Clean Science and Technology Limited (CLEAN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '26 Conference Call of Clean Science and Technology Limited. We have with us on the call Mr. Siddharth Sikchi, Executive Director and Promoter; Mr. Sanjay Parnerkar, CFO; and Mr. Pratik Bora, Vice President. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Sikchi. Thank you, and over to you, Mr. Sikchi.

Thank you so much. Good evening to all of you. We are delighted to welcome all of you for this Q2 interaction of Clean Science and Technology. Let me get to the numbers. The stand-alone business performance. The revenues decreased by 5% to INR 206 crores on a sequential basis, which is a decrease by 5% and 8% on year-on-year. The decline in revenue was primarily led by lower sales in some of our established products. Consequently, top 4 products contribution to stand-alone revenue declined to 80% as against 84% in the last quarter, whereas it improved from 70% on -- 74% on a Y-o-Y basis. Despite the moderation in revenue, EBITDA margins remained resilient at 44% for this quarter. The slight margin impact was largely attributed to change in product mix. Further, when we compare on a Y-o-Y basis, EBITDA margins improved by 2% on account of favorable product mix. The stand-alone EBITDA for the quarter is about INR 90 crores, which is 10% lower on Q-o-Q basis and 5% on a Y-o-Y basis. Stand-alone PAT for the quarter is INR 65 crores, which is 15% lower Q-on-Q and 4% on Y-o-Y basis. The reduction in PAT was steeper than EBITDA, primarily on account of ForEx loss. The changing market dynamics in China have led to capturing effect on our lower -- on our sales volume. We believe the lower sales during the quarter were driven by a combination of following factors. Number one, for some customers, we observed a sharp decline in price of their end product amidst the competitive intensity from Chinese suppliers. As a result, these customers have slowed down their procurement. And number two, for certain other customers, there is demand uncertainty in their end markets, prompting them to defer or moderate their procurement plans. To summarize, we believe these trends represent a mix of second order impact of tariffs and demand slowdown in some end industry, influencing our customers' purchasing behavior during the quarter. On consolidated business performance on a sequential basis, the revenues were steady at INR 240 crores. Consol EBITDA and PAT is INR 87 crores and INR 55 crores, respectively. For HALS segment, we are pleased to report that the monthly run rate volumes for quarter 2 averaged to about 260 tonnes per month, representing a growth of over 25% compared to previous quarter. As a measure to enhance volumes, we are enriching the product portfolio by introducing higher grades of HALS. To that effect, we are pleased to report that we have commercialized HALS 2020. It is worthwhile to note that the material margin for HALS portfolio has improved to 35% from 31% due to improved raw material costs. A little on CapEx update. Clean Science invested roughly INR 150 crores during the first half year in [indiscernible]. The Performance Chemical 1 is undergoing chemical trials and the results have been satisfactory till now. We look forward to announce commercialization during this month. Since we are closer to commercializing, let me share a few highlights about the product. Number one, the proposed new product [indiscernible] synergies with our existing products in terms of cross-sell opportunities and also backward integration for certain of our other products. We have also successfully commercialized barbituric acid by repurposing one of our existing facilities. We have successfully expanded capacities of some of our food grade antioxidants. With this, I conclude my opening remarks and look forward to the Q&A session. Thank you.

[Operator Instructions] The first question is from the line of Sanjesh Jain from ICICI Securities.

I have few of them. First on the established products, what was the volume growth or decline? And what was the realization change versus previous quarter?

For you on Y-o-Y, whatever data you've got?

No. So Sanjesh, sequentially, when we say that the revenue have declined by 5%, 2% [indiscernible] was volume-led and 3% was realization led. This is at the company level at the portfolio level, rather than speaking about individual product levels. And on Y-o-Y basis, say that the sales have decreased by 8%, almost around 6.5% was volume-led and balance was realization debt.

That's quite clear. Now what are we doing to see that I know customer uncertainty is causing it and we generally transient [indiscernible]. Now for next couple of quarters, how do we be planning to save this difficult scenario of uncertainty?

So Sanjesh, for the next few quarters, I think we are trying to work very closely with the customers to really understand the real need. And if there is price reduction needed so that they can be competitive in their end products. And this is some of the ways we are trying to counter to increase the revenue and trying not to lose market share.

