Clean Science - Margin To Decline, Valuation Expensive: HDFC Securities

HDFC Securities Institutional Equities

We maintain 'Sell' on Clean Science and Technology Ltd. with a price target of Rs 1,026 (WACC 11%, terminal growth 6%), owing to-

1. slower-than expected ramp-up in hindered amine light stabilisers

2. entry of domestic competitor in mono methyl ether of hydroquinone manufacturing; and

3. lower offtake of performance chemicals.

Gross profit margin and Ebitda margin are expected to fall by 520/340 basis points by FY26 from 65/43% in FY23. Global giants are augmenting the capacities of HALS and intermediates of HALS.

Vinati Organics Ltd. plant to manufacture MEHQ is expected to commence production by FY24-end. Vinati Organics is using a process similar to the process being used by Clean Science, which has given Clean Science a competitive advantage.

Ebitda and profit after tax shall grow at a 13/11% compound annual growth rate over FY23-26E.

The return on equity is expected to decline from 33.2% in FY23 to 23.9% in FY26E, owing to a reduction in margin and asset turnover.

Valuations are contextually high at 41/36 times FY25E/26E earnings per share.

Click on the attachment to read the full report:

DISCLAIMER

This report is authored by an external party. BQ Prime does not vouch for the accuracy of its contents nor is responsible for them in any way. The contents of this section do not constitute investment advice. For that you must always consult an expert based on your individual needs. The views expressed in the report are that of the author entity and do not represent the views of BQ Prime.

Users have no license to copy, modify, or distribute the content without permission of the Original Owner.