Clean Science and Technology Ltd (CSTL) had a stellar stock exchange debut on Monday, with its shares listing at nearly double the issue price. Investor confidence has been strong for specialty chemical manufacturers, given firm demand and realizations.
The fact that CSTL is focused on developing green chemicals and is among the largest manufacturers of multiple green chemicals are added positives. Its strength lies in having developed clean technology that uses non-toxic raw materials with lower effluents, leading to cost efficiencies. It uses the unique catalytic transformation (rare among Indian chemical companies) for production and is the only company globally to use vapor phase process for Anisole (used as a key raw material for all its other products), say analysts.
Demand for green chemicals is expected to grow at a 10.5% CAGR globally over CY2019-25, led by rising awareness of the ill-effects of some traditional chemicals, as per a report by Motilal Oswal Financial Services Ltd. This is in turn will boost the prospects of Clean Science’s.
Moreover, the company’s financial performance has been impressive. It recorded revenue growth of 14% CAGR over FY19-21, helped by strong volume growth across segments. Operating performance too has been strong, aided by technology and improving realizations. It has reported a consistent improvement in margins. Adjusted Ebitda margin was at 34.66%, 44.19%, and 50.53%, respectively during FY19, FY20, and FY21. Return ratios have also been supportive and have seen regular improvement.
The company is debt-free with a strong return ratio of 45%. Its cash conversion cycle is healthy at 45 days which helped in free cash flow accumulation of Rs28 crore over FY18-21 (103% CAGR).
It has two manufacturing facilities in India with 11 production lines strategically located at Kurkumbh (Maharashtra), which is in close proximity to the JNPT port. This helps as CSTL is an export-focused company. It had a combined installed capacity of 29,900 MTPA as of 31 March 2021.
Valuations nevertheless must be monitored. At the issue price of Rs900, CSTL was offered at a P/E of 48 times of FY21 earnings. On listing, the valuations have only stretched and the company will need to meet investor expectations on growth.