The public issue of specialty chemicals company Clean Science and Technology received a ‘subscribe’ rating from all analysts, considering its strong and longstanding relationships with multinational customers, quality of products, strong earnings track record with healthy return ratios, greater cost control, process innovation with consistent focus on R&D, and positive industry outlook.
Clean Science’s initial public offering of Rs 1,546.62 crore opens for subscription on July 7 and is a complete offer for sale by existing shareholders including promoters Ashok Ramnarayan Boob, Krishnakumar Ramnarayan Boob, Siddhartha Ashok Sikchi and Parth Ashok Maheshwari.
The price band for the offer, which will close on July 9, has been fixed at Rs 880-900 per share.
“At an upper price band of Rs 900, the stock is trading at a P/E multiple of 48(X) to its EPS of Rs 18.6,” said Arihant Capital Markets, which recommended subscribing to the IPO for the long term as well as listing gains.
The brokerage said Clean Science’s ability to meet demand and the quality of its competitively priced products have resulted in strong and long-standing relationships with multinational corporations.
“Their in-house capabilities also enable them to optimise capital expenditure for their facility expansion activities. As a result, their asset turns are among the highest in the chemical industry,” said the brokerage.
Arihant said the company was well-positioned to capitalise on opportunities in the specialty chemicals segment due to the lower cost of production in India as compared to imports from China and its relationships with multinational corporations.
Also read - Clean Science IPO opens: 10 things to know before subscribing the issue
Geojit Financial Services assigned a ‘subscribe’ rating for the issue on a long-term basis considering its technical expertise, process innovation, consistent focus on research & development, positive industry outlook, superior margin profile and healthy return ratios.
The company’s shares traded at Rs 1,390 in the grey market, a healthy 54 percent premium over the issue price of Rs 900, data available with IPO Watch showed.
Incorporated in Pune in November 2003, Clean Science manufactures functionally critical specialty chemicals such as performance chemicals, pharmaceutical intermediates and FMCG chemicals. It has two manufacturing facilities in Kurkumbh (Maharashtra), with a combined installed capacity of 29,900 metric tonnes per annum and a 72 percent capacity utilisation rate in FY21.
The overall market for specialty chemicals was valued at $800 billion in 2019 and is expected to record a growth rate of 5-6 percent over the next five years.
As of FY21, Clean Science has emerged as the largest manufacturer globally of certain specialty chemicals like MEHQ, BHA and Anisole in terms of installed capacity.
It enjoys a strong customer base with key companies such as Bayer AG, SRF, Gennex Laboratories, Nutriad International NV and Vinati Organics. As of FY21, its top 10 customers contributed about 48 percent of its revenue.
Higher exports, rising demand for specialty chemicals and better operating performance helped the company report PAT growth at a CAGR of 59 percent over FY18-FY21 and a return on equity of 36.8 percent.
Clean Science posted strong results in FY21 with revenue growing by 22 percent YoY and operating profit increasing by 40 percent YoY (OPM expansion of 635 bps YoY at 51 percent). Reported PAT grew by 42 percent YoY to Rs 198 crore in FY21.
“Clean Science’s earnings growth outlook is robust given its strong market share (among the largest producers globally of functionally critical specialty chemicals), consistent focus on R&D, greater cost control and strong long-standing relationships with key customers,” said Sharekhan.
The company enjoyed superior EBITDA margins (about 51 percent) and PAT margins (about 39 percent) in FY21, led by economies of scale, competitive pricing, inhouse capabilities and adoption of cost-optimisation techniques.
The company has a healthy balance sheet with a debt/equity ratio of 0.1x as of FY21.
“Clean Science is going to list at a PE of 48.18X with a market cap of Rs 9,559.7 crore, while its peers namely Vinati Organics and Fine Organics are trading at 77.4X and 75.1X times, respectively,” said Marwadi Financial Services, which recommended subscribing to the IPO. It said the company is among the largest producers globally of functionally critical specialty chemicals and is available at a favourable valuation as compared to its peers.
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