Clean Science and Technology Limited (CLEAN) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q2 FY27 Outings Conference Call of Clean Science and Technology Limited. We have with us on the call, Mr. Siddharth Sikji, Managing Director and Promoter, Mr. Sanjay Parnerkar, CFO, and Mr. Pratik Bora, President, Commercial. As a reminder, all placement lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Siddharth Sikchi for opening the mouth. Thank you and over to you, sir.

Thank you so much. Good afternoon, all of you, for taking time out to listen to our earnings call on Saturday. So, let me present to you the Q2 FY27 earnings. So, let me first speak about the basics, the business performance. The quarter marks yet another consequent quarter of being the highest ever revenue in the history of the company, highlighting our continued effort to translate some investment phase to asset monetization phase in the new HAL segment, Where in base business, we continue to increase our volumes in our flagship products, detecting a robust cost competitiveness. On the base business of clean science, the base business saw a resilient volume-led growth across performance and pharma segment. Export sales increased to 73% of the stand-alone business, again 64% during the previous quarter. Otherwise, this base business showed a steady performance. It was achieved on back-off. To give a little perspective, in H1 FY27, we achieved aggregated volumes, total volumes achieved during entire previous financial year. This growth means more to us than just numbers show. It reflects a fundamental shift in how our customers see us. We started as a new entrant providing, and today we are one of the trusted strategic partners with the customers. This trust is very difficult to win, and we are very proud to have earned this. We continue to add new customers and increase the wallet share from existing customers every quarter. On cost improvement firms, during the quarter and also in the subsequent quarters, we will be starting some of the key starting materials for some of these health products, which eventually will result in improvement in our gross margin. Put all together, healthy volumes, continuous process improvement, and benefits of operational leverage have resulted in a bit-term margin of FY27, and during this quarter, we reached a pact expected to commence in H2 of FY27, of 50 to 100% higher year-on-year, alongside an increase in coal and freight costs, by 13%. In revenue is primary-led, 59 crores, with EBITDA of 188 crores, and PAC of 129 crores. The split was 77% performance, 14% pharma intermediates, and FMCG was 7%. Level on the table, Performance Chemical 2 will get commercialized by quarter 3 to quarter 4 FY27. During the quarter, capital infusion in subsidiary was approximately 50 crores and 150 crores in H1-SY-27. With this, the total investment in subsidiary company, with this, I conclude my opening remarks and take this opportunity to also wish you all a very happy Diwali and looking forward to the Q&A session. Thank you.

Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask questions, may please press star and 1 on the touchtone phone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use only a hand-tip while asking a question. Please and gentlemen, we will wait for a moment while the question queue assembles. You may please press star and 1 to ask questions. The first question is from the line of Sanjesh Jain from ICICI Securities. Please go ahead.

Hi. Good afternoon, Siddharth. A couple of questions from my side. First, purely on the margin, just to clarify, the percentage margin in this quarter doesn't make sense, right? There is a very sharp inflation in the raw material which mathematically compresses the margin. We are holding on to the existing run rate of 92%. That means we have retained EBITDA per kg despite all the headwinds and inflation. Will that be a fair statement to make?

No, but, Sangesh, I think we were not able to pass through the price increase to the customer. So, of course, the percentage-wise came down, but on absolute, because of the volume growth, we were still able to maintain the absolute number.

So, what was the volume growth for this quarter?

Sequentially, the entire growth was volume lag, and annually, the growth largely is realization lag. So what Sadat is also trying to arrive this year is that during this quarter, the entire raw material cost increase on account of the inflationary pressure was not translated to the sales growth. Sequentially, the sales growth is largely volume-lit. And hence, the margins have taken that impact.

So we are, now this is purely on the standalone basis we are discussing, right?

Yes, yes, standalone basis.

So, you are telling that this 12.5% growth is entirely the volume lead in the standalone business, and what is the anticipated price hike required for us to, you know, retain the EBITDA per kg kind of run rate?

So, we'll have to really calculate the cost. Actually, see, the point is it's market-driven, and the prices in China have not risen to the point that we can pass any cost increase to the customer. Apparently, the commodity prices which we see in China are far lower than the prices which we are buying in India.

You mean phenol, acetone prices, the differential are...

Yes, at least 10-15%, the prices are lower in China.

Okay. No, no, I got the point. I got... But how is the economics between HQ route and the anisole route? Because we thought Chinese are largely on an HQ route, which they were disadvantaged at some point of time. This phenol-acetone difference is making all that, that we are now competitively at a stage that Chinese are holding up on the price increase for us?

So, basically, the reason is, I think, see, the crude oil prices, I mean, the phenol spread, if China price of phenol is about $1,300, whereas India prices of phenol is over $1,550.

Okay.

So that delta is big enough delta that they are not increasing the prices. They are holding on to all the prices, be it hydrofenone, be it any HQ. And hence, we have to also maintain the prices and absorb all these raw material prices ourselves to keep the market share in China or in other parts of the world.

