected commercialization of Performance Chemical II in 4QFY27 are likely to support growth going ahead.
* We largely maintain our earnings estimates for FY27/FY28 and value the stock at 25x FY28E EPS to arrive at our TP of INR770. Reiterate Neutral.
Strong revenue growth across segments
* The company reported revenue of INR3b, up 22% YoY (Est INR2.6b), led by growth across all three segments. Performance chemicals (~77% of the revenue in 2Q) grew ~24% YoY to INR2.3b, while Pharma & Agro Intermediates (14% of the revenue )/FMCG Chemicals (9% of the revenue) grew 7%/35% to INR418m/INR264m, respectively.
* Gross margin stood at 57.3% (compared to 60.7% in 2QFY26 ), while EBITDA margin stood at 30.8% (compared to 35.6% in 2QFY26).
* EBITDA grew 6% YoY to INR921m (est.INR908m).
* Adj. PAT stood flat (up 1% YoY) at INR557m in 2QFY27 (est. INR569m).
* In 1HFY26, Revenue/EBITDA/Adj. PAT grew 16%/1%/2% to INR5.7b/INR1.9b/INR1.7b.
* CFO stood at INR718.6m as of Sep’26, compared to INR1.5b in Sep’25.
Key highlights from the management commentary
* Macro environment: Raw material prices remained elevated during the quarter, with key inputs such as phenol, acetone, and methanol witnessing a 50–100% YoY increase, alongside higher coal and freight costs. Limited pricing flexibility amid lower Chinese prices has restricted the company's ability to fully pass on the cost inflation, with management prioritizing market share retention over aggressive price hikes.
* HALs: Capacity utilization is expected to increase from 35-40% currently to 55-60% over the coming quarters, driven by higher-grade products. The company plans to expand capacity from 11,500 MTPA to 12,500 MTPA, with incremental capacity focused on advanced grades. Further, backward integration of key intermediates from the next quarter is expected to improve cost competitiveness and margins.
* Performance chemicals: Commercial production of Performance Chemical II is expected to commence in 4QFY27 (Jan–Feb’27), with management targeting 20- 25% capacity utilization in the first year, factoring in the time required for product stabilization, customer sampling, and validation.
Valuation and view
* While macro headwinds are expected to continue in the short term, with prices of raw materials expected to remain elevated due to crude volatility, factors such as:
1) the ramp-up of advanced grade HALs
2) HALs' strengthening presence in value-added specialty chemistries
3) the scale-up of Chemical 1 plant’s performance, along with the commercialization of the Chemical 2 plant
4) backward integration initiatives of advanced grade HAL molecules are expected to act as key growth drivers going forward.
* We maintain our earnings estimates for FY27/FY28 and expect a CAGR of 20%/16%/20% in revenue/EBITDA/PAT over FY26-28. We value the stock at 25x FY28E EPS to arrive at our TP of INR770. Reiterate Neutral.
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