Indian Chemical Sector 2.

0
The Indian chemical industry continues to be an attractive hub of opportunities, even in an
environment of global uncertainty. The uniqueness of the chemical industry is that it
requires both the creation of tangible assets and technical manpower. We believe domestic
chemical companies have abundant opportunities to partner in technology. Chemical
companies may be able to take advantage of a variety of opportunities by strategically
investing in research & development (R&D). New opportunities in the form of
collaboration with technically advanced global companies could emerge in the industry.
Instead of being sold based on their chemical identity, specialty chemicals are frequently
sold based on how well they perform in the intended application. Therefore, the business
requires significant application development and R&D investments to stay relevant.
The chemical industry’s growth is not hostage to any one economic parameter or any one
end-user industry. Rising domestic demand and the need to evolve have forced domestic
chemical companies to expand their capacities to remain competitive. Our positive stance
on the sector is backed by its strong growth, aided by diversity in terms of chemistries
and/or technologies. We maintain BUY on Aether Industries, Neogen Chemicals, Navin
Fluorine, Galaxy Surfactants, NOCIL, Aarti Industries, ADD on SRF, Fine Organics,
Sudarshan Chemical, while maintain SELL on Deepak Nitrite, Vinati Organics and Alkyl
Amines. We are also initiating coverage on Ami Organics Ltd (TP: INR 1,160) with a BUY
and Clean Science and Technology Ltd (TP: INR 1,230) with a SELL recommendation.

Nilesh Ghuge
[email protected]
+91-22-6171-7342

Harshad Katkar Rutvi Chokshi Akshay Mane

[email protected] [email protected] [email protected]
+91-22-6171-7319 +91-22-6171-7356 +91-22-6171-7338
05 December 2022 Sector Thematic

Indian Chemical Sector 2.0

Catalysts for growth in place
The Indian chemical industry continues to be an attractive hub of Upside
Company RECO TP
opportunities, even in an environment of global uncertainty. The uniqueness (%)
Aarti Industries BUY 825 22%
of the chemical industry is that it requires both the creation of tangible assets
Aether Industries BUY 1,070 18%
and technical manpower. We believe domestic chemical companies have
Alkyl Amines SELL 2,470 -13%
abundant opportunities to partner in technology. Chemical companies may be
Ami Organics BUY 1,160 17%
able to take advantage of a variety of opportunities by strategically investing in
Clean Science SELL 1,230 -18%
research & development (R&D). New opportunities in the form of
Deepak Nitrite SELL 1,665 -25%
collaboration with technically advanced global companies could emerge in the
Fine Organics ADD 6,550 7%
industry.
Galaxy Surfactants BUY 3,690 34%
Instead of being sold based on their chemical identity, specialty chemicals are Navin Fluorine BUY 5,140 16%
frequently sold based on how well they perform in the intended application. Neogen Chemicals BUY 1,890 46%
Therefore, the business requires significant application development and R&D NOCIL BUY 300 28%
investments to stay relevant. SRF ADD 2,650 10%
Sudarshan Chemical ADD 425 8%
The chemical industry’s growth is not hostage to any one economic parameter Vinati Organics SELL 1,820 -15%
or any one end-user industry. Rising domestic demand and the need to evolve
have forced domestic chemical companies to expand their capacities to remain
competitive. Our positive stance on the sector is backed by its strong growth, FY24E PER (x) P/B (x)
aided by diversity in terms of chemistries and/or technologies. We maintain Aarti Industries 32.1 4.3
BUY on Aether Industries, Neogen Chemicals, Navin Fluorine, Galaxy Aether Industries 46.1 7.3
Surfactants, NOCIL, Aarti Industries, ADD on SRF, Fine Organics, Sudarshan Alkyl Amines 42.8 9.8
Chemical, while maintain SELL on Deepak Nitrite, Vinati Organics and Alkyl Ami Organics 32.4 5.2
Amines. We are also initiating coverage on Ami Organics Ltd (TP: INR 1,160) Clean Science 48.1 12.5
with a BUY and Clean Science and Technology Ltd (TP: INR 1,230) with a SELL Deepak Nitrite 21.3 5.5
recommendation. Fine Organics 39.1 10.6
Galaxy Surfactants 25.0 4.5
Investing in building capabilities and capacities Navin Fluorine 40.4 8.7
Indian chemical companies have aggressive future plans for Capex as they are Neogen Chemicals 38.1 5.7
backward integrating and/or moving up value chains, moving towards high- NOCIL 19.0 2.5
margin products (Refer page 6). The aggregate Capex incurred by 30 leading SRF 26.4 5.7

Indian chemical companies considered by us has grown at a 10% CAGR over Sudarshan Chemical 28.4 3.0