Now I am very clear, super clear, Siddhar. Second, on the new product, HQ, which we started now a quarter back, we said this quarter we will do commercial. Where are we there in terms of performance product one?

In hydroquinone catapult, right now we are at about 30-35% capacity utilization. Unfortunately, all these capacities are currently used for our own captive consumption. And small sales are picked up in Europe and I think also something in India.

Got it. My next question on the health, Siddharth, good to see volume picking up very sharply for us. You also mentioned in your opening remark that we are looking at more backward integrating or some of our backward integration projects are in the process of getting commissioned. What are these products, and is this for the contract we have done with the Genesis, or this is different we're talking about?

No, no, no. See, some base products which we manufacture, you know, to make it more cost-effective, we have identified some of the intermediates. If we are able to make it in-house, it further improves our cost competitiveness in these products. So, we have already started one product where we have put an ethoxylation facility, which is a precursor for one of the hulls, and in the next quarter, we will be starting another intermediate, which we are currently buying from China, which we will be making in-house to make these hulls more cost-effective.

Okay. These are solvents or the building blocks we are talking about?

These are building blocks.

These are problems.

These are not solvents.

Got it, got it. And you mentioned that we have successfully tested the products for the contract. When should we start seeing them flowing into revenue? Will it be more like FI28 or something?

Oh, next quarter, this quarter, running quarter. Yeah, November or December, we will start shipping this material to Europe.

Got it, got it. One last, from my side, Siddharth, before I get back into the queue. We were expecting to produce Burbaric Acid. I haven't heard about that for a while now. Any update you want to share there?

See, basically, we realized that currently the prices which Chinese are offering, We are not able to offer those prices, so we have kept this product on hold for the moment.

Okay, okay, we haven't proceeded. We didn't make any changes in that plant we were planning to, right?

No, no, we did that, but we want, because the major raw material is imported from China, but the Chinese producers are not able to, are not increasing the prices, but the other raw materials which you are buying from India have become almost 3x. So, it is not making any sense for us to produce at the moment.

Got it. Got it. And then, post this performance, too, which we are very close to commissioning, what is the product pipeline looks like for FI28 and FI29?

So, I think we are very bullish on this whole light stabilizer segment. So, we are going to de-bottleneck, and we are going to add increased capacities in some of these products, and also trying to get in allied or adjacencies, which will be catering to the same customers. So, you will see all these products coming up in the next few quarters.

No, I missed which product? Sorry, sorry, I missed the product.

The light stabilizer adjacencies. Okay, light stabilizer. Health care adjacencies is something which we will start producing in the next few quarters.

Okay, okay. Nothing in the performance segment apart from the health adjacency right now we are looking at, right? Right now, no, not at the moment. Got it, got it. Thanks, Adak, for answering all those questions patiently. Best of luck for the coming quarters, and happy Diwali. Fishing is the same.

Thank you. The next question is from the line of Arun Prasad from Evendus Park. Please go ahead.

Good evening, everyone. Thanks for the opportunity. Siddharth, I understood why we have not able to take the price hike, but my question is, what will push us and, you know, which will eventually make us take the price hike? What is the breaking point? What should we monitor from our side, which will indicate that we will be taking the price lately?

See, we are continuously trying to increase the prices. When we get a severe pushback, we know the prices are currently. And our point is very simple. We don't want to lose our market share, because gaining these market share again becomes a big problem. So, by retaining the market share, if we are able to increase the price, we are more than happy to do so.

For that, the demand of the core products should be higher than the discretionary capacity of the Chinese. Do you see that gap narrowing down at any point of time? Because even the current enol-acetone trends, it doesn't look like the prices are going to correct unless crude takes a major hit.

No, but I think, see, eventually, even the Chinese or even the competition has to raise price at some point in time. I mean, you know, but it depends on when are they raising, because I don't want to be the first one to raise and lose market share.

And second, on HALS, you said that eventually we will be allocating more of capital into these. In terms of product portfolio, anything else we are missing before we get into the venturing to the theme, debottlementing of the existing products?

Sorry, I didn't get your question. So, the incremental investment is not too heavy, because, see, ultimately, earlier it was a greenfield project, now it is more of adding lines, you know, so now the capexes are not very heavy, so, and these are particular products which we believe now we are ready to start offering to the market, say, for instance, a product like 2020, we did a lot of trials, we did some commercial trials on plant, and now we believe we have to put up a thousand ton line, and we will do so, and the plant should start by April or May. So these are all advanced version of calls.

Understood. Any indication, what is our percentage of advanced, excluding 701 and 770, what percentage of the portfolio is from the other calls currently? Earlier, it used to be 70-80% days, if you can indicate, you know, where we are at this point.

60% is still 7-7-0, and 40% is now the advanced, and I think this ratio will keep changing as we move quarter on quarter basis.