Okay. Siddharth, this one geographical question along is there, I can see the Y-o-Y basis, the decline has come from U.S. as it is in China [indiscernible] Now how are we trying to address these 2 geographies. China, obviously, they are themselves very competitive. And U.S., I thought, is it more of an impact from tariffs we are seeing or what is playing out in U.S.? [indiscernible].

Yes, China, I think the major impact is one of our products in FMCG segment has taken a hit in China market. So how are we trying to address? I think the customer is slower in picking up the volume or there is also a possibility that they have backward integrated. In case it is backward integrated, then the volumes will not come back. And in that case, we will have to refurbish or relook at the strategy on company level. In Americas, it is just a product, a customer-specific volume, I mean, which is not this quarter, probably we might lift next quarter and also because of tariff uncertainty.

Okay. Got it. Next on the new products that we are commercializing and we have already started [indiscernible] can you give us the offtake that we are expecting in the second half of this year and next year. I thought, we commissioned what, 3,000 metric tons of capacity in that?

No, no, no. We didn't commission 3,000 tonnes. We've just started with the small volume right now. The whole point is the plant is commercialized. The commercial samples are out with the customers who are based out of India. And I first want to see how are paid -- I mean, again, there will be validation batches there because ultimately it goes into pigment yellow, so what are the applications, how does it work with their application. And based on it, we will get a clear cut idea from the customer what -- how much would they really want to shift to us because currently, the entire volumes come from China. So once I have more clarity probably in the next quarter, I will be able to answer this better.

So what is the capacity right now we started with till now?

We've just started with about less than 1,000 tonnes, closer to 1,000 tonnes per annum because this is refurbishment of our existing plants.

Yes. I know, you mentioned that TBHQ, right? No P-BQ plant?

[indiscernible] yes, yes, yes.

And then the new product which is [indiscernible] so anything you want to talk about is what kind of capacity we are looking at in the terms? And how much [indiscernible]?

So I think the Performance Chemical 1, the capacity installed is about 10,000 tonnes. And on full-scale capacity, we envisage a revenue of about INR 300 -- INR 300-odd crore with the current prices, which are at currently all time low prices.

Got it. And then margins will be helping your considering the prices [indiscernible]?

Should be a decently product margin. But I think let me commercialize it on the plan scheme, let me get yields norms before I make this statement.

One last and I know I took a lot of time. On the HALS side, I know the progress has been quite decent and very nice to hear that we have improved the margins. But what is the blended realization, we were looking at moving gradually to 6% to 8% in that range, I know these new products are quite new. But how is the progression in terms of customer acceptance, in terms of validation, people evaluating those products? Are they happening in line with what we were anticipating?

See, if you see the quarter-on-quarter jump is about 25%. However, we would have expected it to be better. But at least the acceptance has come up. The plan, our quality is now because it is a combination of a couple of products. So fortunately, all the products are now in line with in terms of quality with the competitors like [indiscernible]. So product is there. Now we have to just enlarge the market. India, probably, if you see, we are already at 50% market share within India. Now our next geographies, if you look at the export data, we have already started exporting globally, including United States, Europe, Vietnam, Middle East, South Africa. And I think quarter-on-quarter, we expect this business now to grow because the product is there, pricing is there. Now just to reach these customers and start taking more and more wallet share.

The next question is from the line of Arun Prasath from Avendus Spark.

So my first question is on the subsidiary numbers. If you see this run rate has improved sequentially topline, but gross margin is coming down from roughly 42 percentage to 36 percentage in the [indiscernible]. Is it the mix or a onetime, some product has been lower or the overall portfolio. How should we look at this?

Arun, Pratik this side. For the subsidiary company, the gross margin impact, which you're highlighting, that is on account of the difference in change in stock. So for this quarter, there is a lower losing store. That means we have consumed higher opening stock of the last quarter. That is leading to this. So it's more of an optics. But on a portfolio level, as we mentioned that the margins -- or material margins are in the range of 35-odd percent.

Okay. Understood. So we should see the subsidiary margins can impact 30% to 40% levels, depending upon the [indiscernible], right?

That's right.

Okay. Understood. And earlier, I think in one of your commentary, you mentioned that HALS largely, we are selling distributors. Now that the product has stabilized and we have confidence on the quality. Is it the time to approach the bigger customers, Siddharth?

