Neutral Clean Science and Technology; target of Rs 1379: Motilal Oswal

Motilal Oswal's research report on Clean Science and Technology

Clean Science (CLEAN) reported a beat on our EBITDA estimates, while its gross margin expanded to 67.2% v/s our expectation of 62%. EBITDAM stood at 45.6% (39.4% in 2QFY23). While the Performance Chemicals exhibited growth albeit marginal, Pharma & Agro Intermediates and the FMCG Chemicals segments were weaker QoQ in 3QFY23. The management highlighted that demand for Performance and Pharma chemicals remains robust with softness to be seen in the Agrochemical Intermediates. PBQ’s performance has been underwhelming with subdued volumes but the management expects it to bounce back after Mar’23. Commercialization of rest of the products in the HALS series is expected between Dec’23 and Mar’24 with the company undertaking a capex of INR1.5b for FY24, which would be funded through internal accruals. HALS production (HALS701 and HALS770 series) started in early Dec’22 with CLEAN receiving its maiden order in Jan’23. Considering the robust demand outlook for CLEAN and its plans to capture a higher market share for its products, we build in a revenue/EBITDA/EPS CAGR of 29%/27%/24%, respectively, over FY23-25.

Outlook

Due to the outperformance in 3QFY23, we raise our EBITDA/EPS estimates by 8%/13%, respectively, for FY23, keeping FY24/FY25 estimates unchanged. The stock is trading at 44x FY24E P/E, EPS of INR34.1, and 31x FY24E EV/EBITDA. We value the company at 35x Dec’24E EPS to arrive at our TP of INR1, 379.