Motilal Oswal Sets Neutral Rating for Clean Science, Target Price ₹1580

Motilal Oswal has given a “Neutral” rating for Clean Science and Technology with a target price of ₹1,580, according to their report from October 8, 2024.

Clean Fino Chem (CFCL): The Future Growth Driver

• Clean Science (CLEAN) is focusing on research and development (R&D) for innovation and sustainability. In FY24, they made big progress by launching new products like the HALS series and developing materials for the pharmaceutical industry. They are currently working on 10 new molecules, which are expected to boost future growth in the pharmaceutical, polymer, and agrochemical sectors.
• Clean Fino Chem (CFCL), a fully owned subsidiary of CLEAN, is increasing its HALS production, which currently has a capacity of 10.5ktpa. They are expanding through two new projects (Unit-4 and Unit-3) to meet rising global demand in pharma, agrochemicals, and polymers. A new plastic application lab will help HALS growth, and all future investments in the company will happen in CFCL.
• Between FY25 and FY27, CLEAN expects to generate ₹6 billion in free cash flow and plans to spend ₹5.5 billion in capital expenditure (capex). Currently, the stock is trading at around 43 times its estimated FY26 earnings and 32 times its estimated enterprise value/EBITDA. The stock is valued at 40 times its estimated earnings for September 2026, which brings the target price to ₹1,580.

R&D at the Core of Clean Science’s Growth

• CLEAN’s R&D is a key reason for its growth, focusing on innovation, sustainability, and improving processes. The company has increased its investment in R&D and developed a strong pipeline of new products, positioning it well for future growth.
• In FY24, CLEAN achieved important R&D milestones, such as developing and launching HALS products for polymer stabilization and creating new pharmaceutical intermediates. These intermediates are in high demand for making APIs (active pharmaceutical ingredients) in the pharmaceutical industry. CLEAN’s spending on R&D grew by 7% to ₹67 million, showing the company’s commitment to innovation and long-term growth.
• CLEAN is also working on more than 10 new molecules in key sectors like pharma and polymers, which will drive future growth. They are focused on reducing the need for imported pharma intermediates and creating eco-friendly agrochemicals, in line with India’s “Atmanirbhar Bharat” (self-reliant India) mission.

CFCL: The Beginning of a New Era

• CFCL is CLEAN’s largest facility, covering 34 acres. The company has invested ₹3.4 billion in CFCL since March 2022, using internal funds. Management aims to improve the supply chain, lower costs, and ensure top-quality products.
• CLEAN is the first Indian company to develop the HALS series and is expanding production to meet both domestic and global demand. Current HALS production capacity is 10.5ktpa, and the company has secured the necessary certification for one of its key products. New projects in Units 3 and 4 will help meet the growing needs of pharma, agrochemicals, and performance chemicals. All future growth investments will take place at CFCL.
• The global HALS market, worth $1 billion, is expected to grow at a rate of 10% per year until 2030. CLEAN is set to benefit from this growth. The company started commercial production of some HALS products in FY24, with more on the way to meet the increasing demand from industries like polymers, paints, and automotive. A new plastic lab will also help improve quality and support future growth in HALS products.

Valuation and Outlook

• CLEAN is focusing heavily on R&D and has entered the HALS market, which has an estimated global value of $1 billion. Commercial production at CFCL has begun, and management expects HALS production to reach 80% capacity in the next three years.
• The company expects to generate ₹6 billion in free cash flow between FY25 and FY27 and plans to spend ₹5.5 billion in capex during the same period, which will be funded through internal sources. CLEAN is expected to maintain a strong cash position. The stock is currently valued at 43 times its estimated FY26 earnings per share (EPS) of ₹36 and 32 times its estimated enterprise value to EBITDA ratio. Based on 40 times the projected earnings for September 2026, the target price for the stock is ₹1,580.

Disclaimer: The views and investment tips expressed by investment experts on Sharepriceindia.com are their own and not those of the website or its management. Sharepriceindia.com advises users to check with certified experts before taking any investment decisions.​​

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