Among The World's Largest Producers of Specialty Chemicals
The company is among world’s largest producers of certain speciality chemicals in terms of manufacturing capacity as of March 2021 (refer the table below).
The chemicals which the company manufacturers have a wide range of applications and the raw material which the company uses are available in abundant which results in the de-risked business model. Its products are used as inhibitors, intermediates, anti-oxidants, and anti-retroviral reagents in a variety of industries, including paints and inks, agro-chemicals, pharmaceuticals, flavours and fragrances, food and animal nutrition, and personal care products (cosmetics). Its products and customer base allow it to be less reliant on any one industry, protecting it from any industry-specific slowdown.
The company is among the leading companies in India to commercialise the use of environmentally friendly processes to produce specific specialty chemicals in large quantities. It has gotten to this point by maximising the utilisation of conventional raw materials, boosting yields, lowering effluent discharge, and increasing cost competitiveness. It can carry out these procedures at world scale capabilities based on the technical expertise it has gained over the years, which the management believes to be difficult to reproduce and creates major barriers for new competitors. These technologies have been developed through process innovation and continuous R&D.
Strong, Long-term Relations with Key Clients
The company’s customers include direct end-use manufacturers as well as institutional distributors. The key customers include Bayer AG, SRF, Gennex Laboratories, Vinati Organics, and Nutriad International NV. Some of its customers have been associated with the company for more than a decade now. The company's ability to meet demand and quality at a reasonable pricing, has resulted in strong and long-standing ties with various global organisations.
Delivering consistently high-quality products is critical for consumer engagement. Customers may require several years to accept a supplier depending on quality control systems and product clearances from different agencies across jurisdictions. Customers are less likely to pursue alternate supply sources due to the resources required to engage with new suppliers, giving the company an advantage over new entrants who would need to make large investments and endure a long gestation period with potential customers in order to effectively compete.
Expanding Manufacturing Capacities
The company is in the midst of establishing two new manufacturing facilities in order to capitalise on the increasing demand for its products. The facility-III is being built near Kurkumbh, Pune, and will be utilised to produce Anisole and other performance chemicals, including MEHQ. The one unit of facility- has recently started operations, and the rest of the facility is still under development. The company recently received land in Kurkumbh, Pune, for facility-IV, where it plans to produce stabilisers and other intermediates for use in the pharmaceutical, flavour and fragrance, and agriculture industries. We anticipate it will take the corporation a long time to start operations at unit-IV.
|Particulars (FY21)||Revenue CAGR (FY18 - FY21)||OPM (%)||PAT (%)||RoE (%)||RoCE (%)||EPS||PE (x)|
|Clean Science and Technology||28.58%||50.58%||38.71%||45.00%||60.50%||18.68||48.18|
|Camlin Fine Sciences||18.10%||15.74%||4.29%||8.53%||14.13%||4.13||46.97|
|Fine Organic Industries||9.81%||17.58%||10.62%||16.45%||22.14%||39.19||77.95|
|Navin Flourine International||8.92%||26.22%||21.84%||15.76%||23.42%||52.02||72.92|
Clean Science and Technology Limited (Clean Science) is engaged in the business of manufacturing specialty chemicals such as performance chemicals (MEHQ, BHA and AP), pharmaceutical intermediates (Guaiacol and DCC), and FMCG Chemicals (4-MAP and Anisole). In terms of installed capacity as of March 2021, the company is largest manufacturer of MEHQ, BHA, Anisole, and 4-MAP. It develops and applies clean chemistries based on in-house catalytic technology. As a result, most of its manufacturing processes either have no liquid discharge or merely discharge water.
Its speciality chemicals are used in a wide range of sectors and have a wide range of applications. Manufacturers and distributors in India, as well as other regulated foreign markets such as China, Europe, the United States, Taiwan, Korea, and Japan, are among the company's customers. Key customers include Bayer AG, SRF, Gennex Laboratories, Nutriad International NV, and Vinati Organics. Revenue from operations outside India accounted for 67.9% of total revenue in FY21. The company has two production facilities in India located at Maharashtra with a combined installed capacity of 29,900 MTPA as of March, 2021, and capacity utilisation of ~72% for FY21. Recently, the company has set up a third facility adjacent to its existing facilities and has been allotted the land for the construction of a fourth facility.
|MEHQ, BHA, Acrobyl Palmitate||Performance Chem - Inhibitor, Antioxidants|
|Guaiacol, DCC||Pharma Intermediates - Antiseptic & Dehydrate|
|4-MAP, Anisole||FMCH Chem - Flavours & Fragrance|
|Particulars (Rs. in Cores)||FY21||FY20||FY19|
|Other Operating Revenue||5.49||1.07%||9.96||2.38%||8.44||2.15%|
The company is the leader in certain speciality chemicals in terms of manufacturing capacity and has been able to perform well on operational front in the last four years. The Revenue, EBITDA, and PAT has grown at a CAGR of 28.58%, 51.96%, and 59.49%, respectively, during FY18 – FY21. Its focus on product identification, process innovation, catalyst development, and measures towards backward integration have contributed to the growth and profitability. It also has strong customer relationships and some of its customers have been associated with the company for more than a decade. Its initiatives to expand its manufacturing base from currently two facilities to four in the long-term, would help in catering to the demand. Given the strong outlook of speciality chemical industry and company’s comparatively better financial performance amongst its listed peers, it could get a premium valuation. At the upper price band of Rs. 900, the issue is value at 48.2x of FY21 earnings. We recommend to “Subscribe” the issue.
Use of Proceeds:
To make an offer for sale of equity shares aggregating to Rs. 1,546.62 crores; To achieve the share listing benefits on the BSE and NSE.
Book running lead managers:
Axis Capital Limited, JM Financial Limited, and Kotak Mahindra Capital Company Limited
Pradeep Ramwilas Rathi (Chairman and Non-Executive Director), Ashok Ramnarayan Boob (Promoter and MD), Siddhartha Ashok Sikchi (Promoter and Whole-time Director), Krishnakumar Ramnarayan Boob (Promoter and Whole-time Director), Parth Ashok Maheshwari (Promoter and Vice President), and Pratik Abhaykumar Bora (CFO)
|Year End March (Rs. in Crores)||2018||2019||2020||2021|
|Depreciation & Amortization||7.60||11.03||13.71||17.21|
|EBIT Margin %||27.49%||31.93%||40.99%||47.22%|
|Interest & Finance Charges||0.56||0.33||0.41||0.33|
|Profit Before Tax - Before Exceptional||70.25||136.54||182.32||267.30|
|Profit Before Tax||70.25||136.54||182.32||267.30|
|Effective Tax rate||30.40%||28.47%||23.41%||25.78%|
|Net Profit Margin||20.28%||24.83%||33.30%||38.71%|
|Consolidated Net Profit||48.90||97.66||139.63||198.38|
|Net Profit Margin after MI||20.28%||24.83%||33.30%||38.71%|