Neutral Clean Science & Technology Ltd for the Target Rs.1,350 by Motilal Oswal Financial Services Ltd
Stable growth amid mixed segment performance
EBITDA Inline, PAT miss led by higher than expected Tax
* Clean Science (CLEAN)’s reported EBITDA in line with our estimate at INR1b (+5% YoY), with a gross margin of 65.5% (vs. 65.4% in 1QFY25). EBITDAM contracted to 41.1% from 42.3% in 1QFY25 due to higher other expense YoY (+13% YoY).
* While the non-established products face demand softness, we expect the established products which contribute to ~83% of standalone sales to continue to deliver steady growth coupled with the commissioning of Performance Chemical 1 in 2QFY26 and Performance Chemical 2 by 4QFY26 is expected to be an additional revenue driver.
* We have incorporated our PAT miss, and cut out estimates for FY26/FY27 by 9% each owing to higher tax rates.
* We value the stock at 34x FY27E EPS to arrive at our TP of INR1,350. Reiterate Neutral
Performance chemical drives revenue growth
* Company reported revenue of INR2.4b (+8% YoY), while the Revenue of Performance Chemicals grew ~16% YoY to INR1.8b, the revenue for Pharma & Agro Intermediates/ FMCG Chemicals declined by ~4%/~17% YoY.
* EBITDA grew by 5% which stood at INR1b. Gross margin stood at 65.5% (+10bp YoY). EBITDA margins declined 110 bps YoY due to higher other expense (+13% YoY) and stood at 41.1%.
* Adj. PAT stood at INR701m (up 6% YoY) in 1QFY26, below our estimate of INR755m, due higher than expected income tax.
Highlights from the management commentary
* CAPEX: Company incurred a capex of INR800m in 1QFY26 with an additional INR1.2b planned for investment in subsidiary.
* Hindered Amine Light Stabilizers (HALS): Sales in 1QFY26 of INR240m and volume stood at 580 Tonnes and the management expects EBITDA at monthly sales of INR100m which is nearing breakeven. Advanced HALS grades priced at USD11-USD35/kg to be commercialized over next two quarters. Company is entering into complex products like 2020 starting next month.
* Growth Guidance: The company has revised its EBITDA growth guidance to 15-18% (from 18-20%) due to softness in 1QFY26 and global headwinds, but expects a stronger ramp-up from 3QFY26 onward. Company expects revenue acceleration from 2HFY26 driven by new product launches, improved capacity utilization, operating leverage, and market expansion.
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. The company expected to commercialise advanced grade HALS over next two quarters
* While the non-established products face demand softness, we expect the established products which contribute to ~83% of standalone sales to continue to deliver steady growth coupled with the commissioning of Performance Chemical 1 in 2QFY26 and Performance Chemical 2 by 4QFY26 is expected to be an additional revenue driver.
* We cut our estimates for FY26/FY27 cuts by 9% each owing to higher tax rates and expect a revenue/ EBITDA/ PAT CAGR of 23%/ 23%/ 27% during FY25-27E. The stock is currently trading at ~36x FY27E EPS of INR40.1 and ~26x FY27E EV/EBITDA. We value the stock at 34x FY27E EPS to arrive at our TP of INR1,350. Reiterate Neutral.
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