Chemicals maker Clean Science’s IPO is open till July 9; should you go for it?

Clean Science & Technology Ltd (CSTL), a specialty chemicals company headquartered in Pune, has launched an initial public offering (IPO) to raise ₹1,546 crore. The issue, which opened to retail investors on Wednesday, is on till Friday.

Here’s a quick glance at what the company does, and its prospects, before you take a call on investing in it.

Anchor investors

CSTL, ahead of its float for retail investors, raised nearly ₹464 crore by issuing 51.5 lakh shares to anchor investors — these are institutional investors that typically buy shares in a company as a first step in its IPO. Since CSTL’s public issue consists entirely of an offer-for-sale by existing investors, and no fresh shares are being issued, the IPO size was reduced from 1.7 crore shares to 1.2 crore shares after the anchor investment round.

The price band of the IPO has been fixed at ₹880-900 per share. That the anchor investors bought the shares at the top end of the price band, at ₹900 apiece, is seen as a good indicator of their confidence in the company’s prospects.

Also read: The what, when and why of Paytm’s $3-billion IPO

On Wednesday, the first day of the IPO, CSTL received bids for 76.9 lakh shares, or 63% of the total shares on offer.

What does CSTL do?

The company produces functionally critical specialty chemicals including performance chemicals, pharma intermediates and FMCG chemicals. Globally, it is the largest manufacturer of key chemicals such as MEHQ, BHA, Anisole and 4-MAP in terms of installed capacity.

CSTL has two plants at Kurkumbh, Pune, which comprise 11 production lines. The cumulative capacity of the two plants is 29,900 million tonnes per annum (mtpa).

The company’s current clientele includes top international players such as Bayer, SRF and Vinati Organics etc. As of FY21, its top 10 customers accounted for about 48% of its revenues.

What looks promising

The chemicals industry is set to perform well — demand and prices are soaring — and CSTL could capitalise on it. It is one of the few manufacturers worldwide that have developed new in-house technologies for catalytic processes. These are claimed to be eco-friendly and cost-effective, and have helped CSTL become one of the largest makers globally of select specialty chemicals.

As multinational companies seek to trim their dependence on China for raw materials including chemicals, it opens up opportunities for Indian firms like CSTL. With its robust manufacturing capacity, low cost of production, in-house development capabilities and sound environmental practices, the company may be well positioned to tap the opportunities, say analysts.

The financials

CSTL’s revenue saw a compounded annual growth rate (CAGR) of about 14% in the years 2018-19 to 2020-21. The company witnessed good volume growth and improved margins. At ₹900 per share, the IPO has a price-earnings ratio of 48 times.

Analysts have said that while the offering is not cheap, the stock performance post IPO may justify it. They have also pointed to CSTL’s encouraging returns ratios and growth prospects, and its valuation vis-à-vis peers.

Leading brokerages that have assigned a ‘Subscribe’ rating to the CSTL IPO include Geojit Financial, Reliance Securities, Aditya Birla Capital, Hem Securities and Anand Rathi.