Clean Science & Technology (NSE:CLEAN) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to the q two FY twenty seven earnings conference call of Clean Science and Technology Limited. We have with us on the call, missus Sadat Sikji, managing director and promoter, missus Sanjay Parnilkar, CFO, and mister Prateek Pora, president, commercial. As a reminder, all participant 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 0 on your touch tone phone. I now hand the conference over to mister Siddharth Sikchi for opening remarks. Thank you, and over to you, sir. Thank you so much.

0:49 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 FY 'twenty seven earnings. So let me first speak about the basic the business performance. The quarter marked yet another consequent quarter of being the highest ever revenue in the history of the company, highlighting our continued effort to translate from investment phase to asset monetization phase in the New Health 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.

1:37 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. On the HAL segment, on Y o Y basis, the HAL segment grew 2x in revenue during the quarter. It was achieved on top of robust HAL's volume growth. To give a little perspective, in H1 FY 'twenty seven, we achieved aggregated volumes of 67% of the total volumes achieved during entire previous financial year.

2:25 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 our quality. And today, we are one of the trusted strategic partners with the customer. This trust is very difficult to win, and we are very proud to have earned this. Further, as we speak, we continue to add new customers and increase the wallet share from existing customers every quarter. On cost improvement front, during the quarter and also in the subsequent quarters, we will be starting some of the key starting materials for some of these halves products, which eventually will result in improvement in our gross margin.

3:17 Put all together, healthy volumes, continuous process improvement and benefits of operational leverage have resulted in EBITDA margin of 12% in the first half of FY 'twenty seven. And during this quarter, we reached a PAT positive. CLEAN has conducted and completed trial for the advanced grade of HALES product. This marks a significant milestone towards the commercial launch of the new product expected to commence in H2 of FY 'twenty seven. Following on the input costs, input costs have remained high during the quarter as The Middle East prices kept the crude linked feedstock prices high.

4:08 Key raw materials such as phenol, acetone and methanol were 50 to 100% higher year on year, alongside an increase in coal and freight costs. With Chinese prices yet to move up, the pass through to the customers was difficult. Consequently, the raw material cost rose to 43% versus 39.7% on a consolidated basis. However, the customer demand remained resilient. Now let me touch upon the financial performance for the period 09/30/2026, stand alone. Starting with Q on Q comparison. On a sequential basis, revenues improved by 11% to INR $2.26 crores, largely due to higher volume across Performance Pharma and FMCG.

5:04 EBITDA and FAT margins are at 3624%, translating into EBITDA of 82 crores and FAT of INR 55 crores. Margin moderation was primarily due to high raw material costs, which rose to 41% from 35% in Q1 FY 'twenty seven. On Y o Y comparison, sales grew by 10% during the quarter. Thus, revenue growth was primarily led by improved realization, while volumes were broadly stable. The demand environment continues to be steady. On a console basis, company delivered a healthy volume led growth of 12%, resulting in revenues of INR $2.95 crores on consolidated basis with EBITDA and FAT margins of INR 92 crores and INR 56 crores, respectively.

6:02 On Y o Y comparison, the sales grew 23% during the quarter. The revenue growth was primarily led by improved volume growth approximately 10% and realization by 13%. The increase in revenue is primarily led by consistent sales of Health business and consolidated EBITDA grew by 6%, supported by turnaround in CFCL. On a year to date basis, consolidated sales grew by 17% to INR $5.59 crores with EBITDA of INR 188 crores and PAT of INR 129 crores. The split was 77% performance, 14% pharma intermediates and FMCG was 7%.

6:59 A little on the CapEx, Performance Chemical II will get commercialized by quarter three to quarter four FY 'twenty seven. During the quarter, capital infusion in subsidiary was approximately INR50 crores and INR150 crores in H1 FY 'twenty seven. With this, the total investment in subsidiary company stands at INR900 crores. 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 and 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 touch tone phone. If you wish to withdraw yourself from the question queue, you may press star and 2. Participants are requested to use only a handset while asking a question.

7:54 Ladies and gentlemen, we will wait for a moment while the question queue assembled. You may please press star and one to ask questions. The first question is from the line of Sanjesh Jain from ICICI Securities. Yeah. Hi. Good afternoon, Sudar. A couple of questions from my side. First, 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%.