And any idea when we will be able to achieve the, at what realization level we should be targeting higher margins for the HALS portfolio from the current levels? I'm sure this is not our city-state margins.

So basically, again, like, I think every quarter on quarter we should see improvement because the higher grade of HALS will start seeing picking up. So, as this movement will start happening quarter-on-quarter basis, the margins will also keep improving quarter-on-quarter. Number two, as we are getting into this backward integration of making the key precursors, also that will help in improving our margins in those particular products of house.

Got it. Finally, one question on CAPEX. What will be our full-year CAPEX this year and probably for FY28, how much we intend to spend?

Arun, not much CapEx now because performance chemical is largely funded. For the adjacencies of the pipelines which Siddharth just alluded to, once we have the investment case approved by the board, we will arrive at the CPEX number.

All right. Thank you very much, and all the best job, Siddharth. Thank you. Thank you.

Thank you. Thank you, sir. Anyone who wishes to ask questions, may please press star and one now. The next question is from the line of Abhijit Akhila from KIE. Please go ahead.

Yeah, thank you and good evening. First on the phenol price differences in India and China, would you expect that the upcoming commissioning of Halea petrochemicals could possibly help to narrow the gap and bring phenol prices down in India?

See, that is always the hope, but you don't know how that is going to pan out, right?

Okay. All right. Then on the HALS portfolio, is it correct that we've generated about 22% of this quarter sales from HALS, so that would work out to about 66 crores or so, just to confirm that number. And the volume numbers...

More or less, yeah.

More or less, yeah. In line. Yeah, the volumes and how do you see the, you know, total volumes or utilization going this year and next year now?

So, currently, I think we are at about 30-35% capacity utilization, 40%. And I think going forward, we expect that the coming few quarters, we should touch between 55-60% capacity utilization. So, almost 50% increase.

Okay, great. And this increase will largely come from the higher end grades, is it?

Yes, absolutely.

Okay, great.

And just from an EBITDA margin trajectory perspective, any, you know, outlook you would like to share there? I mean, where do you see it going, you know, once you're at 60%?

See, currently with this whole macroeconomics and with these crude oil prices, I think it is very difficult to determine anything. Yeah. So I would like to pass that.

Okay. And, yeah, sorry. The other one was, yeah, just on ATBS, we are mentioning 3Q, we are commissioning the project. So any revenue trajectory you would like to sort of share, you know, this year, next year?

So, the performance chemical 2, the deadline, I mean, we are hoping really to start the commercial production in Q4, so probably in the month of Jan 7.

Yeah. In the first calendar year, is it possible to touch, say, you know, 30-40% utilization, you would think?

See, it is very difficult to say because, you know, this is a tricky product. It has to stabilize samples, customers, validation. So, it's too preliminary to gauge at what extent we will reach that capacity utilization, but of course, the target is to touch 20-25% capacity utilization in the first year.

Okay, understood. And just one last thing from me, the KSM study mentioned for HALS, how much of, you know, sort of increase in margins or, you know, backward integration will that lead to? Is it a very significant benefit from a margin perspective?

It will not be very significant, but it will be very important for us because then it makes us, I mean, import free. I mean, we can then manufacture it and use it for ourselves. So there could be between 5-7% improvement in margins for those particular segment of health.

Understood. Great. Thank you so much. Wish you all the best.

Thank you.

Thank you. Please press star and one to ask questions at this time. The next question is from the line of Sahil Dhawan from SD Investments. Please go ahead.

Second.

Hello, sir.

Mr. Sahil Dhawan.

Am I audible, sir? Sir, I have one question about house capacity in total. Sir, so initially we had a halts capacity of 10,500 metric tons. Now we have halts in advance, nor halts as well, and now we are talking about de-bottlenecking into further capacity. So in total, sir, where do you see us ending up in terms of the total halts capacity, sir? Thank you, sir. So, sir, can you throw some light on that?

Yeah, it's a new grade of antioxidant. Of course, we have started supplying some small quantities, but let it pick it up, and then I think we will have more picture on it. Currently, I think we are making just about 500 odd tons, but it's still not as big as we wanted. So, let it come up a little bit, then we will be able to get more information.

Sir, can you throw some light on the capacity that we have, you know, put up on this anti-oxygen?

Sir, basically, it is currently, we have not put any KPEGs for that. It is being manufactured within our current assets. Okay, sir. Okay.

And this is, sir, in our parent company, right? Okay, okay. Thank you, sir. These are all my questions. Thank you, sir. Thank you.

Thank you. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference back to Mr. Siddharth Sikhi for closing comments. Thank you and over to you.

Thank you so much all for attending this conference. Wishing you all happy Diwali in advance and looking forward to connecting with you for the next quarterly reviews. Thank you so much.

Thank you, members of the management. Ladies and gentlemen, on behalf of Clean Science and Technology Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.