FY10-22. For our coverage universe, we expect Capex to grow at a 17% CAGR Vinati Organics 39.7 8.1

over FY22-24E. The aggregate Capex to gross profit ratio (capital intensity ratio)
for 28 listed Indian chemical companies, which has increased from 13% in FY15
to 20% in FY22. In our coverage universe, we expect a Capex to gross profit ratio Nilesh Ghuge
of 27% in FY24E. Most of the speciality chemical companies are looking to [email protected]
diversify their portfolio and introduce innovative products that garner better +91-22-6171-7342
realisations and margins.
Harshad Katkar
Unlocking the value of knowledge [email protected]
Indian chemical companies have consistently invested in R&D and have reaped +91-22-6171-7319
the benefits in terms of innovative, more efficient, and value-added products.
Owing to their consistent investments in building R&D infrastructure, Indian Rutvi Chokshi
chemical companies have reaped benefits in terms of value-added products, [email protected]
efficient processes, foray into newer chemistries and global recognition. We +91-22-6171-7356
believe this trend to continue in the future, which will allow them to grab import
substitution and export opportunities and sustain growth. Akshay Mane
[email protected]
+91-22-6171-7338

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters
Chemical: Sector Thematic 2.0
Story in charts
Exhibit 1: Capex has grown at a 16% CAGR over FY15-22 Exhibit 2: Capex intensity of Indian chemical companies over
in the domestic chemical industry the years
Capex (INR bn)-LHS YoY %-RHS Capex/Gross profit%
140 60.0 25%
50.0 21%
120 20%
18% 19%
40.0 20%
100
30.0
13% 13% 14%
80 20.0 15% 13%
60 10.0
0.0 10%
40
-10.0
20 -20.0 5%
- -30.0
0%
FY20
FY21
FY22
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19

FY20

FY22
FY15

FY16

FY17

FY18

FY19

FY21
Source: Company, HSIE Research | The Capex here refers to Source: Company, HSIE Research | The Capex here refers to
aggregate cap-ex incurred by 30 domestic chemical companies aggregate cap-ex incurred by 28 domestic chemical companies
considered by us. considered by us.

Exhibit 3: Indian chemical industry’s capital intensity vs. the Exhibit 4: Indian chemical companies are focused on
globe developing their R&D infrastructure
Capital spending as a % of value-added (%) R&D expense (INR mn)-LHS YoY %-RHS

CY2010 CY2020
7,000 40
39.7

50.0
29.5

6,000
26.9
26.4

40.0 30
23.3
21.0

20.8
20.3
19.9

19.8

19.6
19.1
16.0
15.8

30.0 5,000
13.0
12.8

12.7
12.1

20
9.6

20.0
7.8

4,000
10.0 10
0.0 3,000
0
Latin America

China
NAFTA*

EU27

Japan
South Korea
Rest of Europe**

India

Rest of the
Rest of Asia***

2,000
world

1,000 -10

0 -20
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22
Source: Cefic. Facts and figures 2022 | * North American Free Trade Source: Company, HSIE Research | The R&D expense here refers to
Agreement, ** Rest of Europe covers Switzerland, Norway, Turkey, aggregate R&D expenses incurred by 21 domestic chemical companies
Russia and Ukraine; *** Asia excluding China, India, Japan and South considered by us.
Korea. | The value added at factor costs is the gross income from
operating activities after adjusting for operating subsidies and indirect
taxes. Value adjustments (such as depreciation) are not subtracted. 

Exhibit 5: R&D spends by recently listed Indian chemical Exhibit 6: R&D spending in the chemical sector: India vs
companies the globe
Average R&D spend as a % of revenue from Global chemical R&D mix %
FY20-22 %
6.0% 5.0% CY2010 CY2020
5.0%
40.0
29.3

4.0%
24.2

3.0% 2.3%
22.5

22.2

1.6% 30.0
19.7

2.0%
16.9
16.3

1.0%
0.6% 0.8% 0.8%
14.9

1.0% 0.1% 0.4% 20.0

0.0%
6.5

4.8
3.8
3.8
Anupam Rasayan
Clean Science
Laxmi Organic
Chemcon

Neogen Chemicals
Fine Organics

Tatva Chintan

Ami Organics

Aether Industries

3.3

10.0
2.8

2.8
2.3

1.5
1.4
0.7
0.4

0.0
EU27
USA

UK

Switzerland

Japan
South Korea
Brazil

China
India

Rest of the
world

Source: Company, HSIE Research Source: Cefic, Facts and figures 2022

Page | 2
Chemical: Sector Thematic 2.0

Table of contents
Opportunities for Indian chemical companies ......................................... 4
Strong pipeline in Indian speciality chemical sector ............................... 6
Investing in capabilities and capacities; Capex ........................................ 8
Unlocking the value of knowledge; R&D................................................ 10
Land parcel availability—a key growth factor ....................................... 13
Companies
Ami Organics Ltd ........................................................................................ 14
Clean Science and Technology Ltd........................................................... 25

