EUR 120.00 For Business Accounts Only

MOSL:CLEAN SCIENCE & TECHNOLOGY: Margin subdued even as demand remains strong

• 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.
• 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%/38%/39% over FY22-24. But considering the current headwinds, we expect a gross margin of 65%/67% in FY23/FY24, with an improvement in EBITDAM to 44-45% over FY23-24.
• Given 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.

 

EBITDA in line, with margin declining further; lower other income results in a PAT miss

• Revenue grew 60% YoY and 14% QoQ to INR2.3b (in line) in 1QFY23.
• Exports grew 40% YoY, with a domestic/exports ratio of 35:65 in 1QFY23.
• Gross margin fell 420bp QoQ to 61% (v/s 71.2% in 1QFY22).
• Volatility in raw material prices persisted in 1QFY23 as well.
• EBITDA margin shrank further to 39% (v/s 48.8%/40.9% in 1Q/4QFY22), with EBITDA up 28% YoY and 9% QoQ to INR913m (in line).