Clean Science & Technology IPO kicks off today: Should you subscribe?

The Rs 1,500 crore initial public offer (IPO) by Pune-based specialty chemical firm Clean Science and Technology (CSTL) will open for subscription on Wednesday. The issue, which is slated to run between July 7-9, is priced in the range of Rs 880-900 per share and is entirely an offer for sale. The prime purpose is to enhance visibility, brand, provide liquidity to existing shareholders and achieve the benefits of listing shares on stock exchanges.

Company Details

Clean Science is among the few companies globally, focused entirely on developing newer technologies using in-house catalytic processes, enabling it to emerge as the largest global manufacturer of certain specialty chemicals in terms of installed capacities as of March 31, 2021. It has two manufacturing facilities in India, with a combined installed capacity of 29,900 MTPA and a capacity utilisation rate of 72 per cent in FY21.

It enjoys a strong customer base with key customers like Bayer AG, SRF, Vinati Organics etc. As of FY21, ~48 per cent of its revenue is contributed from its top 10 customers.

Financial Snapshot

CSTL's financial performance has been impressive over the years on the back of strong traction in specialty chemical segment and consistent improvement in margin, say analysts.

Its consolidated revenue, EBITDA and net profit recorded 14 per cent, 38 per cent and 43 per cent CAGR, respectively through FY19-FY21. The company's EBITDA margin has improved from 24.8 per cent in FY19 to 38.7 per cent in FY21. The company has a healthy balance sheet with a D/E ratio of 0.1x as of FY21. Moreover, the return ratios RoE and RoCE remain healthy at 38 per cent and 26 per cent, respectively (3-year average).

Grey Market Premium

The company was trading at a premium of 52 per cent or Rs 470 in the grey market. "The company has a track record of strong and consistent financial performance. The issue is priced at 48 times P/E against the average industry P/E of 55 times. Considering, the stellar performance, the asking price does not look expensive. If such performance remains consistent, we may see the stock outperforming going ahead," said Manan Doshi, co-founder at UnlistedArena.com.

Analysts' Take

Leading brokerages have largely assigned a 'Subscribe' rating to the issue on the back of healthy growth prospects and reasonable valuations.

Geojit Financial: Subscribe

At the upper price band of Rs 900, CSTL is available at a P/E of 48x (FY21) which appears to be fully priced in. However, we assign 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.

Reliance Securities: Subscribe

The IPO is valued at 42.2x of FY21 earnings, which looks to be reasonably priced. However, peers like Vinati Organics and Fine Organic trade at ~75x FY21 earnings, which offers valuation comfort for CSTL. CSTL’s RoE at 37 per cent is superior to its peers, which along with a healthy asset turnover ratio at 3.8x FY21 and better OCF yield offer an edge. Further, strong growth prospects for domestic specialty chemical manufacturers on the back of China+ One strategy may eventually aid CSTL to sustain strong earnings momentum, going forward. Hence, we recommend 'Subscribe' to the IPO.

Aditya Birla Capital: Subscribe

CSTL is the leading manufacturer in several of its products using internally developed processes and catalysts. It has joined the sustainable chemistry bandwagon by eliminating the wastes and discharges from its manufacturing facilities. It enjoys healthy return ratios and margins through the creation of strong entry barriers. The IPO is valued at 48.2x FY21 EPS which we believe is reasonable when compared to the valuations of several of the specialty chemical companies in the listed universe. We assign a 'Subscribe' rating on the issue.

Anand Rathi: Subscribe

The company possesses a healthy balance sheet and robust return ratios profile (FY21 RoE at 36.8 per cent). We recommend a 'Subscribe' rating to this IPO.

Hem Securities: Subscribe

On the back of the company’s robust financial position, leadership in market share in some of its products, strong clientele and prospects of the chemical industry, we recommend 'Subscribe' on the issue both for listing gain and long term purposes.