Page | 3
Chemical: Sector Thematic 2.0

Opportunities for Indian chemical companies

The uniqueness of the chemical industry is that it necessitates both technical manpower
and creation of tangible assets. The industry requires human resources with
proficiency not only in engineering, but also in technology in order to improve process
yield. Improvement in process yield for cost optimisation and finding a better process
for sustainable growth are the key success parameters in a highly competitive and
regulated industry. Products of the chemical industry are B2B in nature. Therefore,
companies are forced to be competitive in pricing their products. Also, the chemical
industry is one of the most regulated industries in the world. There are strict
regulations aimed at minimising release of chemicals substances during
manufacturing and processing.
The chemical industry essentially involves chemical and physical changes of mass of
organic and or inorganic raw materials into mass of finish products. Unit processes
(e.g. hydrogenation, oxidation, ammonolysis, alkylation, etc.) and unit operations (e.g.
distillation, filtration, drying, crystallisation etc.) involved in this mass transformation
require physical assets. One cannot deny that rising domestic demand and the need to
evolve have forced domestic chemical companies to expand their capacities as well as
capabilities.
Speciality chemicals are often customised offerings, based on an in-depth
understanding of customer needs and problems. Products are sold based on their
functionality in the intended application, rather than on their chemical identity.
Therefore, the business requires significant application development and research &
development (R&D) investments to stay relevant. Speciality chemicals, in particular,
require skilled labour and technology. Companies often take strong intellectual
property positions such as patented formulations and registered trade names.
Companies transferring contract research & manufacturing services (CRAMS)
business and technology transfer for contract manufacturing services (CMS) business
to Indian companies expect strong intellectual protection (IP) laws. Here, India has an
edge as it has more stringent intellectual property (IP) laws compared to the Chinese
IP laws.
Several Indian companies hold leading positions globally in fine and speciality
chemicals, at times with 30–80% of the global capacity, although we believe that the
Indian speciality chemicals market is still in its infancy. Indian chemical companies
have abundant opportunities in technology partnership. Strategic investments in R&D
by chemical companies can open up varied opportunities for them. New opportunities
in the form of collaboration with technically-advanced global companies can emerge
in the industry. It may happen that the R&D work will be outsourced where the Indian
partner will perform or support the backend work. This kind of work may come in the
sunrise sectors such as electric batteries, renewables, etc.
Conventional wisdom holds that the speciality chemicals business enjoys better
margins than commodity chemicals. But it is not always true—the realities in India
depend on many factors, including the nature of the speciality, competition,
technological complexity, and timing. Therefore, companies have to invest in
upgrading themselves. Also, they need to invest in manufacturing either upstream or
downstream to improve or maintain margins. For that, you need technology to
produce it. Companies are investing in R&D to get those technologies and then
investing in developing infrastructure.
The ongoing energy crisis in Europe is a complex situation for Indian chemical
companies. European companies are customers, suppliers and competitors of Indian
chemical companies. Opportunity emerging out of this crisis could be tactical. In order
to derisk their energy supply, there could be supply chain relocation. We believe that
transfer of huge capacities for all products to India may not be there. European
Page | 4
Chemical: Sector Thematic 2.0

companies may transfer manufacturing of low-end products while production of

critical products and associate technology will be kept with themselves. Large
European chemical companies already have a presence in India; thus, Indian chemical
companies will have to demonstrate credibility. Investment in R&D will result in
developing competencies in chemistries and technologies. This will give confidence to
Indian companies and an ability to grab opportunity that has cropped up due to the
supply chain relocation strategy of European companies.
Availability of raw material is not an advantage to India. India lacks the availability of
key raw materials like natural gas and crude oil. Besides, it has little access to the
inexpensive energy source. However, labour cost in India is significantly lower
compared to Europe and even China.

