CSTL’s expansions, innovation may keep investors interested
PremiumAccording to analysts, the HALS business can potentially add 30-40% to CSTL’s expected profits by FY25
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Investors who bought shares of Clean Science and Technology Ltd (CSTL), the specialty chemicals manufacturer, at its initial public offering (IPO) are a happy lot. After listing at a premium of 98% in July, the shares have climbed a further 30% since then.
True, the general buoyancy in the equity markets has rubbed off on the company’s shares too. But, a decent June-quarter performance, expansion plans and new forays have also helped.
Analysts expected a 10.5% CAGR (compound annual growth rate) in global demand for green chemicals over CY19-25 led by rising awareness about the ill-effects of certain chemicals.
CSTL’s key business is green chemicals. Further, the company also uses non-toxic raw materials with lower effluents, leading to cost efficiencies.
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Unlike competitors that are either dependent on China for raw materials or face competition from Chinese companies, CSTL is a seller of products to China. China contributes more than a third to the company’s revenues.
Meanwhile, the company has forayed into hindered amine light stabilizers (HALS) range of products. These are used in various industries such as water treatment, paints and coatings. The estimated global market size for the HALS series stands at $1 billion per annum.
Being the first Indian manufacturer of HALS products, CSTL is set to receive more dividends than other firms that may enter the space, going ahead.
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The first line of production dedicated to the HALS series will be at Unit 3 in Maharashtra and the company is making capital investments towards existing and new products. Additional production lines will also be installed at Unit 4.
The HALS business can potentially add 30-40% to CSTL’s expected profits by FY25, according to analysts at Axis Capital Ltd.
As such, the company’s capacities have doubled between FY17 and FY21 to 30,000 tonnes. With the first phase of Unit 3 expected to start in the December quarter and the second phase of Unit 3 to be commissioned by FY23, capacities are set to rise to 50,000 tonnes by then. Unit 4 expansions will add more later on.
Ergo, CSTL’s revenues may grow at a CAGR of 23% over FY21-24 on the back of phased capacity additions at Unit 3, point out analysts at Motilal Oswal Financial Services Ltd.
The Ebitda (earnings before income, tax, depreciation and amortization) margin is also likely to remain robust at 49%.The company reported 30% year-on-year revenue growth during Q1FY22, with the Ebitda margin at 49.3%.
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