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Clean Science and Technology's favourable financials reflect in IPO valuations

Clean Science and Technology Ltd looks at raising  ₹1,546 crores through its initial public offeringPremium
Clean Science and Technology Ltd looks at raising 1,546 crores through its initial public offering

  • The company manufactures functionally critical specialty chemicals such as performance chemicals, pharmaceutical Intermediates, and FMCG chemicals. Looking at rising global demand for these specialty chemicals and soaring prices, the company’s IPO remains in focus

Pune-based specialty chemicals company Clean Science and Technology Ltd (CSTL) is looking to raise 1,546 crore through its initial public offering. The IPO is entirely an offer for sale (OFS) by existing promoters and shareholders.

The company manufactures functionally critical specialty chemicals such as performance chemicals, pharmaceutical intermediates, and FMCG chemicals. Looking at rising global demand for these specialty chemicals and soaring prices, the company’s IPO remains in focus.

The company is among the few global manufacturers focused on developing newer technologies used in house catalytic processes, which are eco-friendly and cost-effective. This has enabled CSTL to emerge as the largest global manufacturer of certain specialty chemicals in terms of installed capacities as of 31 March, say analysts.

The company has two manufacturing facilities in India with 11 production lines, including three lines for catalyst production and regeneration, with a combined installed capacity of 29,900 MTPA as of 31 March. As the majority of its sales are through exports, both facilities are strategically located at Kurkumbh (Maharashtra), which is in close proximity to the JNPT port.

The company’s financial performance, too, remains strong. It recorded revenue growth of 14% CAGR in FY19-21 supported by higher volume growth across the segments. Helped by technology and improving realisations, the company also has been able to report regular improvement in margins. Adjusted Ebitda margin stood at 34.66%, 44.19% and 50.53%, respectively during FY19, FY20 and FY21. Return ratios have remained supportive and have seen regular improvement.

As business and financials remain in favour, the valuations of the offer leave little room to falter on growth. Priced at FY21 price to earnings of 48.2x on the upper band of 900, the offering is not cheap.

Nevertheless, looking at valuations of peers, strong return ratios, growth prospects and favourable return ratios some analysts remain in favour of subscribing to the IPO.

Analysts at Reliance Securities Ltd say that, peers like Vinati Organics and Fine Organic trade at 75 times FY21 earnings, which offers valuation comfort for CSTL. They also highlight CSTL’s return on equity at 37%, which is superior to its peers, along with a healthy asset turnover ratio at 3.8 times FY21 (at utilization of 72%).

Analysts at ICICI Securities Ltd said that healthy financial performance is likely to sustain ahead, they have assigned a subscribe rating to the issue.

Besides, global manufacturers are looking at reducing China dependence and are eyeing manufacturers such as CSTL. This will help sustain strong earnings momentum, going forward.

Many analysts remain positive about the IPO despite finding its valuations stretched. At the upper end of the price band of 900, CSTL is available at a P/E of 48x (FY21) which appears to be fully priced in, say analysts at Geojit Financial Services Ltd. They, however, have assigned a “subscribe" rating for the issue on a long-term basis considering its technical expertise, process innovation, consistent focus on R&D, positive industry outlook, superior margin profile and healthy return ratios.

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