Page | 5
Chemical: Sector Thematic 2.0

Strong pipeline in Indian speciality chemical sector

Company Major Projects Chemistries/Products Technology End-user industries Opportunity
Alkyl # Ethylamines plant in Kurkumbh # Ethylamines and its # Continuous flow # Pharmaceutical # Global demand for
Amines derivatives expansion # Fixed bed catalytic # Agrochemical Ethylamines is ~125-130
# Three to four new # Ammonolysis # Dye-stuff KTPA. Domestic demand
speciality chemicals in # Hydrogenation # Rubber chemicals is ~25-30KTPA.
the pipeline # Revenue potential of the
3 new products at peak
utilisation is INR 2-3bn.
Deepak # Value added downstream # High value solvents, # New chemistry # Life science # India imports ~8,000 tons
Nitrite products of phenol and acetone in forward integration platforms or # Paints and coatings of MIBC and ~40,000 tons
Deepak Phenolics project products based on of MIBK.
# Upstream and downstream # Methyl iso butyl existing platforms # India imports 2,00,000
integration projects ketone (MIBK), # Acid catalysed tonnes of polycarbonate.
# Brownfield expansion of key # Methyl iso butyl condensation INR 50-70bn of investment
products carbinol (MIBC) # Dehydration can be easily absorbed in
# Polycarbonate # Hydrogenation these downstream
# Chlorination derivatives.
# Photochlorination
# Fluorination
# Polymerization
Galaxy # Mild surfactants # Amino acid based # Continuous flow # Home and personal # Domestic market is
Surfactants # Non-toxic preservatives platforms surfactants care growing faster than
# Isethionates developed nations
# Sulfosuccinates
# Alkyl polyglucosides
SRF # Will invest ~INR 150bn over the # Fluorination # Cracking # Pharmaceutical # Fluoropolymers: USD
next 5 years in the fluorospeciality # Polymerisation # Agrochemical ~200mn incremental
and packaging films businesses # Chlorination # Packaging for revenue over the next 5
# Evaluating the value chain in # Dehydrochlorination pharma years.
electronic and battery chemicals in gas phase
# Working on 8 molecules which are
agrochemical intermediates (AI)
which are expected to be
commercialised soon
# Working with innovators on new
age, non-fluorine molecules
# Polyvinylidene fluoride (PVDF)
manufacturing and other
fluoropolymers
# Hydrofluoroolefins (HFOs) to
come on stream in the next 5-6 years
# Aluminium foil
Aarti # Chlorotoluene value chain # Photochlorination # Vapour phase # Flavours and # Will drive growth FY25
Industries # Capacity expansion for USFDA # Ammoxidation technology fragrance onwards
approved API facility # Specialty # Flow chemistry # Pharmaceutical
# Project linked to the 3rd long term fluorination technology # Dyes
contract at Jhagadia # Diazotization
# Nitro chloro benzene (NCB)
capacity expansion at Vapi
# Acid unit revamp and expansion at
Vapi
# New range of pharma APIs and
intermediates
# Customer specific projects
Neogen # Expansion of inorganic chemicals # Lithium based # Battery
Chemicals capacity chemistry manufacturing
# Speciality lithium salts and # Bromination # Pharmaceutical
additives for electrolyte # Grignard # Agrochemical
manufacturing
# Organic chemicals capacity
augmentation

Page | 6
Chemical: Sector Thematic 2.0

Company Major Projects Chemistries/Products Technology End-user industries Opportunity

Aether # Advanced intermediates for the # Metallic fluorination # Continuous # Pharmaceutical # Revenue potential of INR
Industries following APIs: # Grignard's and Reaction # Instant 2bn for each product at
Dolutegravir,Carbamazepine,Oxcarb Organolithiations # Batch Reaction photography maturity
azepine,Memantine and Ambroxol # Ethylene Oxide # High Pressure # Life Science # For the CRAMS contract
# CRAMS contract with Polaroid in Chemistry Reaction signed with Polaroid, the
the areas of R&D and manufacturing # Isobutylene # Fixed Bed company expects an
services for Polaroid Film (instant Chemistry Reaction overall revenue of USD
photography chemistry) as well as # Hydrogenation # Cryogenic 15mn (approximately INR
Polaroid Sciences (new chemistry in # Heterogeneous Reaction 1,215mn) over the
fields of sustainability and medical Catalysis # High Vacuum partnership period of
use) # Exothermic # Distillation minimum 3 years
Chemistry # Wiped Film
# Cross Coupling Distillation
Chemistry # Process
# Olefin Metathesis / Automation
Polymerisation
Navin # Plans to set up a new Electronic # Energy storage # Electronics
Fluorine Materials business unit with focus additives, solar # Pharmaceutical
on energy storage, solar energy and formulations # Agrochemical
semiconductor areas, which will # Performance # Industrials
start growing post FY25 speciality chemicals # Refrigeration
# In the Speciality Chemicals # Reagents and # Packaging
business unit, the company plans to catalysts
add performance chemicals in its # Hydrofluorocarbons
portfolio (R32),
# In the CDMO business unit, the hydrofluoroolefins
company plans to commercially sell and industrial gases
reagents and catalysts # PVDF
# In the refrigerant gases space, the # Fluorination
company plans to get into
hydrofluorocarbons and
hydrofluoroolefins seeing to it
doesn't compete with Honeywell
and industrial gases
# Fluoropolymers such as PVDF, etc
Vinati # MEHQ, Guaiacol, Iso Amylene and # Alkylation in the # Polymer # For Veeral Organics,
Organics 2 other products in Veeral Organics presence of alkali # Agrochemical revenue potential at peak
# Anti-oxidants in Veeral Additives catalyst # Pharmaceutical utilisation is INR 2.5bn.
(AO1010, AO 1076, AO168) # Phenol methylation # Flavours and # For Veeral Additives,
# ATBS expansion by 20kTPA # Hydroxylation fragrance revenue potential at peak
utilisation is INR 7bn,
which shall accrue from
FY25.
Ami # Plans to launch 1 agrochemical # Etherification # Plug flow # Electronics and # The global market
Organics import substitute product and 1 # Diazotization & # Catalytic fixed bed battery opportunity of the
pharmaceutical import substitute hydrolysis flow # Pharmaceutical electrolyte additives
product in H2FY23, and 1 # Acylation # Tubular flow # Agrochemical business is expected to
agrochemical import substitute # Hydrogenation # Continuous flow reach USD 2bn in CY28,
product in early FY24 # Amination # High vacuum and and Ami Organics plans to
# Electrolyte additives- Vinylene # Nitration high temperature capture 10% of this market
carbonate and fluoroethylene # Alkylation distillation
carbonate # Fluorination # Enzymatic
# Advanced pharma intermediates' # Esterification Reaction
expasion in Ankleshwar # Chlorination
# Bromination
Clean # Setting up a 4th facility in # Hindered Amine # Catalytical # Paint, plastics and # For HALS, the global
Science Kurkumbh Light Stabilizer reaction coatings market opportunity is USD
# R&D expansion (HALS) series # Ammonolysis # Water treatment 1bn which is growing at a
# 4 to 5 pharma and # Pharmaceutical 10% CAGR. Clean Science
agro intermediates # Agrochemical is targeting USD 100mn
# Chlorination # Performance per annum in 3 years' time
# Fluorination # For the new
intermediates, the revenue
potential is INR 1bn for
each product
Source: Company, HSIE

