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Near-term headwinds persist, but growth levers intact Operating performance in line

* Clean Science (CLEAN) reported a muted operating performance with an EBITDA of INR964m, down 3% YoY, while its gross margin dipped to 60.9% (from 65.5% in 1QFY26). The EBITDA margin contracted to 35.9% (from ~41.1% in 1QFY26).

* The operating environment in 1QFY27 remained challenging amid global macroeconomic headwinds and geopolitical uncertainties, leading to pricing pressure. Further, limited availability of shipping vessels delayed exports, resulting in temporary supply-side constraints.

* Going forward, we expect CLEAN’s earnings trajectory to move up due to its continued focus on process efficiency, backward integration, scale-up of Hindered Amine Light Stabilizers(HALs), and the ramp-up of performance chemical 1 plant, along with the commercialization of performance chemical 2 plant in 3QFY27.

* We maintain our earnings estimates for FY27/FY28 and value the stock at 25x FY28E EPS to arrive at our TP of INR790. Reiterate Neutral.

Weak pharma intermediates and FMCG offset growth in performance chemicals

* The company reported revenue of INR2.7b, up 11% YoY (in line), led by performance chemicals (~81% of the revenue in 1Q), with revenue growth of ~21% YoY to INR2.1b. This growth was partially offset by a revenue decline of 17%/23% in Pharma & Agro Intermediates/FMCG Chemicals.

* Gross margin was 60.9% (compared to 65.5% in 1QFY26), while EBITDA margin stood at 35.9% (compared to 41.1% in 1QFY26).

* Employee expenses as % of sales were flat YoY at 6% in 1QFY27, while other expenses as % of sales stood at 19% vs. 18% in 1QFY26.

* EBITDA declined 3% YoY to INR964m (est. INR1b).

* Adj. PAT grew 5% to INR734m in 1QFY27 (est. INR706m) on account of ~65% growth in other income.

Valuation and view

* While the macro headwinds are expected to continue in the short term with prices of raw material expected to remain elevated due to crude volatility,

1) the ramp-up of the advanced grade HALs

2) strengthening HALs' presence in valueadded specialty chemistries

3) the scale-up of performance chemical 1 plant along with the commercialization of performance chemical 2 plant

4) backward integration initiatives

5) long-term agreements with Kemin (US) and Geneus Chem (Switzerland) are expected to be key growth drivers going forward.

* We maintain our earnings estimates for FY27/FY28 and expect a CAGR of 18%/18%/21% in revenue/EBITDA/ PAT over FY26-28. We value the stock at 25x FY28E EPS to arrive at our TP of INR790. Reiterate Neutral.

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