`Clean’ fundamentals may deserve steep valuation though existing shareholders’ negative cost of residual holding is cause for worry, post lock-in period.
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CLEAN SCIENCE OFFER AT A GLANCE |
|
|
Offer Type |
Book Built |
|
Platform |
Main Frame |
|
Fresh Issue |
Nil |
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Offer for Sale |
Rs 1546.6 2Cr |
|
Face Value |
Re 1 |
|
Price Band |
Rs 880 – 900 |
|
Mkt/Bid Lot |
16 Nos. |
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Implied M-Cap |
Rs 9,560 Cr |
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Equity Cap |
Rs 10.62 Cr |
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Free Float |
21.49% |
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Lead Manager |
|
|
Registrar |
Link Intime |
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Listing At |
BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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|
Opening : 07-Jul-2021 |
Closing : 09-Jul-2021 |
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Allotment : 14-Jul-2021 |
Refunding : 15-Jul-2021 |
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Demat Credit : 16-Jul-2021 |
Trading : 19-Jul-2021 |
The Offer
Pune-based Clean Science Technology Ltd (CSTL), which completes 18 years in November this year, is going public with an offer for sale valued Rs 1546.62 cr, translating to 171.85 lakh shares at the upper band. The offer is being made through the book-building route with a price band of Rs 880-900 for Re 1 paid-up share.
Applicants should bid for a minimum lot of 16 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on July 19, 2021. Axis Capital, JM Financial and Kotak Mahindra Capital are acting as managers to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Wednesday, July 7 and closes on Friday, July 9, 2021.
Lineage
The 2003-registered CSTL was originally incorporated as Sri Distikemi Private Ltd. The name was changed in July 2006 in order to reflect the company’s vision of focusing on sustainable chemistry led by innovative technology and lower carbon effluents. The company’s promoters Ashok Ramnarayan Boob (69), Siddhartha Ashok Sikchi (39), both alumni of the Institute of Chemical Technology, Krishnakumar Ramnarayan Boob (66) and Parth Ashok Maheshwari (28), are all career-technocrats with a combined experience of over 60 years in the chemicals industry. Before promoting CSTL, Ashok Boop and Krishnakumar Boob were associated with Mangalam Drugs and Organics Ltd as Executive Director and Director respectively.
CSTL is among the few companies globally focused entirely on developing newer technologies using in-house catalytic processes, which are eco-friendly and cost competitive (Source: F&S Reports). This has enabled the company to emerge as the largest manufacturer globally of certain specialty chemicals in terms of manufacturing capacities as of March 31, 2021. Some of these technologies have been developed and commercialized for the first time globally. The company’s continued focus on product identification, process innovation, catalyst development, significant scale of operations as well as strategic backward integration have all made it as one of the fastest growing and among the most profitable specialty chemical companies in the world.
CSTL’s Products and the company’s Standing in the industry (Source: F&S Reports):
MEHQ – Largest in World & Largest in India
BHA – Largest in World & Largest in India
Guaiacol – Third Largest in World & Second Largest in India
Anisole – Largest in World & Largest in India
4-MAP – Largest in World & Largest in India
DCC – Amongst Largest in World & Largest in India
L-Ascorbyl Palmitate – Second Largest in World & Second Largest in India
Key Management
CSTL’s board is dominated by the technocrat promoters and their associates. Ashok Boob is the managing director and his brother Krishnakumar Boob and nephew Siddhartha Sikchi are whole time directors. The chairman of the company is Pradeep Rathi, who is the promoter-chairman of Pune-based Sudarshan Chemical. Rathi is a paternal uncle of Siddhartha Sikchi.
Stakeholders
About 95% of the company’s equity capital (Rs10.62 cr) is held by promoters and their relatives at an average cost of 51 paise per share. The balance is held by employees and associates. Unlike other IPOs, CSTL does not have the presence any private equity or venture capital fund. Almost the entire offer for sale comes from the promoters and their relatives. Post offer for sale, the promoter group will continue to have 78.51% at a negative cost (-186 rupees per share).