Page | 7
Chemical: Sector Thematic 2.0

Investing in capabilities and capacities; Capex

Indian chemical companies have been investing heavily into Capex in order to capture
the growing market opportunities and to expand their product mix. Companies are
currently targeting both import substitution opportunity and export opportunity.
Indian chemical companies have aggressive future Capex plans as they are moving up
and/or down in their value chain, moving towards value-added and high-margin
products. Most of the speciality chemical companies are looking to diversify their
portfolio and introduce innovative products that garner better realisations and
margins.
Exhibit 7: Capex grew at 16% CAGR over FY15-22 in the domestic chemical
industry
Capex (INR bn)-LHS YoY %-RHS
140 60.0

120 50.0
40.0
100
30.0
80 20.0
60 10.0
0.0
40
-10.0
20 -20.0
- -30.0
FY16
FY10

FY11

FY12

FY13

FY14

FY15

FY17

FY18

FY19

FY20

FY21

FY22
Source: Company, HSIE Research | The Capex here refers to aggregate capex incurred by 30 domestic
chemical companies considered by us. Capex = Purchase of fixed assets - sale of fixed assets +
investment in subsidiaries + advances for capital expenditure.

Aggregate Capex incurred by 30 leading Indian chemical companies considered by us

has grown at a 16% CAGR over FY15-22, and a 10% CAGR over FY10-22. Capex spends
grew over 3x in FY10-22 from INR 39bn in FY10 to INR 123bn in FY22. For our
coverage universe, we expect Capex to grow at a 17% CAGR over FY22-24E.
SRF plans to spend INR 150bn over the next five years, dedicating ~80% of the Capex
to its chemicals business.
Aarti Industries plans to incur Capex of INR 30bn over FY23-24 in order to launch
value-added products in the chlorotoluene chain (over 40 products in the pipeline),
concentrated nitric acid from weak nitric acid, etc.
Galaxy Surfactants plans to invest INR 3bn over FY23-24, employ it towards speciality
and green surfactants and increase its speciality surfactants’ revenue contribution from
35% to 45% in the next five years. The company is also extensively expanding its mild
surfactants category.
Deepak Nitrite plans to spend INR 15bn over FY23-24 to introduce new upstream and
downstream phenol products, expand its existing product lines, and enter new
chemistries like fluorination and photo-chlorination.
Aether Industries plans to incur INR 5.5bn over FY23-24, investing INR 1.9/2.5bn to
establish site-3 and site-4 respectively, and introducing 5 new advanced pharma
intermediates at site- 3.
Ami Organics plans to spend INR 1.9bn in order to establish a new facility in
Ankleshwar and produce advanced pharma intermediates targeting an asset turnover
of 3x.

Page | 8
Chemical: Sector Thematic 2.0

Clean Science plans to incur over INR 3bn over FY23-24, which shall be used to
manufacture pharma and agrochem intermediates and hindered amine light stabilizers
(HALS).
India continues to be one of the leading countries in the world in capital spending
intensity (Capex as a percentage of value added, which is gross income from operating
activities after adjusting for operating subsidies and indirect taxes) in the chemical
space. As per Cefic, In CY20, India's chemical sector attributed 19.8% of its PAT to
Capex, whereas China's chemical sector attributed 29.5%.

Exhibit 8: India has maintained its capital intensity over the past decade
Capital spending as a % of value-added (%)
CY2010 CY2020

39.7
50.0

29.5

26.9
26.4
40.0

23.3
21.0

20.8
20.3
19.9

19.8

19.6
19.1
16.0
15.8
30.0
13.0

12.8

12.7
12.1
20.0 9.6
7.8

10.0
0.0

China
Latin America

EU27
NAFTA*

Japan
South Korea
Rest of Europe**

India

Rest of Asia***

Rest of the world

Source: Cefic. Facts and figures 2022 | * North American Free Trade Agreement, ** Rest of Europe
covers Switzerland, Norway, Turkey, Russia and Ukraine; *** Asia excluding China, India, Japan and
South Korea. | The value added at factor costs is the gross income from operating activities after
adjusting for operating subsidies and indirect taxes. Value adjustments (such as depreciation) are not
subtracted. 

