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MOSL: CLEAN SCIENCE AND TECHNOLOGY (Buy) - INITIATING COVERAGE: Novel chemistry at play

CLEAN SCIENCE AND TECHNOLOGY | INITIATING COVERAGE: Novel chemistry at play

(CLEAN IN, Mkt Cap USD2.1b, CMP INR1438, TP INR1700, 18% Upside, Buy)

 

• Clean Science and Technology (CSTL) recently concluded its IPO via an offer for sale of INR15.5b, priced at INR900/share. Post the IPO the promoter shareholding stands at 78.5%.
• CSTL has emerged as the global leader in most of its product categories on the back of niche product offerings catering to polymer inhibitors / super-absorbents, anti-oxidants for the Food/Feed industry, pharma, home, and personal care. It has further bolstered its value chain through novel manufacturing technology based on green chemistry for one of the key raw materials.
• CSTL's streak is driven by its strong R&D capabilities - in both plant technological /engineering development as well as process innovation (based on greener chemistries). This has led to the gross margin expanding to 76% in FY21 from 62% in FY16 (the EBITDA margin expanded from 33% to 50.5% over FY16-21).
• The company has posted a robust revenue CAGR of ~29% in the last five years. We expect CSTL's revenues to grow at a CAGR of ~23% over FY21-24 (on the back of capacity additions at Unit-III in phases over FY22). The company plans to capture higher market share for its products.
• Its EBITDA margin is likely to remain robust at ~49%, with the gross margin at ~70% over FY21-24 - as the company continues to improve the yield of its products and processes. In view of its dominating product market share and ability to sustain the highest margins in the industry, we value the company at 50x FY24E EPS (as the company commands ROIC of ~75%) to arrive at Target Price of INR1,700/share. We initiate coverage on CSTL with a Buy rating.
• In our recently-released sector initiating report "", we had highlighted that normally, companies with a higher proportion of specialty chemicals command richer valuations.