Neutral Clean Science and Technology; target of Rs 1380: Motilal Oswal

Motilal Oswal's research report on Clean Science and Technology

Clean Science (CLEAN) reported an in-line EBITDA in 4QFY23, while its gross margin expanded to 70.5% (v/s our expectation of 66.9%), primarily due to lower raw material costs. EBITDAM stood at 48.5% (v/s 45.6% in 3QFY23). While Pharma & Agro Intermediates exhibited growth, Performance Chemicals and FMCG Chemicals were weaker QoQ in 4QFY23. The company commercialized its HALS701 and HALS770 in Dec’22 and begun supplying commercial orders to its customers in 4QFY23. Management said it would focus on increasing sales and making inroads in the export market as well with an aim to capture 30% of the domestic market share in these two products. Demand from the agrochemical industry was soft and CLEAN has unused capacities of PBQ currently with expectation of a recovery by 3QFY24. The total capex envisaged for the HALS expansion in UNIT IV is INR1.8b, which is likely to be commissioned by Dec’23-Mar’24. Post this, the total capacity of HALS would be 15ktpa (including 2ktpa in Unit III). The company has also announced INR2b worth of capex for new products that is expected to come online by end-1HFY25.

Outlook

The stock is trading at 44x FY25E P/E, EPS of INR34.5, and 31x FY25E EV/EBITDA. We value the company at 40x FY25E EPS to arrive at our TP of INR1,380. Maintain Neutral.