We have also calculated the aggregate Capex to gross profit ratio (capital intensity
ratio) for 28 listed Indian chemical companies, which has risen from 13% in FY15 to
20% in FY22. This increase in the ratio indicates that companies are positive about their
future opportunities, and in order to tap them, they are increasing their capacities. In
our coverage universe, we expect a Capex to gross profit ratio of 27% in FY24E.
Exhibit 9: Capex intensity of Indian chemical companies grew from 13% in FY15
to 20% in FY22
Capex/Gross profit%
25%
21%
20%
18% 19%
20%

13% 13% 14%

15% 13%

10%

5%

0%
FY22
FY15

FY16

FY17

FY18

FY19

FY20

FY21

Source: Company, HSIE Research | The Capex here refers to aggregate cap-ex incurred by 28 domestic
chemical companies considered by us. Cap-ex = Purchase of fixed assets - sale of fixed assets +
investment in subsidiaries + advances for capital expenditure.

Page | 9
Chemical: Sector Thematic 2.0

Unlocking the value of knowledge; R&D

In the recent past, Indian chemical companies have realised the importance of research
and development (R&D), have consistently invested in R&D, and have reaped benefits
in terms of innovative, more efficient, and value-added products.
Exhibit 10: R&D spend grew at 13% CAGR over FY12-22 in domestic chemical
sector
R&D expense (INR mn)-LHS YoY %-RHS

7,000 40
6,000 30
5,000
20
4,000
10
3,000
0
2,000
1,000 -10
0 -20

FY19
FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY20

FY21

FY22
Source: Company, HSIE Research | The R&D expense here refers to aggregate R&D expenses incurred
by 21 domestic chemical companies considered by us.

The average R&D expenditure as a % of revenue for the 21 leading Indian chemical
companies considered by us (excluding the recently-listed companies, which are Tatva
Chintan, Laxmi Organic, Chemcon, Aether Industries, Neogen Chemicals, Fine
Organics, Clean Science, Ami Organics and Anupam Rasayan) has remained ~0.6% p.a.
from FY15-22. The aggregate R&D expenditure incurred by these companies
(excluding the recently-listed companies) has grown by a 13% CAGR over FY12-22,
ahead of their revenue CAGR of 9% over the same period. INR 5.9bn was spent in FY22
by these companies on R&D as compared to INR 1.8bn in FY12.
Navin Fluorine spent ~2.4% of its revenue on R&D activities in FY22. The company
expanded its research capacities in Dewas by adding an analytical validation
laboratory facility along with the increase in its team of scientists. Capex of INR 0.7bn
is approved for further augmenting R&D and establishing a pilot facility at Surat. Aarti
Industries spent ~1.7% of its revenue on R&D in FY22. The company is focusing on
improving its product mix toward higher value-added segments, which shall increase
its presence in the key regulated markets and improve the growth curve. The key
contributors to these will be R&D and innovation driven initiatives, where the
company has more than 40 products for speciality chemicals and more than 50
products for pharma segments in its pipeline.
Exhibit 11: R&D spends by recently listed Indian chemical companies
Average R&D spend as a % of revenue from FY20-22
6.0% 5.0%
5.0%
4.0%
3.0% 2.3%
1.6%
2.0% 0.8% 0.8% 1.0%
0.4% 0.6%
1.0% 0.1%
0.0%
Laxmi Organic

Industries
Chemicals
Chemcon

Clean Science
Fine Organics

Tatva Chintan

Ami Organics
Anupam
Rasayan

Neogen

Aether

Source: Company, HSIE Research

Page | 10
Chemical: Sector Thematic 2.0

Exhibit 12: Global chemical companies’ R&D spending in CY21

R&D expense as a % of revenue
6.6%
7.0%
6.0%
5.0%
4.0% 3.5%
2.8% 3.0% 3.1%
3.0%
1.5% 1.6% 1.8%
2.0%
0.5% 0.8%
1.0% 0.2%
0.0%

Sinopec
Ineos

Linde

BASF
Dow

Huntsman

Industries
Solvay

Clariant AG
Lanxess

Syngenta
Evonik
Source: Company, HSIE Research

We have also calculated average R&D expenditure as a % of revenue for the recently-
listed companies, which has remained ~1.4% p.a. in the last three years. Companies are
augmenting their research capabilities in order to be ahead of the curve and create their
own niche in the industry. Aether Industries spent ~6.7% of its revenue on R&D in
FY22. The company’s technical prowess and advanced R&D capabilities have led to
significant innovation, which creates significant barriers for new entrants. Ami
Organics spent ~1.4% of its revenue on R&D in FY22. The company focuses on
consistent research-driven innovation and keeps a pipeline of products ready that are
expected to be launched in 10-15 years. This gives the company a first mover advantage
and secures its place in the drug master files (DMFs) of its customers. Clean Science’s
backbone is its R&D infrastructure, which has led to its success. The company is one of
the few companies in India that manufactures its own catalysts for its manufacturing
processes and also targets clean and green chemistries.
Exhibit 13: R&D investments, one of the key contributors to margin expansion
EBIT margin (%)

