Reblog: Clean Science IPO review

• CSTL is a global player with niche techno developed products.
• Last three fiscals it has posted remarkable performance.
• This is a dividend-paying company since FY12.
• Based on financial parameters, the issue is fully priced.
• Investment may be considered with a long term perspective.

ABOUT COMPANY:

Clean Science & Technology Ltd. (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 it to emerge as the largest manufacturer globally of certain speciality chemicals in terms of installed manufacturing capacities as of March 31, 2021 (Source: F&S Reports). Some of these technologies have been developed and commercialized for the first time globally (Source: F&S Reports).  The company continued to focus on product identification, process innovation, catalyst development, the significant scale of operations as well as measures towards strategic backward integration have all contributed to its success as one of the fastest-growing and among the most profitable speciality chemical companies globally (Source: F&S Reports).

CSTL manufactures functionally critical speciality chemicals such as Performance Chemicals (i.e. MEHQ, BHA and AP), Pharmaceutical Intermediates (i.e. Guaiacol and DCC), and FMCG Chemicals (i.e. 4-MAP and Anisole). Within 17 years of incorporation, it has grown to be the largest manufacturer globally of MEHQ, BHA, Anisole and 4-MAP, in terms of installed manufacturing capacities as of March 31, 2021 (Source: F&S Reports).

CSTL’s speciality chemicals have a wide range of applications that cater to a diverse base of customers across the industries globally.

ISSUE DETAILS / CAPITAL HISTORY:

To part provide an exit to some of its stakeholders and for benefit of listing gains, CSTL is coming out with a maiden IPO of approx. 17184688 equity share of Re. 1 each by way of offer for sale via book building route.

The issue opens for subscription on July 07, 2021, and will close on July 09, 2021. The company has fixed the price band of Rs. 880 – Rs. 900 per share and mulls mobilizing Rs. 1546.62 cr. at the upper price band. Minimum application is to be made for 16 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 16.18% of the post issue paid-up capital of the company. The company has allocated 50%fo QIBs, 15% for HNIs and 35% for retail investors.

Having issued initial equity at par, CSTL raised further equity in the price range of Rs. 5 to Rs. 6 per share (based on FV of Re. 1 per share) between March 2007 and March 2011. It has also issued bonus shares in the ratio of 7 for 1 in February 2021.

The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.00, Rs. 0.63, Rs. 0.66, Rs. 0.67, Rs. 0.69, Rs. 0.70, Rs. 0.71, Rs. 0.73 and Rs. 0.75 per share.

The Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., JM Financial Ltd. and Kotak Mahindra Capital Co. Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.

After the issue, CSTL’s current paid-up equity capital of Rs. 10.62 cr. will remain the same as this is the pure secondary issue.  Based on the upper price band of the issue, the company is looking for a market cap of Rs. 9559.71 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, CSTL has (on a consolidated basis) posted turnover/ net profits of Rs. 404.56 cr. / Rs. 97.66 cr. (FY19), Rs. 430.17 cr. / Rs. 139.63 cr. (FY20) and Rs. 538.07 cr. / Rs. 198.38 cr. (FY21).  CSTL’s export revenue for all these years has been on an average 70% of the turnover.

For the last three fiscals, the company has (on a consolidated basis) posted an average EPS of Rs. 15.26 and an average RONW of 37.97%.

The issue is priced at a P/BV of 17.71 (at the upper price band) based on its NAV of Rs. 50.81 as of March 31, 2021. On the basis of FY21 earnings, the issue is priced at a P/E of around 48.18.  (against the industry average of 55.38).

COMPARISON WITH LISTED PEERS:

As per offer documents, the company has shown Vinati Organics, Fine Organics, Camlin Fine, SRF Ltd., Navin Fluorine and PI Ind as its listed peers. They are currently trading at a P/E of 77.41, 78.53, 290.52, 47.95, 74.60 and 63.86 (As of July 02, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:

The company has been paying dividends since fiscal 2011-12. It has paid a dividend of 750% for FY19, 900% for FY20 and 20% for FY21. It will follow a prudent dividend policy post listing on the basis of its financial performance and future prospects.

MERCHANT BANKER’S TRACK RECORDS:

The three BRLMs associated with the offer have handled 32 public offers in the last three fiscals (including the ongoing one), out of which 11 offers closed below the offer price on the listing date.

CONCLUSION / INVESTMENT STRATEGY

The issue is fully priced based on financial parameters. The company is milking the bullish sentiment of the secondary market as well as of its niche play. However, considering virtual monopoly in the field of its operations for many products, investment with a long term perspective is recommended.

The original review has been penned by Dilip Davda, appears on chittorgarh.com and is available here.