Clean Science and Technology Limited (CSTL) - A clean and green future ahead

Main concern for Clean science is Vinati’s entry into their bread & butter business of MEHQ, Guicol & other products.

Vinati looks very confident of launching it & had done huge capex for it. Not only that, they are going to produce it with same technology of clean science.

Definitely It will take time for Vinati to optimize production but this overhang will be there till clarity comes & in future this can definitely dent margin profile of Clean science.

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I need to get clearity on that, but till now Vinati was a customer to clean science for MEHQ, and now they are starting it.
Whether it will be consumed internally or they will be selling it is a question.

MEHQ is raw material for Vinati, they were buying it from Clean and now doing backward integration.
Whether it will be available for selling also it not much clear to me as of now.

Chemical plants have optimal utilization level of 75-80%, hence according to that the revenue can be in range of 800 Crore, the same is mentioned by the management in latest concall

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went through concall audio, couple of points to discuss.

  • more clarify given on capex in horizon - 30 cr capex for pharma product that will be in market by Q3. 150 Cr for performance segment where novel process is used to make product. product has already competitors but capacity will be 15% of global that is 350 cr and last one is again 150 cr capex but not much product details given but there are already producers of it.

on HALS, basket of all products - after 3 months from now, we should have 150 tons per month. growth was slow as it was single or double product but now we have 5 which helps to convince customer. for this year they said they aspire 2000 tons and from there in 3 years should touch 6000 tons while thier capacity is 10500 tons.

existing products are somehow maintaining volume or registering minor growth. we need to discuss how long clean science will be able to sustain this items, does anyone have more info on Vinti and jhow much it will impact and when?

can anyone throw light about one point in concall where it was told they can accommodate 1000cr capex out of which 300/400 cr worth project is going on (3 capex we talked). from where this capex is coming? This may be addressed but if anyone can throw light please

I feel it will take time but rewards will be also better. I feel small portion of the future HALS growth is already priced in but the moment they start hitting 150-180 tons per month, we should see numbers going upwards which will suddenly trigger price upward. what people think here?

our all bet is on HALS and 2-3 more products coming in but at same time we need to relook at existing set of products and how long this can be sustained or grown.

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Clean Science Q1 FY25 Analysis: Key takeaways!!

Clean Science and Technology Limited reported encouraging Q1 FY25 results with 16% year-on-year revenue growth, primarily driven by volume increases across segments. The company is seeing stable demand and pricing environment, with capacity utilization at 60-65% for most products. Management expects continued volume-led growth in the coming quarters.

Strategic Initiatives:

  1. HALS Expansion: CSTL has commercialized three new HALS products (622, 944, 783) in July 2024, with HALS 119 expected in August. This expanded portfolio will help target new customers and markets.

  2. New Performance Chemicals Capex: The company announced a INR 150 crore capex for a novel process to manufacture a performance chemical, addressing 15% of global market demand.

  3. Additional Capex Plans: Two more projects are underway - a INR 30 crore pharma intermediate plant and another INR 150 crore performance chemical plant for water treatment applications.

Trends and Themes:

  1. Volume-led Growth: CSTL is experiencing growth primarily through increased volumes rather than price increases.
  2. Import Substitution: New capex projects aim to capture market share from imports in various segments.
  3. Green Initiatives: The company is investing in a 6 MW solar plant to reduce power costs and improve its environmental footprint.

Industry Tailwinds:

  1. Recovery in Demand: Post-destocking phase, demand is picking up across segments.
  2. Import Substitution Opportunities: Indian manufacturers are benefiting from the push for local manufacturing.

Industry Headwinds:

  1. Pricing Pressure: Realizations remain stable to slightly lower, offsetting some volume growth.
  2. Global Economic Uncertainty: Potential impact on export markets.

Analyst Concerns and Management Response:

Concern: Slow ramp-up of HALS capacity
Response: Management expects faster adoption with the full basket of HALS products now available. They aim to reach 70-75% market share in India and expand in global markets.