8:41 That means we have retained EBITDA per kg despite all the headwinds and inflation. Will that be a fair statement to make? No. But, Angesh, 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 led. And annually, the growth largely is realization led. So what Sadat is also trying to arrive at is that during this quarter, the entire raw material cost increase on account of the inflationary pressure was not translated to the sales growth.

9:36 Sequentially, the sales growth is largely volume led. And hence the margins have taken that impact. So we are now this is purely on the stand alone basis we are discussing, right? Yes, yes, stand alone basis. So you're telling that this 12.5 growth is entirely the volume led in the stand alone business. And what is the anticipated price hike required for us to retain that EBITDA per kg kind of a run rate? So you'll have to really calculate the cost on yes, 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 benefit any cost increase to the customer.

10:28 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 at are least 10%, 15% the prices are lower in China. Okay. No, no, I got the point. I got it. But how is the economics between HQ route and the Anisol 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 we are now competitively at a stage that Chinese are holding up on the price increase for us?

11:21 So basically, the reason is, I think, see, the crude oil prices I mean, the phenol spread, if China price of phenol is about INR 1,300 crores, whereas India prices of phenol is over INR $15.50 So that delta is big enough delta that they are not increasing the prices. They are holding on to all the prices, be it hydro phenol, be it MEHQ. 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'm very clear, super clear, Siddharth. Second, on the new product HQ, which we started now a quarter back, we said this quarter we will do commercial.

12:12 Are we there in terms of performance product one? So in Hydroquinone Catacol, Pangesh, right now, we are at about 30%, 35% capacity utilization. And fortunately, all these capacities are currently used for our own captive consumption. And small sales have picked up in Europe and I think some and also something in India. Got it. My next question on the health is that good to see volume picking up very sharply for us. You also mentioned in your opening remarks that we are looking at more backward integrating or some of our backward integration projects are in the process of getting commission. What are these products?

12:59 And is this for the contract we have done with the Genesis or this is different we're talking about? No, no, no. So see, these some base products which we manufacture 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. So that product is started, which is a precursor for one of the halves. And in the next quarter, we will be starting another intermediate, which we were currently buying from China, which we will be making in house to make these halves more cost effective.

13:47 Okay. These are solvents or the building blocks we are talking about No, no, These are building blocks. These are all materials. These are not solvents. Got it. Got 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 FY 2028 or something? Oh, next quarter in this quarter, running quarter. Yes, yes. November or December, we'll 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 barbaric acid. I haven't heard about that for a while now. Any update you want to share there?

14:38 See, basically, we realize 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 to which we are very close to commissioning, what is the product pipeline looks like for FY 'twenty eight and 'twenty nine?

15:30 So I think we are very bullish on this whole life stabilizer segment. So we are going to debottleneck 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? Sterilizers, adjacencies. Okay. Sterilizers, health care adjacencies is something which we will start producing in the next few quarters. Okay. Okay.

16:16 Nothing in the performance segment apart from the health emergency right now we are looking at, right? Right now, no, not at the moment. Got it. Got it. Thanks, Sudar, answering all those questions patiently. Best of luck for the coming quarters and happy Diwali. Wishing you the same. Thank you. The next question is from the line of Arun Prasad from. Please go ahead. Yeah. Good evening, everyone. Thanks for the opportunity. Sudhak, 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 will what should we monitor from our side, which will indicate that we will be taking the price hike?

17:16 See, we are continuously trying to increase the prices. When we get a severe pushback, we know the prices are where they 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. Right. But for that, the demand of the core products should be higher than the discretionary capacity of the Chinese. Do you see that the the gap narrowing down any any point of time? Because given the current, you know, as it own trends, it doesn't look like the prices is going to correct unless crude takes a major hit.

18:09 No. But I think, see, eventually, even the Chinese or even the competition has to raise price at some point in time. I mean, but it depends on when are they raising because I don't want to be the first one to raise and lose market share. Got it. Understood. And second, on halves, you said that eventually we'll be allocating more of capital into this. In terms of... So in terms of product portfolio, anything else we are missing before we getting into the venturing to the same debottlenecking of the existing products? Sorry, I didn't get your question.