Yes. We are already doing a combination of both. So there are larger accounts which we are catering to directly. And then, of course, there are distributor model as well. So India, I think, quite a bit accounts, all the large accounts are driven directly by us. And so is the case in Europe, where we have direct contracts, we are working directly with them. But of course, distributor model is also needed. There are a lot of customers prefer just in time because of the -- to avoid the large transit time from India.

Okay. Understood. And when you say India is this -- actually, if you look at the first half month of '26 versus '25, India is in terms of topline it has grown there on [ 13% ] as it's not quarterly and looking at the [indiscernible]. So this mainly attributed to the HALS or some other products also there?

No, no, no, no. It's only HALS. It's only the [indiscernible].

Okay. Only HALS is contributing with this domestic sales quarter, 13 percentage?

Yes, yes, yes.

Understood. Understood. And earlier, we come up with this couple of products, DHDT and BHT. In terms of [indiscernible] has it reached our internal targets on [indiscernible] is sitting in the P&L or it to ensure margin?

Initially, the BHT was our -- primarily the market was U.S. because it was for similar -- for same customers who purchase other products for us. But unfortunately, BHT anyways, it was a $3-ish product, but it got a tariff of 55%. So that has slowed down this entire offtake within the U.S. because of the 55% tariff.

Okay. And just to clarify, when you say Americas, again, if we look at the first half numbers, it has grown up by 33 percentage, and this is something to -- and Europe is down by 13 percentage. Is it some kind of a realignment or shipping purpose from [indiscernible]?

No, it's nothing to do. It's just a little quarter realignment based on customers' needs and requirements. There is nothing sizable to mention here.

Okay. Understood. And secondly, on your PC 1 chemical [indiscernible]. You mentioned they have moved from water to chemical [indiscernible]. What are the next milestones we are -- we should look forward? And what are the associated time lines?

The next milestone is to start getting the final product out. I mean, that is what is chemical trials. I mean whatever teething issues we are observing in chemical trials, we are trying to fix them as we move along. And the next outcome because these are large chemical trials where we take all the raw material [indiscernible] to multiple distillation and to [indiscernible] so the next goal is to stabilize this, stabilize each process, internal individual process and get to the finished product. So the time line is probably 2 weeks from today is when we expect to see the final product. However, the optimization of the process will still take about a quarter, where you start optimizing yields, when you start optimizing process and you start optimizing a lot of parameters, process parameters. So that could go up to March. The point is to at least start seeing the end product and start sampling to the customers within the month of December is the target.

Okay. So these 2 things will go parallely. We will start sending samples in December, but at the same time, optimization throughout March will be happening. So probably a big chunk of all then we should expect by April. That's the right understanding?

Yes, Q4 also, there will be sales because the process optimization is a process. It will take longer time. It is a very large continuous plant. So it will keep happening. But the offtake and the sales is we should start seeing in quarter 4.

Right. Understood. And in your opening remarks, you also talked about capacity expansion of food grade antioxidants. Is it the BHT or some other antioxidant [indiscernible]?

It is some other antioxidant, which also goes into food industry.

Okay. Okay. But otherwise, BHA have [indiscernible] because if you look at the pricing of the established products, while MEHQ is seeing some decline in the pricing, but BHA holding study. I'm assuming this is an exception of the end category. So have you maximized our ability to push more MEHQ to BHA and running the full utilization or still there also we see some kind of challenges?

No, there is no challenge. I mean we still are running at 70%, 75% capacity utilization. We still have scope to expand customer base. So there is no challenge, but because the market has to take up, right?

The next question is from the line of Abhijit Akella from Kotak Securities.

So just one question regarding the outlook, if I may. Last quarter, we had kind of spoken about an initial target of maybe around INR 450 crore EBITDA or something like that for this year. This year, I understand the market environment has kind of deteriorated in the country. But any sort of guidance you could offer for this year or maybe next year. That would be really helpful just from an anchoring perspective for the analysts.

I know, Abhijit with these very tricky time situations currently with these tariffs coming up, with all these uncertainties, I think it will be very tricky to mention on EBITDA level at the moment. I would suggest let a quarter or 2 pass by when these new facilities also come up. By the time I would also understand the competitive landscape. So I think that would be a better idea to give you a little bit on EBITDA. For now, we are only trying to table and understand where are we located amidst all these uncertainties in the global scenarios.

