BackClean Science shares jump over 7% after Motilal Oswal initiates coverage
Clean Science is an integrated player for its key products and is likely to grow at a faster rate than the industry due to its cost advantage as well as the introduction of new products, Motilal Oswal said
PremiumClean Science and Technology Ltd’s stock gained more than 7% in early deals on Monday on the National Stock Exchange. Clean Science is an innovation driven specialty chemical manufacturer and its shares have had a good run since its listing in July.
For perspective: The issue price at the time of its initial public offering (IPO) stood at Rs900 per share. Clean Science’s shares are now trading at around Rs1548 apiece, which represents over 70% appreciation from its issue price.
In a report on 30 August, Motilal Oswal Financial Services Ltd’s analysts have said, “In view of its dominating product market share and ability to sustain the highest margins in the industry, we value the company at 50 times FY24E earnings per share (as the company commands ROIC of about 75%) to arrive at target price of Rs1700 per share." ROIC refers to return on invested capital.
The broker also added, “Clean Science is an integrated player for its key products and is likely to grow at a faster rate than the industry due to its cost advantage as well as the introduction of new products. On this consideration, we forecast a revenue/ Ebitda/ PAT CAGR of 23%/22%/22% over FY21–24."
Ebitda is earnings before interest, tax, depreciation and amortization; a key measure of profitability for companies. PAT and CAGR are profit after tax and compound annual growth rate, respectively.
In its latest investor presentation, Clean Science said its revenues have grown at a CAGR of 28% over FY18-21. PAT has grown at a faster rate of 59% over the same time frame, helped by strong margin performance.
In the June quarter (Q1FY22), Clean Science’s operating revenues increased by 9% compared to the March quarter. During Q1, the company derived as much as 72% of its revenues from performance chemicals.
However, given the sharp appreciation in Clean Science’s shares since its listing, it is likely that near-term gains may be limited. Motilal Oswal’s analysts said, “The key risks to our recommendations are (a) the lack of innovation in future – which has helped Clean Science differentiate itself from others until now, (b) rising prices of key raw materials such as Phenol, which could suppress its gross margins, (c) any adverse ruling on the usage of any of its key products, which could affect global demand and, in turn, sales."
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