Prabhudas Lilladher Maintains 'HOLD' on Clean Science: Q2 Revenue Edges Up Amidst Mixed Segment Performance!

Prabhudas Lilladher has reiterated a 'HOLD' rating on Clean Science and Technology, setting a target price of Rs 1,002. The company posted Rs 2.4 billion in revenue for Q2FY26, a modest 2.7% increase year-over-year and 0.7% quarter-over-quarter. This growth was constrained by a decline in revenue from established products, which now form 80% of the revenue mix, down from 84%. The FMCG chemicals segment experienced a significant drop, primarily due to backward integration by a major Chinese customer.

Despite these challenges, volumes for Hindered Amine Light Stabilizers (HALS) averaged 260 metric tons per month, marking a strong 25% sequential rise, with management anticipating continued volume growth. Raw material cost reductions helped boost HALS gross margins from 31% to 35%. However, the HALS subsidiary reported an EBITDA loss of Rs 29 million in Q2FY26.

Looking ahead, chemical trials at Performance Chemicals 1 are progressing, with revenue expected from Q4FY26. Performance Chemicals 2 is also on schedule, with water trials slated for April 2026. These new capacities are poised to be growth drivers. Nevertheless, margin pressures may continue due to lower realisations in some established products and the inherently lower profitability of the HALS portfolio compared to legacy products. The current valuation stands at 24 times Sep’27 Earnings Per Share (EPS), leading to the 'HOLD' recommendation.

Impact This report provides investors with a detailed financial update and a future outlook for Clean Science and Technology, influencing decisions related to holding or trading the stock. It highlights key operational challenges and growth opportunities, guiding market sentiment for the company. Rating: 6/10

Difficult Terms Explained: * **Revenue**: The total amount of income generated by the sale of goods or services related to the company's primary operations. * **YoY (Year-over-Year)**: A comparison of a company's performance metric (like revenue or profit) from one period to the corresponding period in the previous year. * **QoQ (Quarter-over-Quarter)**: A comparison of a company's performance metric from one financial quarter to the previous financial quarter. * **Established products**: Products that the company has been selling for a significant period and are well-known in the market. * **FMCG chemicals segment**: Refers to chemicals used in the production of Fast-Moving Consumer Goods (products sold quickly and at a relatively low cost, such as food, toiletries, and beverages). * **Backward integration**: A strategy where a company takes control of its production process by acquiring or controlling its suppliers. In this case, the customer started producing its own chemicals instead of buying from Clean Science. * **HALS (Hindered Amine Light Stabilizers)**: These are chemical compounds added to plastics and coatings to protect them from degradation caused by exposure to ultraviolet (UV) light and heat, thereby extending product lifespan. * **Gross margins**: The profit a company makes after deducting the cost of goods sold (COGS) from its revenue, expressed as a percentage. It shows how efficiently a company produces its goods. * **EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)**: A measure of a company's operating performance before accounting for interest expenses, taxes, and non-cash charges like depreciation and amortization. It indicates profitability from core operations. * **Capex (Capital Expenditure)**: Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. * **Performance Chemicals**: A category of specialty chemicals designed for specific high-performance applications. * **Realizations**: The price at which a company sells its products or services. * **EPS (Earnings Per Share)**: A company's net profit divided by the total number of outstanding common shares. It is a key indicator of profitability for shareholders.