Concern: Profitability of new investments
Response: Initial margins may be lower due to high fixed costs, but are expected to improve as capacity utilization increases.

Competitive Landscape:
CSTL faces competition from Chinese and European manufacturers in the HALS segment. However, the company believes its differentiated technology and expanded product basket will help it compete effectively.

Guidance and Outlook:

  • HALS Volume: Target of 150-200 tons per month in the next 3-4 months
  • FY25 HALS Volume: ~2,000 tons
  • FY26 HALS Volume: 2,500-3,000 tons (50% capacity utilization)
  • HALS Pricing: $7-8 per kg average realization

Capital Allocation Strategy:
The company is investing heavily in capacity expansion, with INR 330 crore already invested in HALS and additional INR 300 crore planned for new projects over the next 18-24 months.

Opportunities & Risks:

Opportunities:

  1. Full-basket HALS offering to capture larger market share
  2. New performance chemical products with potential for high returns
  3. Export market expansion

Risks:

  1. Slower than expected ramp-up of new capacities
  2. Pricing pressure from global competitors
  3. Regulatory changes affecting key products

Customer Sentiment:
Customers are showing increased interest with the expanded HALS portfolio. Large customers were waiting for a full basket of products before committing to larger volumes.

Top 3 Takeaways:

  1. HALS expansion is progressing well, with potential for significant market share gains
  2. New capex projects in performance chemicals offer growth opportunities
  3. Volume-led growth continues across segments, offsetting pricing pressures

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They have invested 350 Cr in CFCL for HALS. No more capex required there barring for piloting various products in the series. Is that correct?

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Hello Folks,

I think Q2FY25 is an inflection point for CSTL. The base business volumes are picking up, HALS sales starts to kick-in and monthly run rate is already achieved of 125MT. (On top few other HALS series will start its full swing going forward). From here on, CFCL will enjoy operating leverage and base business will be stable.

Although EBITDA % wise will fall due to HALS ramp-up, but absolute EBITDA will start contributing with meaningful growth.

While no comment on valuation (I feel they are slightly higher), anyone thinks we can take a short-term bet based on “Technicals + Fundamental”.

Views appreciated,
Regards.

Disc: No Holdings.

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If valuation is higher shouldn’t one be taking longer term bet rather than short term?

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If valuations are higher. I prefer to wait at my buying range. It is an individual decision driven by many factors for me which is opportunity cost.

Regards,

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IMHO, Clean science is poised at very interesting stage. long term investors who got in at 1300-1600 range is patiently waiting for their last 2-3 years capex on CleanFinoChem to start adding meaningfully on topline driven by HALS basket. Their very recent capex on I think 2 more new products will take couple of Qtrs to start contributing in my understanding. my expectation is HALS should start doing adding incrementally to topline in next 6 Qtrs and margin will start good improvement from Q4 onwards when HALS has good volume. While this is expectation, we also assuming their current set of products which are holding volume continues to marginally grow or atleast sustain where we are today.

On Promoter side, I am actually very much impressed by Siddhardh, he is been very professional in guiding investors. if above thesis plays out well, it will just add credibility to his name.

Couple of questions to people here

  1. Cleanscience’s set of promoters are highly competent in chemical segment. They have many interest in other companies some of them unlisted like Matrix life science (run by Sidhharth’s brother Kunal) plus Mr Rathi is promoter in Sudharshan as well. plus there is one more unlisted co where all of them are in play. what is postive and negative here?

  2. Sometime back I read Vinati is starting backward integration of MEHQ. Anyone can throw more light here? where they stand? What is impact to cleanscience as I am guessing cleanscience delivers to Vinati today? Can someone ask this question in next concall?

disclaimer - Invested at 1390!! Long and 12% of my PF.

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If the story that I just wrote plays out well, than I dont think valuation will soft any near time. IMHO, 1300s was good range to enter!!

CSTL will be firing all cylinders in upcoming quarters. Enough consolidation despite good results. As per SOIC, stage 2 is almost over. Lets wait for results.

