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The question on the minds of environmentalists around the world these days is how to stop the rapid degeneration of clean water sources. How can we lessen pollution without paying the cost of economic losses for use of chemicals? The most feasible answer to the above questions is Green Chemistry. Green chemistry is an emerging focus among manufacturing industries as it minimizes pollution at a molecular level.
And Clean Science & Technology is one of the leading companies in India operating in green chemistry focused entirely on developing eco-friendly and sustainable manufacturing processes for specialty and fine chemicals.
The company exports its products to many major industrial markets including China, Europe, the USA, Taiwan, South Korea & Japan. Exports made up 68% of the sales of the company in the fiscal year 2021. Key customers for Clean Science include Bayer AG, SRF Limited, Gennex Laboratories Limited, Nutriad International NV, and Vinati Organics.
The company has 3 manufacturing facilities in Kurkumbh in Maharashtra, which is close to the JNPT port, allowing for lower logistics costs. The company has recently commissioned 2 new plants in its 3rd facility to make new products, PBQ & TBHQ, and increased its capacity for BHA by over 50%.
The global green chemicals market is expected to grow to USD45 billion by 2025 at a CAGR of 10.5% between 2019 and 2025. India is taking on the role of a hub for manufacturing, rivaling China effectively due to flexible environmental laws, and cheaper skilled labor in India.
The future of green chemistry is inevitable with increased demand from all chemical industry sectors to have greener processes and starting materials that yield less pollution. India’s position as a sustainable and cheap manufacturing hub is a major competitive advantage for the company.
The company’s strength is its expertise in making green chemicals and engineering processes, which has led to it being near the top in most of its product segments. This not only translates into high market share but also into high margins for the company.
So, what is our view on company valuation?
The company saw a great IPO in July 2021 with a total subscription of 93.4 times and provided listing gains of over 98% on listing at INR 1,798 over its IPO price of INR 900. The company currently trades at a Price to Earnings (TTM) of 95 times, trading significantly higher than the overall chemical industry P/E ratio of approximately 30 times. The difference between valuations for Clean Science and its peers represents the market potential of the company’s product portfolio and its inherent expertise vs its peers.
The company looks good for long-term investment and should be evaluated by investors. However, the company is presently very expensive vis-a-vis competition and overall industry valuation.
As for the risks to the analysis, the customer concentration risk is very high for the company with the top 10 customers accounting for approximately 50% of the Fiscal Year 2021 sales. The loss of any key customer will be detrimental to the company’s operations.
So, would you invest in Clean Technologies? Share your views in the comments section and like the video if you liked our analysis.
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