Fair enough. I appreciate that. And just on HALS, could we share what our growth plans are now at this point in time, now that the volume interest has started to accelerate?

See, as we have started growing like 25% quarter-on-quarter, our endeavor is to keep growing this on a quarter-to-quarter basis because as we are growing, this was a new business line, more and more market share we are trying to acquire, getting into newer customers. So on quarter-on-quarter, you will see growth happening in the HALS series, plus [indiscernible] also started. So all this is going to accumulate, I mean, will account for increased capacity utilization and increase revenues over the next 2 quarters.

The next question is from the line of Rajesh Kotari from Alpha [indiscernible].

First of all, Siddharth Ji, I think in a realized tough macro environment, it has been reasonably resilient work. So congrats for that. I have just 2 questions. My first question is with regards to this Performance Chemicals where we are talking about 10,000 tonnes capacity. And you mentioned that currently, the prices are very low, and full capacity, we can probably target around INR 300 crores kind of revenue. So that basically you would assume in the second year?

So we are budgeting in this over 3-year period. So by FY '28, we are budgeting to reaching this revenue potential.

Understood. And when you look at -- from the overall pricing environment perspective across the different products, how do you see the Chinese competitive environment?

So China is a very, very tricky environment. And it is sometimes very -- it's like a black box, and it is very difficult to predict exactly what is happening there. I think the best part, I mean, what we are trying to do is get as much understanding on the China market because 25% to 30% of our revenues still come from China. And I think our prices to China is already at all-time low. So I don't know if there is further decline going to happen. But as of now, we feel it could be a little steady market, but only time can say how things evolve in China, how the demand picks up and how are we going to position ourselves.

I see. So when you look at the Performance Chemicals and in terms of when you say that INR 300 crores at the current prices, this assumes primarily how much India revenue and how much export revenue in any key markets which are going to target?

We expect 50-50, 50% would be domestic market and 50% will be international market.

And in domestic right now, 100% imported right?

Absolutely, 100% import.

And these primary import is from China?

China, Japan and also United States.

I see. And do we have anti-dumping duty on China?

Not at the moment.

I see. And when you say that we'll become much more competitive because of the better projects and the better yield. Currently, the product realization, what is the current realization? And how do you see the Chinese versus the U.S.A. prices when India imports, is it -- when you look at it from the CS perspective, how the price trends are?

I mean, ultimately, this is a crude oil-linked raw material-based products. So we are seeing, as crude oil decreases, these products are also coming down and of course, due to fierce competition amongst the existing players.

The next question is from the line of Arun Prasath from Avendus Spark.

Sir, so just one follow-up, clarification. [indiscernible] 25% sequentially. What we see in the subsidiary -- subsidiaries a 43% sequential growth, what is the disconnect?

[indiscernible] clarification here, is actually a good question. We are talking about volume growth of 25%. But I mean the value growth is almost 34%. That is because now we have started selling higher grades of [indiscernible] but realizations are much better. And your answer, which coming to 40%, that is on account of these other byproducts we are selling when we are manufacturing them as -- these core products are also contributing to the sales value.

The next question is from the line of Ankur Periwal from Axis Capital.

I joined the call a bit late, so pardon me if my questions are a repetition. On the HALS front, if I got you right, 25% Q-on-Q volume growth, 34% in terms of value growth. But the margins over here are still relatively lower on a Q-on-Q basis. So any specific reason?

No, Ankur, on Q-o-Q basis, there is a slight improvement in margin because what you are seeing is -- I mean, the P&L margin, but there is a difference of change in stock, which is impacting the COGS. But at a portfolio level, there is a slight improvement in the margin. The improvement is slight because the larger portion of HALS sales continues to come from 770.

Okay, sure. And we were waiting for a few product approvals to come in, especially from the global markets for HALS. Where are we over there in terms of approvals getting for those multiple products?

So we have started seeing good approval traction from higher grade of HALS. And if you start seeing -- I mean, so for month-on-month, our higher grade of HALS exports -- both -- I mean exports have started increasing. And also in domestic market, these higher growth rates of HALS has started picking up. And I think in the next, probably 2 quarters more, I think we should have almost most of the large approvals what we are looking at.