Business Track
CSTL manufactures specialty chemicals such as Performance Chemicals (MEHQ, BHA and AP), Pharmaceutical Intermediates (Guaiacol and DCC) and FMCG Chemicals (4-MAP and Anisole). Within two decades of incorporation, the company has reportedly become the largest manufacturer globally of MEHQ, BHA, Anisole and 4-MAP. The claims that most of its production processes were either zero liquid discharge or release only water as discharge.
CSTL’s products are claimed to have a wide range of applications that cater to a diverse base of customers across industries. Its customers include manufacturers and distributors in India as well as other regulated international markets including China, Europe, the United States of America, Taiwan, Korea, and Japan. In fiscal 2021, revenue from outside India represented 67.86%.
CSTL’s products are reportedly used as polymerization inhibitors, intermediates for agrochemicals and pharmaceuticals, anti-oxidants, UV blockers, and anti-retroviral reagents, which are functionally critical in a wide range of industries, including in the manufacture of paints and inks, agro-chemicals, pharmaceuticals, flavours and fragrance, food and animal nutrition (feed), and personal care (cosmetics) products. CSTL’s customers include Bayer AG, SRF, Gennex Laboratories, Nutriad International NV and Vinati Organics.
The company has two certified production facilities strategically located at Kurkumbh (Maharashtra), in close proximity to the JNPT port from where CSTL exports majority of its products. Each facility claims to have an on-site R&D unit, quality control department, warehouse, and effluent treatment system. The company claims to have a combined installed capacity of 29,900 MTPA, achieving a capacity utilization of 71.94% in fiscal 2021. CSTL has also recently set-up its third facility adjacent to the existing facilities at Kurkumbh (Maharashtra). Further, it has recently been allotted land for the construction of a fourth facility at Kurkumbh.
Financial Track
CSTL’s financials are very impressive. The company has grown organically, and its revenues and profitability have consistently increased, to emerge as one of the most profitable specialty chemical companies globally. From Rs 243 cr in fiscal 2018, the company’s top line has steadily climbed up to Rs 512 cr in fiscal 2021. Operating profit has leapt from Rs 73 cr to Rs 259 cr during this period with margin vaulting from 30% to 50%! The company has virtually become zero-debt. On a relatively small equity base of Rs 10.62 cr the company posted a net profit of Rs 198 cr. The company has no share premium but, it has earned surplus worth Rs 529 cr which is really commendable.
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Clean Science Consolidated Financials (in Cr) |
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Year Ended |
Mar-21 |
Mar-20 |
Mar-19 |
Mar-18 |
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Months |
12 |
12 |
12 |
12 |
|
Revenue |
512.43 |
419.30 |
393.27 |
242.69 |
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Operating Profit |
258.95 |
185.29 |
136.31 |
73.41 |
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OPM% |
50.5 |
44.2 |
34.7 |
30.2 |
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Other Income |
25.64 |
10.87 |
11.29 |
4.54 |
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EBIDTA |
284.6 |
196.15 |
147.6 |
77.95 |
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EBIDTA % |
52.9 |
45.6 |
36.5 |
31.5 |
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Interest |
0.09 |
0.12 |
0.03 |
0.11 |
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Depreciation |
17.21 |
13.71 |
11.03 |
7.6 |
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Net Profit |
198.38 |
139.63 |
97.66 |
48.9 |
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Equity |
10.62 |
1.33 |
1.42 |
1.42 |
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Reserves |
529.05 |
340.77 |
270.64 |
186.45 |
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Borrowing |
0.33 |
2.69 |
2.60 |
0.08 |
Valuation
Whereas the promoters and their associates would hold more than 80% of the equity at an extremely negative cost, public is asked to shell out Rs 900 for Re 1 paid up share. Post lock-in period, this could have a serious impact on the share price. CSTL indeed compares well with its peers in terms of price-to-EPS. But, in terms of price to cash earnings, price to book value, price to revenue and price to productive assets, the offer price looks very steep as compared to CSTL’s peers.
