Clean Science & Technology is an 18 year old company and has been in operations since 2003. Clean Science is a key player in the development of newer technologies using in-house catalytic processes. The advantage of in-house processes is that they are proprietary and economical. Above all, it also enjoys a high degree of eco-friendliness which is the key to valuations of companies in the emerging dispensation.
The business model of Clean Sciences can be divided along 3 demand verticals.
- Nearly 69.23% of revenues comes from performance chemicals including MEHQ, BHA and Ascorbyl Palmitate
- About 16.20% of the revenues comes from pharmaceutical ingredients which includes products like Guaiacol and DCC.
- The balance 12.34% revenues come from FMCG chemicals which include products like 4-MAP and Anisole
Key terms of the Clean Science & Technology IPO
Clean Science & Technology is coming out with an IPO of 1.75 crore shares with an issue size of Rs.1,546.62 crore. The issue is priced in the price band of Rs.880 to Rs.900 and the above issue size is assuming the top end of the price band for GR Infraprojects. The issue will be entirely an offer for sale (OFS) where the promoters will be taking partial exit.
Data Source: IPO Filings
A quick talk on Clean Science & Technology specs
The largest business segment is performance chemicals accounting for 70% of its total sales followed by pharmaceutical ingredients and FMCG chemicals. The specialty chemicals space has seen good global traction post COVID-19 as global users of specialty chemicals have been increasingly diversifying its product procurement away from China and towards India.
In terms of regional mix, only 31.4% of the total sales revenues of Clean Science comes from the domestic Indian market with the balance 68.6% coming from the export market. Among the major export markets, China accounts for 37.2% of total sales followed by Europe at 13.82% and the Americas at 11.47%. India share has increased in the last 2 fiscal years.
The company currently has an installed capacity of 9,640 MT of performance chemicals, 4,060 MT of pharma ingredients and 16,200 MT of FMCG Chemicals. As of March 2021, the company was operating at a capacity utilization of 71.9%.
Key takeaways from the Clean Science & Technology IPO offering
The company has been a key player in the specialty chemicals segment and here are some key investment takeaways for the company.
- The entire issue will be an offer for sale so there is no dilution of capital and also there is no fresh funds coming in, although promoter stake will reduce.
- The specialty chemicals space remains a high growth and high export driver for Indian companies and that is evident in the business mix of Clean Science.
- The company has a marquee client list consisting of names like Bayer AG of Germany, SRF Ltd, Gennex Laboratories, Vinati Organics and Nutriad International NV.
- The company has an ROE Of 36.7% and a ROCE of 73.89% in the FY21 period. EBITDA margins for FY21 stood at 55.5%.
Should you be investing in the Clean Science IPO?
At the outset, it is a decision you must take in consultation with your financial advisor since the issue is not just about being a solid issue but also fitting into your financial plan.
The company is a good vehicle to ride the emerging specialty chemicals opportunity in the stock market and also the company already has a strong global franchise including in China. As capacity utilization improves further from 71.9%, the profitability should improve as fixed costs get better absorbed.
In terms of valuations, the IPO is priced at close to 48X P/E considering the upper band and the FY21 EPS of Rs.18.6. This P/E is lower than the peer group and one can look at the stock as long term bet on the specialty chemicals space.