25%
20% 20%
20% 18%
16%
15%
14%
15%

10%

5%

0%
FY17

FY22
FY18

FY19

FY20

FY21

Source: Company, HSIE Research | Note: These are the EBIT margins of the following companies of our
coverage: Alkyl Amines, Navin Fluorine, Galaxy Surfactants, Vinati Organics, SRF, Aarti Industries,
Sudarshan Chemical, NOCIL, Fine Organics, Deepak Nitrite and Neogen Chemicals

Indian chemical companies are also expanding their R&D teams to ensure that they
have the right talent to lead the company towards innovative products, chemistries
and technologies. India has a big advantage compared to the other countries as it has
a skilled talent pool that is available at a lower cost than in other countries.

Page | 11
Chemical: Sector Thematic 2.0

Exhibit 14: R&D team strength

Company Number
SRF 400+
Aarti Industries 250+
Aether Industries 193
Navin Fluorine 108*
Deepak Nitrite 103
Jubilant Ingrevia 92
Ami Organics 89
Anupam Rasayan 85
Alkyl Amines 75
Galaxy Surfactants 74
Clean Science 70
Laxmi Organic 65
Neogen Chemicals 60
Tatva Chintan 40
Fine Organics 20+
Chemplast Sanmar 15
Chemcon 7
Source: Company, HSIE Research | *Note: Navin Fluorine’s 108 number of people doesn’t include
supporting R&D staff

India's share in the aggregate R&D spending incurred over the globe by chemical
companies has grown from 2.8% in CY10 to 3.8% in CY20. What is worthy of attention
is that only India's, China's and South Korea's shares have grown during this period.
Indian chemical companies are trying to match their R&D capabilities with their global
peers’, which will help them move up in their value chain.
The global chemical industry is also taking note of the value leadership demonstrated
by the Indian chemical manufacturers by focusing on R&D, process engineering,
developing capabilities of handling complex chemistries, etc. These enablers have
changed the perception of the Indian chemicals manufacturers, which has led to higher
business enquires and demand from global players.

Exhibit 15: R&D spending in the chemical sector: India vs the globe
Global chemical R&D mix %
%
CY2010 CY2020
29.3

40.0
24.2
22.5

22.2
19.7

30.0
16.9
16.3

14.9

20.0
6.5

4.8
3.8
3.8

3.3
2.8

2.8
2.3

1.5
1.4

10.0
0.7
0.4

0.0
USA

UK

EU27

Switzerland

Japan
Brazil

China

South Korea
India

Rest of the world

Source: Cefic, Facts and figures 2022

Page | 12
Chemical: Sector Thematic 2.0

Land parcel availability—a key growth factor

Indian chemical companies have started to purchase big land parcels, way ahead of
planning any Capex on them. Companies are investing in land in order to expand their
capacities so they are not limited by land unavailability in the future. Land
unavailability has been a hindrance in the past for companies planning to expand their
product portfolios and increase their capacities. Acquisition of land is a long and
tedious process and, hence, companies have started keeping spare land that can be
used instantly for their expansion projects. We believe that companies buy land much
ahead of planning a project on it, although they have some visibility of new projects or
products that might be launched in the years to come. This also reflects the
management’s vision and plans for future growth.
Exhibit 16: Unutilised land available with companies for future expansion
Company Does the company have unutilised land available for further expansion?
Vinati Organics Yes
Clean Science Yes
Yes, it has unutilised land to support current and near term projects, and is
Navin Fluorine
planning to acquire a land parcel to support growth post FY24
Fine Organics No, the company is in the final stages of buying a big land parcel in Gujarat
Ami Organics Yes
Tatva Chintan Yes
Laxmi Organic Yes
Anupam Rasayan Yes
SRF Yes
Aarti Industries Yes
Chemcon Yes
Neogen Chemicals Yes
Aether Industries Yes
Galaxy Surfactants Yes
Chemplast Sanmar Yes
NOCIL Yes
Camlin Fine Sciences Yes
Jubilant Ingrevia Yes
Deepak Nitrite Yes
Alkyl Amines No, the company is looking at buying a land parcel in Gujarat
Source: Company, HSIE Research