Disc: only chemical stock in folio with 4% allocation (XIRR 7% )

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Per my understanding, company is doubling its capacity in this phase of expansion (expansion will be in full stream in 2/3 years) . Current net profit of the company is around 250 cr. If the expansion all goes good, in the next 2-3 years revenue & profit are expected to be double (ballpark), so the Profit expected to be around 500 cr. Current mcap of the company is 16000 cr, so PE at current market cap, after full expansion (after 2-3 years) still be 16000/500=32 . So 2-3 years forward PE for a chemical company is 32 at current market price. So where is share price appreciation scope? Am I missing something.

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Specialty chemical never been to such low PE in my understanding. Cleanscience is real Specialty chemical business and not normal chem company. so far it never traded below 60PE. this is 45%+ EBITDA margin business.

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Anybody that gone through concall? It was information heavy call.
Company is heavily doing capex for growth. After HALS we have 380 cr of further capex from now to next 2 years. we already had 300 cr capex on HALS. so pretty aggressive here.

It is imp for us to see HALS start to gain traction and contribute meaningfully. next 3 Qtrs are very important for HALS. we reached to 135 tons per month from 100 ton and aspire 200 ton per month in FY25. Consolidated Margin will be under pressure until HALS picks up fully. Thats what we saw in result.

standalone wise we are doing very decent and growth is coming back but now it is time for HALS to deliver.

there are three more capex as below.

The company is on track to commercialize the production of the pharma intermediate during Q3
FY25. The capital expenditure for the same was ~₹30 crore. The total revenue potential is ~₹80-₹90
crore.
• Under performance chemicals, the company is incurring capital expenditure of ₹150 crore. The
plant is expected to commercialize in June-July 2025. The total revenue potential would be ~₹350
crore. The end user industries for these new products are polymer and pharma.
• The capital expenditure of ₹150 crore for new products under performance chemicals (water
treatment chemicals) is expected to commercialize in December 2025. The total revenue potential would be ~₹300-₹320 crore.

so apart from HALS, this 3 major growth drivers. I sometime gets very bullish on cleanscience but just need to closely watch how new products picks up the pace. overall I do feel this is giant in making. I dont see any red flag just wishing all these capex and new products gets it due.

Very bullish!!

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Last two month’s export data is very promising compare to previous months!! anyone has this insights corelated with performance?

https://www.importyeti.com/supplier/clean-science-and-technology

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I just tried and found negative correlation :laughing:

This only seems to be US’s export data, while the total revenues of CSTL are pretty diversified geography wise, which explains the low correlation, but why negative, I am not really sure.

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Thank you, Yes this is only USA export data. They have 12 shipments in first two months of this Qtr and all shipments are heavy in weight. I could not find such successive 6+ shipments back to back if you look at last few years so this have to be bullish but who knows!!

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As per my understanding the stock price is in stage 1 ideal time for a fundamental investor to buy if fundamentals are changing. From my initial study it seems like business is entering a stage 2 in upcoming quarters.

Don’t look at pe when a cyclical company is going through headwind (I’m still studying the company) if profit is going to double in next few years then price will follow. Take a look at Privi, GFL, Newgen chemical etc. Some of them were in Consolidation and went up with some earnings Catalyst. I’m trying to understand if clean science has some catalysts in coming quarters.

The price is at bottom of a stage 1 base a lovely place to enter for long term investors. You can’t loose money from here at any cost.
Disclosure: Studying.

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Few questions and pointers:

  1. Some time back there was news from other chemical companies (Arti Industries??) about venturing into MEHQ and related chemicals. Had stopped tracking 12-18 months back so I am bit out of date on this. Anyone has any inputs/latest update on domestic competition entering into their turf?

  2. Based on my limited understanding of how this capex to production ramp-up cycle plays out - there is a significant lag between capex completion and production ramp up. Factors like sample approvals with customers, production scale up and stabilization takes it own time depending on the chemistry involved. With respect to new capex that has being announced, please factor in these additional timeline before doing any modelling on expected profits

I will start my study on the stock in coming days and share my learnings. In the interim if anyone can share update on pt.1 that will be helpful.

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