18:56 So the incremental investment is not too heavy because see ultimately earlier was a greenfield project. Now it is more of adding lines. So now the CapExes are not very heavy. So and these are particular products, which we believe now we are ready to start the offering to the market. Say, for instance, a product like 2,020, we did a lot of trials. We did some commercial trials on plant. And now we believe we have to put up a 1,000 ton line and we will do so and the plant should start by April or May. So these are all advanced version of house. Understood. Any indication what is our percentage of advanced excluding seven zero one and seven seventy, what percentage of the portfolio is from the other valves currently?

19:51 Earlier it used to be 70%, 80% ish, if you can indicate where we are at this point of view? 60% is. 60% is still 77040% is now the advanced half. And I think this ratio will keep changing as we move quarter on quarter basis. Understood. And any idea when we will be able to achieve the at what realization level we should be targeting higher margins for the half portfolio from the current levels? I'm sure this is not our steady state margins. So basically, again, like I think every quarter on quarter, we should see improvement because the higher grade of halves will start seeing picking up.

20:40 So as this movement will start happening quarter on quarter basis, but the margins will also keep improving quarter on quarter. Number two, as we are getting into this backward integration of making the key precursor, also that will help in improving our margins in those particular products or halves. Understood. Got it. Finally, one question on CapEx. What will be our full year CapEx this year? And probably for FY 'twenty eight, how much we intend to spend? Arun, not much CapEx now because Performance Chemicals 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 CapEx number.

21:45 The next question is from the line of Abhijit Akhila from KIE. First, on the phenol price difference in India and China, would you expect that the upcoming commissioning of Halia Petrochemicals could possibly help to narrow the gap and bring ethanol 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 health portfolio, Is it correct that we've generated about 22% of this quarter sales from Hal's, so that would work out about INR 66 crores or so, just to confirm that number?

22:35 The volume number... More or less, yes. Yes. The volumes and how do you see the 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% to 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, outlook you'd like to share? I mean, where do you see it going once you're at 60%?

23:29 Currently, with this whole macroeconomics and with these crude oil prices, I think it is very difficult to determine anything. So I would like to pass that. Okay. And yes, sorry. The other one was yes, just on ATBS, we are mentioning 3Q, we are commissioning the project. So any revenue trajectory you would like to sort of share this year, next year? So the Performance Chemical II, the deadline, I mean, we are hoping really to start the commercial production in Q4, so probably in the month of January said.

24:21 Yes. In the first calendar year, is it possible to touch, say, 30%, 40% utilization, you would think? See, it is very difficult to say because 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 KSMs that you mentioned for Hal's, how much of sort of increase in margins or backward integration will that lead to? Is a very significant benefit from a margin perspective?

25:08 It will not be very significant, but it will be very important for us because then it makes us 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 half. Understood. Great. Thank you so much. Wish you all the best. Thank you. Thank you. The next question is from the line of Sahil Dhawan from SD Investments. Please go ahead. Sir, I have one question about half capacity in total.

26:07 Sir, so initially, we had a half capacity of 10,500 metric tons. Now we have half in advanced, north half as well, and now we are talking about debottlenecking into further capacity. So in total, sir, where do you see us ending up in terms of the total halved capacity, hi. Capacity as of now is close to 11,500 tonnes. With this JNOR collaboration association, we would like to add incremental capacity only in the advanced grade of irons. So that will take out our overall capacity to close to 12,500 tonnes. 12,500 tonnes. Thank you, sir. And sir, I went through our annual report as well, and we are talking about a new antioxidant that we have commercialized, Clean Antioxidant nine sixty two.

26:59 So sir, can you throw Yes, some light it's on that at a new grade of antioxidant. Of course, we have started supplying some small quantity, but let it pick it up and then I think we will have more picture of 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 put up on this in the antioxidant? So basically, it is currently we have not put any CapEx for that. It is being manufactured within our current assets. Okay, sir. Okay. And this is, sir, in our parent company. Right?

27:46 Right. Okay. Thank you, sir. These are all my questions. Thank you. Thank you. You. Ladies and gentlemen, we'll take that as the last question for today. I now hand the conference back to Mr. Siddharth Sikchi 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.