27 July 2022
1QFY23 Results Update | Sector: Specialty Chemicals
Clean Science & Technology
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TP: INR1,659 (-5% )
Margin subdued even as demand remains strong
CLEAN reported an in line EBITDA, while gross margin declining to 61% (est.
63.5%). EBITDAM continued to decline for the fifth consecutive quarter (at
39%). The Performance and Pharma Chemicals segment performed better,
led by increased realizations across all products.
Margin was impacted in 1QFY23 as the operating leverage benefits were
negated by the inflationary environment across key raw materials and energy
costs, particularly coal. The management expects prices of the same to fall in
It commercialized a new plant for the manufacture of MEHQ and Guaiacol at
its Unit III facility, which resulted in a 50% capacity increase. Demand from
PBQ remains strong. It remains an export-oriented product for the company.
CLEAN expects the production of HALS to begin from Dec’22. Construction
at its wholly-owned subsidiary (Clean Fino-Chem) should start in the next
couple of months.
Considering the robust demand outlook for CLEAN and its plans to capture a
higher market share for its products,
we build in a revenue/EBITDA/EPS
CAGR of 36%/38%/39% over FY22-24.
But considering the current
headwinds, we expect a gross margin of 65%/67% in FY23/FY24, with an
improvement in EBITDAM to 44-45% over FY23-24.
Given its market domination and ability to sustain a high margin in the
we value CLEAN at 40x FY24E EPS
(it commands a RoIC of ~56% in
FY22) to arrive at our TP of INR1,659/share.
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
186.3 / 2.3
2698 / 1423
Financials & Valuations (INR bn)
FY22 FY23E FY24E
21.5 30.6 41.5
EPS Gr. (%)
15.2 42.3 35.4
72.3 98.4 133.6
(0.1) (0.2) (0.3)
34.9 35.9 35.7
33.9 35.1 35.1
15.1 15.0 15.0
80.9 56.8 42.0
24.1 17.7 13.0
61.4 42.9 31.5
Div. Yield (%)
FCF Yield (%)
EBITDA in line, with margin declining further; lower other income results
in a PAT miss
Revenue grew 60% YoY and 14% QoQ to INR2.3b (in line) in 1QFY23.
Exports grew 40% YoY, with a domestic/exports ratio of 35:65 in 1QFY23.
Gross margin fell 420bp QoQ to 61% (v/s 71.2% in 1QFY22).
Volatility in raw material prices persisted in 1QFY23 as well.
EBITDA margin shrank further to 39% (v/s 48.8%/40.9% in 1Q/4QFY22), with
EBITDA up 28% YoY and 9% QoQ to INR913m (in line).
PAT grew 15% YoY (flat QoQ) to INR629m (6% lower than our estimate).
Lower than expected other income led to a PAT (at INR18m) miss.
Revenue from Pharma Chemicals grew 141% YoY and 33% QoQ to INR530m
(39% higher than our estimate).
CLEAN is steadily ramping up PBQ capacity, with strong growth in Guaiacol
seen in 1QFY23.
Shareholding pattern (%)
Jun-22 Mar-22 Jun-21
FII Includes depository receipts
Swarnendu Bhushan- Research Analyst
Shubham Mittal - Research Analyst
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
7 February 2022