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Clean Science IPO – A Fierce Combo of Chemicals and Technology

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Clean Science and Technology, a maker of speciality chemicals, will begin accepting subscriptions for its initial public offering (IPO) on July 7. After GR Infraprojects, this will be the second IPO in July 2021.

Industry Overview:

India is the world’s sixth-largest chemical manufacturer, accounting for 3.4 per cent of worldwide chemical production. Chemical manufacturing is both knowledge and a capital heavy industry. It comprises petrochemicals, fertilisers, paints, varnishes, gases, soaps, fragrances, toiletries, and medications, among other things. 

The chemical sector has a wide range of products, with more than 80,000 commercial products. Textiles, papers, paints, varnishes, soaps, detergents, pharmaceuticals, and other downstream businesses rely on the industry as a mainstay of industrial and agricultural development.

Company overview: 

Clean Science and Technology Limited is solely dedicated to the development of novel technologies based on in-house catalytic processes that are both environmentally benign and cost-effective. It produces functionally vital speciality chemicals and is one of the largest manufacturers of certain speciality chemicals in terms of capacity.

Clean Science is one of the few firms in the world devoted solely to the development of novel technologies based on in-house catalytic processes that are both environmentally benign and cost-effective. As a result, as of March 31, 2021, the company was the world’s largest maker of certain speciality chemicals in terms of installed manufacturing capacity.

Financials: 

It has a stable growth in business over the years 16% cagr, supernormal growth in margins (from 36% in FY19 TO 55% in FY21) leading to doubling profits in 2 years, their sustainability is questionable. The main objective of an IPO is to finance the extra working capital requirements. The borrowings are minimal and have provided strong revenue growth. 

Peer comparison: 

The major competitors for the company are Vinati organics ltd, SRF Ltd, PI Industries Ltd, Fine Organics and Navin Fluorine International Ltd.

The Balancing Act

Positive:

  • One of India’s top companies in terms of commercialising the usage of environmentally friendly techniques to produce certain speciality chemicals at global scales.
  • Because it is one of the leading manufacturers of specific specialised chemicals with uses across industries, it is a low-risk business strategy.
  • solid and long-term ties with its most important customers
  • With a significant focus on EHS and automated production facilities with proven design and commercialization capabilities (Environment, health, and safety).
  • In terms of financial and operational measures, it has shown constant growth over the last three financial years.

Negative:

  • High reliance on constantly creating catalytic processes to increase cost-efficiency and R&D.
  • The procedures aren’t copyrighted, and the company’s intellectual property could be vulnerable.
  • Any type of disruption to its production activities.
  • There are no long-term contracts in place with customers or suppliers.
  • legal action against the corporation and its directors is still pending.
  • Key clients account for a large amount of the company’s revenue.

Grey Market Premium:

Clean Sciences and Technology is selling at a hefty premium in the grey market ahead of the IPO. Clean Sciences and Technologies stock are currently trading at a premium of Rs 480 per share. This amounted to a significant 53 per cent premium over the IPO’s higher end of the price band.

What can investors expect? 

Performance Chemicals, Pharmaceutical Intermediates, and FMCG Chemicals are among the speciality chemicals produced by Clean Science and Technology. Last month, SEBI approved the company. The issue has a ‘Subscribe’ rating from analysts at Marwadi Shares and Finance and Aditya Birla Money. With a market size of Rs.95,597 million, the firm will list at a PE of 48.18X, while its counterparts Vinati Organics and Fine Organics are trading at 77.4X and 75.1X times, respectively.

This IPO is appealing since the firm is one of the world’s largest makers of functionally essential speciality chemicals and is trading at a discount with its rivals.

Disclaimer – This written report is only for educational purposes. Consult your financial advisor before investing. 

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