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Clean Science & Technology Ltd

| Q2 FY26 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤6th Nov 25

Summary : Clean Science reported resilient Q2 margins despite revenue decline from Chinese competition and demand uncertainty, with HALS growth and new product commercializations offering future prospects.

Management Perspective neutral : Management acknowledges 'tricky time situations' and 'uncertainties' but expresses 'delight' in HALS growth and 'satisfactory' trial results for new products. They are 'agile' and 'on the right track' despite challenges.

Concall Report Analysis & Insights

Business Overview

  1. Standalone revenue decreased 5% QoQ to INR206 crores and 8% YoY, primarily due to lower sales in established products.
  2. EBITDA margins remained resilient at 44% for the quarter, improving 2% YoY due to favorable product mix.
  3. Consolidated revenues were steady at INR240 crores QoQ, with EBITDA at INR87 crores and PAT at INR55 crores.
  4. HALS segment monthly run rate volumes grew over 25% QoQ to 260 tons per month.
  5. HALS material margin improved to 35% from 31% due to better raw material costs.

Future Growth Prospects

  1. Commercialized HALS 2020 and enriching the HALS product portfolio with higher grades.
  2. Performance Chemical 1 is undergoing chemical trials, with commercialization expected this month (December 2025).
  3. Performance Chemical 1 has a 10,000-ton capacity, targeting INR300 crores revenue over three years.
  4. Successfully commercialized barbituric acid by repurposing existing facilities.
  5. Expanded capacities for some food-grade antioxidants.

Management Insights

  1. Lower sales were driven by Chinese competition and demand slowdown in end industries.
  2. Working closely with customers to understand needs and offer price reductions to maintain competitiveness.
  3. HALS business is expected to grow quarter-on-quarter by acquiring more market share and new customers.
  4. New product commercialization timelines are on track, with samples by December and sales in Q4.
  5. Strategy is to maintain volumes and avoid losing market share despite competitive pressures.

Signs of Skepticism

  1. Management declined to provide EBITDA guidance for the year due to market uncertainties.
  2. The full revenue potential of INR300 crores for Performance Chemical 1 is projected over a 3-year period, not immediately.
  3. The decline in standalone PAT was steeper than EBITDA, primarily due to forex loss, which wasn't elaborated upon.
  4. The impact of raw material price fluctuations was downplayed as a 'two weeks period' issue.

Risk Factors

  1. Sharp decline in end-product prices due to competitive intensity from Chinese suppliers.
  2. Demand uncertainty in end markets, leading customers to defer or moderate procurement.
  3. Impact of tariffs and customer-specific volume deferrals in the US market.
  4. Potential for customer backward integration, leading to lost market share in China.
  5. Volatility in China market dynamics makes future predictions difficult.

Good To Know

  1. Standalone EBITDA for the quarter was INR90 crores, 10% lower QoQ and 5% YoY.
  2. Standalone PAT was INR65 crores, 15% lower QoQ and 4% YoY.
  3. Invested roughly INR150 crores in CFCL subsidiary during the first half of the year.
  4. HALS domestic market share is 50%, with exports increasing globally.
  5. Q3 FY26 is expected to be flat, with growth anticipated in Q4 FY26 due to new products.

Key Drivers

  1. New HALS 2020 commercialized, improving margins.
  2. Performance Chemical 1 commercialization expected soon.
  3. HALS volume growth accelerating, global exports increasing.
  4. Expanded food-grade antioxidant capacity for growth.

Key Analyst Discussions

Competitive Environment

  1. Chinese suppliers' competitive intensity led to price declines in customer end products.
  2. One FMCG product in China market was impacted by customer backward integration.
  3. MEHQ is largely insulated from current competitive intensity in Chinese markets.
  4. No significant competitive pressure observed from domestic players like Viniti or Camlin Fine Sciences.

Market Trends & Consumer Behavior

  1. Demand uncertainty in end markets caused customers to defer or moderate procurement plans.
  2. US market decline was due to customer-specific volume deferral and tariff uncertainty.
  3. Crude oil-linked raw material prices are decreasing, impacting product prices.
  4. Raw material price fluctuations for phenol products were temporary and had no major impact.

Financial Highlights

  1. Q2 revenue decline was 2% volume-led and 3% realization-led QoQ, and 6.5% volume-led YoY.
  2. Subsidiary gross margin impact was due to lower closing stock, not a fundamental portfolio issue.
  3. HALS value growth was 34% QoQ, higher than volume growth due to sales of higher-grade HALS.
  4. HALS capacity utilization for the quarter was 25%, with material margins around 35%.

Product Composition

  1. Top four products' contribution to standalone revenue declined to 80% QoQ but improved to 84% YoY.
  2. HALS portfolio is being enriched with higher grades like HALS 2020 to enhance volumes.
  3. Domestic HALS sales are heavier on lower-end products, while international sales are higher-end.
  4. Capacity expansion for food-grade antioxidants is for a different antioxidant, not BHA.

Strategic Considerations

  1. Engaging directly with large customers in India and Europe, while using distributors for just-in-time needs.
  2. Performance Chemical 1 commercialization involves chemical trials, with samples by December and optimization through March.
  3. Performance Chemical 2 facility expected to start water trials in April and commercial production by June.
  4. Budgeting a 3-year period to reach INR300 crores revenue potential for Performance Chemical 1 by FY28.
  5. Strategy is to maintain market share and volumes, especially in the face of aggressive competition.