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Clean Science Peer Comparison |
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Financials |
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|
(Amount in Cr) |
Clean Science |
Camlin Fine |
Atul |
Laxmi Organic |
Privi Special |
|
|
Market Cap |
9560 |
2482 |
27669 |
6342 |
5277 |
|
|
Borrowing |
0 |
490 |
102 |
91 |
496 |
|
|
Fixed Assets |
238 |
505 |
1606 |
463 |
735 |
|
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Revenue |
512 |
1187 |
3731 |
1768 |
1277 |
|
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Other Income |
26 |
5 |
103 |
5 |
20 |
|
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EBIDTA |
285 |
187 |
1027 |
221 |
251 |
|
|
Interest |
0 |
38 |
9 |
16 |
21 |
|
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Net Profit |
198 |
65 |
660 |
127 |
117 |
|
|
Equity Cap |
11 |
13 |
30 |
53 |
39 |
|
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Reserves |
529 |
631 |
3797 |
982 |
683 |
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Stock Features |
||||||
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Current Price (Rs) |
900 |
195 |
9351 |
241 |
1351 |
|
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Face Value (Rs) |
1 |
1 |
10 |
2 |
10 |
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Book Value |
51 |
50 |
1293 |
39 |
185 |
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Promoter Stake % |
78.5 |
21.6 |
44.9 |
72.9 |
74.1 |
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Debt/Equity |
0.0 |
0.8 |
0.03 |
0.1 |
0.7 |
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Profitability |
||||||
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OPM % |
50.5 |
15.3 |
24.8 |
12.3 |
18.1 |
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Net Margin % |
36.9 |
5.5 |
17.2 |
7.2 |
9 |
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Cash EPS |
20.30 |
7.15 |
267.69 |
6.58 |
48.10 |
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Earnings Per Share |
18.68 |
3.67 |
221.62 |
4.82 |
29.93 |
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Return |
||||||
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RONW % |
36.8 |
10.2 |
17.2 |
12.3 |
16.2 |
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ROCE % |
49.5 |
12.6 |
22.7 |
15.5 |
14.7 |
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Discounting |
||||||
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Price/Earnings |
48.19 |
52.99 |
42.19 |
49.92 |
45.14 |
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Price/Cash EPS |
44.34 |
27.23 |
34.93 |
36.54 |
28.08 |
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Price/Book Value |
17.71 |
3.86 |
7.23 |
6.13 |
7.3 |
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Price/EBIDTA |
33.59 |
13.28 |
26.93 |
28.66 |
21.06 |
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Price/Revenue |
18.66 |
2.09 |
7.41 |
3.59 |
4.13 |
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Price/Fixed Assets |
40.24 |
4.91 |
17.23 |
13.69 |
7.18 |
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Distribution |
||||||
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Dividend % |
250 |
0 |
200 |
17.5 |
20 |
|
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Yield % |
0.3 |
0 |
0.2 |
0.2 |
0.2 |
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Pay-out % |
13.4 |
0.0 |
9.0 |
10.4 |
6.7 |
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Concern
- Even while the company enjoys ultra high profit margins, none of its catalytic processes is patented. Hence, its intellectual property may not be adequately protected, which could have an adverse impact on the company’s operating results in the future.
- Promoters have interest in entities which are in businesses similar to the public company. This may lead to conflict of interest and affect the prospects of the public company.
- Valuation reports for the allotment of sweat equity shares by the company are not traceable. Also, there have been instances of non-compliances and errors with respect to certain corporate actions and regulatory filings undertaken by CSTL in the past. The company has re-filed the relevant forms for the rectification of such errors with the RoC, and has filed a compounding application for non-compliances in relation to issuance of sweat equity shares, for which it may be subject to penalties. Such poor quality of corporate governance is bound to affect the reputation of the company in the stock market.