Even after the recent correction, while most of the stocks are seeing recovery, Domestic brokerage house Motilal Oswal believes this will not be the case for specialty chemicals stock Clean Science and Technologies.
It expects no upside in the stock going ahead. Meanwhile, it sees the stock falling another 5 percent from its current market price to ₹1,660 despite a 30 percent fall in 2022 so far. The brokerage has a 'neutral' call on the stock.
The brokerage noted that the firm had lower margins due to high input and energy costs in FY22.
"CLEAN’s revenue increased 34 percent YoY to ₹680 crore in FY22 aided by strong growth in export markets, increased share with customers, better realizations and launch of new products. Its gross profit rose 18 percent YoY to ₹220 crore in FY22; although, gross margin contracted 870 bps due to unprecedented raw material cost inflation," it said.
COVID-led disruptions also resulted in higher fuel and logistics costs; consequently, EBITDA margin posted a 670 bps contraction, it noted. It further added that the company generated ₹130 crore cash from operations, implying a decline of 34 percent YoY.
Pioneer in Hindered Amine Light Stabilizers (HALS) in India
As per the brokerage, Clean Science has developed key products in the HALS series using in-house R&D capabilities at lab and pilot scales. It is setting up lines of two such products in Unit-III of the manufacturing facilities and the other lines would come up in Unit-IV (under its wholly owned subsidiary, Clean Fino-Chem Ltd.) that it has recently acquired. The Unit-III lines are likely to be commercialized in H2FY23, it noted.
Development of the HALS series would diversify the firm's product portfolio and helps it enter into the polymer/paint customer base by developing UV stabilizers, which have the same customer base, MOSL pointed out.
This product range finds application in various end-user industries including polymerization inhibitors, water treatment, paints, plastics and coatings. The current estimated global market size of HALS is $1 billion (reporting a CAGR of 10 percent) and Clean Science is the first domestic company to foray into HALS, added the brokerage.
R&D
The brokerage further highlighted that since its inception, the company’s focus has been on commercializing cleaner and greener technologies as well as processes in India. This would not have been possible without having a strong R&D base and infrastructure.
"CLEAN is one of the few companies globally to work on developing a catalyst and then using it for commercial production. The core focus areas of the company in R&D are: new product development largely in the performance chemicals segment (largest and fastest growing segment), continuously improving yields and efficiencies of existing processes and developing new intermediates that can address import substitution," it noted.
MOSL added that the company is focusing on enhancing its R&D initiatives, further building efficiency, and improving processes to bring down the Greenhouse Gas (GHG) emission level by another 5 percent.
Despite the positives, the fall in margin due to high raw materials and fuel prices is likely to sustain, noted the brokerage which is likely to be the main reason behind the potential downside going ahead.
Stock price trend
The stock has lost 30 percent in 2022 so far. It has been in the green since July, when the overall market sentiment received a boost, up around 15 percent since last month. However, before July, it had fallen in 5 of the 6 months of the year. In the last 1 year, the stock has risen 13 percent.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.