Clean Science and Technology Ltd. (CSTL), a speciality chemicals company that has been operational in India since 2006 and incorporated in 2003, is gearing up for its initial public offering (IPO). The IPO is set to open for subscription today, July 7 and it will close on July 9. With a price band of Rs 880 to Rs 900 per equity share, the issue will open with an IPO of Rs 1,546 crore. The company’s IPO is going as an offer for sale (OFS) by the shareholders and promoters.
The company focuses on developing house catalytic processes, which are eco-friendly and cost-effective. CSTL manufactures functionally critical, speciality chemicals such as performance chemicals, pharmaceutical intermediates and FMCG chemicals. The company has two certified production facilities in India at Kurkumbh, in Maharashtra.
The Issue period opens on July 7, 2021, and closes on July 9, 2021. The price band stands at Rs 800 to Rs 900 per equity share, while the minimum bid quantity is 16. The issue has a face value of Rs 1 and an OFS of 17.2 million, as per information from a Reliance Securities report.
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Shares: Promoters hold a pre-issue share of 94.7 per cent and a post-issue share of 78.5 per cent. Public pre-issue shares held, stand at 5.4 per cent and post-issue shares stand at 21.5 per cent.
Objects of Issue: The objective of the Offer is to carry out the OFS up to Rs 1,546.62 Crore by the selling shareholders and achieve the benefits of listing the Equity Shares on the Stock Exchanges. CSTL will not receive any proceeds from the OFS and all the proceeds from this issue will go to the shareholders, as per an HDFC Securities report.
CSTL is among the leading companies in India to have commercialised the use of environment-friendly processes to manufacture certain speciality chemicals, at global capacities. It has achieved this position by optimising the use of conventional raw materials, improving atom economy, enhancing yields, reducing effluent discharge, and consequently increasing cost competitiveness, the report by HDFC Securities mentions.
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Since its incorporation in November of 2003 in Pune, Maharashtra, CSTL has become one of the most functionally profitable speciality chemical manufacturers in the country thanks to its in-house chemical development processes, said a Geojit IPO report. Its facility in Kurkumbh, Maharashtra has a combined installed capacity of 29,900 MTPA and a capacity utilisation rate of 72% in FY21, the report said.
The company’s financials have been on the upswing. Its consolidated revenue was recorded at 14 per cent and its earnings before interest, taxes, depreciation, and amortization (EBITDA) recorded at 38 per cent CAGR through FY19-FY21 as per the Reliance Securities report. CSTL was also able to achieve a net profit of 43 per cent CAGR in the same period. It should also be noted that its EBITDA margins have significantly improved. It has gone from 24.8 per cent in FY19 to 38.7 per cent in FY21 said the report.
“The IPO is valued at 42.2x of FY21 earnings, which looks to be reasonably priced. However, peers like Vinati Organics and Fine Organic trade at ~75x
FY21 earnings, which offers valuation comfort for CSTL. We note CSTL’s RoE at
37% is superior to its peers, which along with a healthy asset turnover ratio at
3.8x FY21 (at the utilization of 72%) and better OCF yield offer an edge. Further,
strong growth prospects for domestic speciality chemical manufacturers on the back of China+ One strategy may eventually aid CSTL to sustain strong earnings momentum, going forward. Hence, we recommend SUBSCRIBE to the IPO,” said Reliance Securities in the report.
CSTL’s company shares in the unlisted market have been trading at a healthy 50 per cent premium. This unlisted market is also known as the grey market, which is a post IPO announcement trading platform where trading ends upon the listing of the IPO shares.
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