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MOSL : CLEAN SCIENCE & TECHNOLOGY: Remains confident in the new series of products

CLEAN SCIENCE & TECHNOLOGY: Remains confident in the new series of products

(CLEAN IN, Mkt Cap USD2.1b, CMP INR1610, TP INR1589, 1% Downside, Neutral)

• CLEAN reported a beat on our EBITDA estimate, while gross margin expanded to 62.5% (est. 59.2%). EBITDAM was flat at 39.4% (v/s 39% in 1QFY23). The Performance and FMCG Chemicals segment performed better QoQ, led by increased realizations across all products.
• Input prices remain volatile and a short-term concern for the company. The prices of some raw materials have fallen, while for some it still remains near the peak as compared to last fiscal.
• The management announced that the commercialization of Phase I of Unit IV is expected in Dec’23. The company is undertaking a capex of INR3b, which will be funded via internal accruals. Production of HALS (HALS701 and HALS770 series) will start from Nov’22 (earlier guidance of Dec’22), with all facilities nearing completion.
• 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 36%/35%/36% over FY22-24. Considering the current headwinds, we cut our FY23 EBITDA/EPS estimate by 12% each, leaving our FY24 estimates unchanged for now.
• Given its market domination and ability to sustain a higher margin in the industry, we value CLEAN at 40x FY24 EPS (it commands a ROIC of ~56% in FY22) to arrive at our TP of INR1,589/share.

 

Beat on EBITDA with PAT in line; gross margin expands sequentially

• CLEAN reported an in line revenue at INR2.5b (up 62% YoY and 6% QoQ).
• Gross margin grew 160bp QoQ to 62.5% v/s 61%/68.6% in 1QFY23/2QFY22.
• EBITDA margin stood at 39.4% (v/s 44.9%/39% in 2QFY22/1QFY23), with EBITDA at INR975m (9% higher than our estimate, up 42% YoY and 7% QoQ).
• PAT stood in line at INR679m, up 27% YoY and 8% QoQ.
• In 1HFY23, revenue/EBITDA/PAT grew 61%/35%/21% YoY to INR4.8b/ INR1.9b/INR1.3b.
• EBITDAM stood at 39.2% in 1HFY23 v/s 46.8% in 1HFY22 (down 760bp YoY).

Segmental highlights

• Revenue from Pharma Chemicals stood at INR440m (5% higher than our estimate; up 123% YoY, but down 17% QoQ).
• Increased volume offtake across products was seen, with strong growth in DCC and Guaiacol.
• Revenue from Performance Chemicals was in line at INR1.7b (up 47% YoY and 8% QoQ).
• Increased realizations and volume growth were seen across all products.
• Revenue from FMCG Chemicals stood at INR300m (11% higher than our estimate; up 75% YoY and 30% QoQ).
• The segment saw strong growth in 4-MAP.

 

Other highlights

• CLEAN incurred a cash capex of INR620m in 1HFY23, with investments of INR650m in its subsidiary in 1HFY23.
• Input prices remain volatile and a short-term concern.
• The company has continued de-risking of geographical revenue, aided by new customer additions.