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Motilal OSwal
Clean Science and Tech (Buy)
Target: ₹1,700
CMP: ₹1,468.05
Clean Science and Technology (CSTL) has emerged as the global leader in most of its product categories on the back of niche product offerings catering to polymer inhibitors/super-absorbents, anti-oxidants for the food/feed industry, pharma, home, and personal care. It has further bolstered its value chain through novel manufacturing technology based on green chemistry for one of the key raw materials. CSTL’s streak is driven by its strong R&D capabilities in both plant technological/engineering development as well as process innovation (based on greener chemistries). This has led to the gross margin expanding to 76 per cent in FY21 from 62 per cent in FY16 (the EBITDA margin expanded from 33 per cent to 50.5 per cent over FY16-21).
The company has posted a robust revenue CAGR of nearly 29 per cent in the last five years. We expect CSTL's revenues to grow at a CAGR of about 23 per cent over FY21-24 (on the back of capacity additions at Unit-III in phases over FY22). The company plans to capture higher market share for its products.
We initiate coverage on CSTL with a ‘Buy’ rating. In our recently-released sector initiating report ‘Genie is out’, we had highlighted that normally, companies with a higher proportion of specialty chemicals command richer valuations.
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