CLEAN reported an in line EBITDA, while gross margin declining to 61% (est. 63.5%). EBITDAM continued to decline for the fifth consecutive quarter (at 39%). The Performance and Pharma Chemicals segment performed better, led by increased realizations across all products. Margin was impacted in 1QFY23 as the operating leverage benefits were negated by the inflationary environment across key raw materials and energy costs, particularly coal. The management expects prices of the same to fall in 2HFY23. It commercialized a new plant for the manufacture of MEHQ and Guaiacol at its Unit III facility, which resulted in a 50% capacity increase. Demand from PBQ remains strong. It remains an export-oriented product for the company. CLEAN expects the production of HALS to begin from Dec’22. Construction at its wholly-owned subsidiary (Clean Fino-Chem) should start in the next couple of months.
OutlookGiven its market domination and ability to sustain a high margin in the industry, we value CLEAN at 40x FY24E EPS (it commands a RoIC of ~56% in FY22) to arrive at our TP of INR1,659/share.
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