Page | 13
Chemical: Sector Thematic 2.0

Ami Organics Ltd

Ahead of its time
TP INR 1,160, BUY
Early identification of the key intermediates of active pharmaceutical intermediates
(API) and the key starting materials (KSM) of agrochemical intermediates and fine
chemicals, development of the molecules with the company’s clients and securing a
place in their drug master files (DMF) first, is the business model of Ami Organics.
The key success factors in such a business model are (1) the acumen of early
identification of key intermediates, (2) credibility with customers by demonstrating
competencies to develop products in a cost efficient and timely manner. This needs
to be backed by a strong R&D infrastructure and technical superiority over the
company’s competitors.
Ami Organics’ focus since inception has been on building its technical and R&D
capabilities. The company works very closely with its clients while developing its
molecules. This limits competition and nurtures relationships in turn building a
loyal customer base. The company has around 380 new products in its pipeline for
its advanced pharmaceutical intermediates business, that provides it growth
visibility till FY35.
The company’s near-term growth shall be fueled by its consistent investments in
R&D, expansion of its speciality chemicals’ portfolio and rising utilisation of the
acquired Gujarat Organics facility. The company has launched two core electrolyte
additives for cells used in energy storage devices. The company’s foray into
electrolyte additive manufacturing could act as a trigger for its sustainable growth.
We initiate coverage on Ami Organics Ltd (AOL), with a BUY recommendation. Our
DCF-based target price of INR 1,160/share (WACC of 11% and terminal growth rate
6%) implies an upside of 17% from the current level. The stock is currently trading
at 32.4x FY24E EPS. We expect AOL's PAT to grow at a 26% CAGR over FY22-25E,
led by a 26% CAGR in EBITDA.
Early mover advantage in the advanced pharmaceutical intermediates business:

 Ami Organics focuses on development of pharma intermediates either for

molecules that are under clinical trials or for molecules that have been launched in
the patented and generic space.

 The company develops its products sometimes even when they have not been
launched by the originator, and gives their samples to API manufacturers
worldwide. The API manufacturers, after studying the company’s molecules,
develop their API and file their DMF with Ami Organics’ product as a key raw
material. Early engagement with its customers leads to Ami Organics becoming a
preferred supplier by them.

 DMF being a regulatory document, creates an entry barrier for the company’s
competition. The company has nurtured enduring relationships with domestic
clients as well as multinational corporations (MNCs) across large and fast growing
markets globally. The company’s supply contracts with key customers span long
periods of time. 13 out of over 160 of the company’s customers have been
customers since the past ten years and 50 of its customers have been customers
since the past five years. The company’s key products have captured 50-90% of the
global market share, owing to the company’s early mover advantage.

Page | 14
Chemical: Sector Thematic 2.0

Exhibit 17: Market leading positions in advanced pharma intermediates

API Pharma Intermediates Ami Organics’ market share as per F&S Report
The company is a key supplier of these intermediates
1-(3-Chloro Phenyl) 4-(3-Chloro Propyl) Piperazine H,
with a market share of 80-90% in FY21. It also is a
Trazodone 2H-[1,2,4] Triazolo [4,3-A] Pyridin-3-One, 1-(3-Chloro
major manufacturer of key intermediates for the APIs
Phenyl) Piperazine
belonging to atypical antidepressants drug class.
Amino Acetaldehyde Dimethyl Acetal, N-N Dimethyl
Formamide Dimethyl Acetal, Methyl-4-Methoxy For Amino Acetaldehyde Dimethyl Acetal
Dolutegravir Acetoacetate, 1-(2,2-Dimethoxy Ethyl)-5-Methoxy-6- intermediate, the company had a global market share
(Methoxy Carbonyl)-4-Oxo-1, Diacetal-3-Carboxylic of 70-75% in FY21.
Acid
The company is a key supplier of 3,4-Di Hydroxy 5-
Entacapone 3,4-Di Hydroxy 5-Nitro Benzyl Dehyde Nitro Benzyl Dehyde with a market share of ~80% in
FY21.
5,6-Dihydro-3-(4-Morpholinyl)-1-4 (2-Oxo-1-
Piperidin), Ethyl Chloro [(4-Methoxyphenyl)
Hydrazono] Acetate, 3-Morpholino-1-(4-
Nitrophenyl)5, 6-Dihydropyridin-2, 1-(4-Amino
Phenyl)-5, 6-Dihydro-3-(4-Monopholinyl)-2, 2- The company held ~50% market share in FY21 of 1-(4-
Piperidone, 1-(4-Aminophenyl)Piperidin-2-One, 1-(4- Amino Phenyl)-5,6-Dihydro-3-(4-Monopholinyl)-2
Apixaban
Iodophenyl) Piperidine-2-One, 3-Morpholine-4- and ~40% of Ethyl Chloro [(4-Methoxyphenyl)
Iodophenyl-5,6-Dihydro-2-Piperidone, 1-4 Hydrazono] Acetate.
Iodophenyl-3-Morpholino 5-6 Dihydro Pyrdine, 1-(4-
Aminophenyl)-3-(Morpholin-4-Yl)-5-6-Dihydropyr,
5,6-Dihydro-3-(4-
Morpholinyl)-1-(4-Nitrophenyl)-2
The company is one of India’s largest producers of
(S)-(+)-Glycidyl Phthalimide, 4-(4-Aminophenyl)
Rivaroxaban Glycidyl Phthalimide and 4-(4-Aminophenyl)
Morpholin-3-One
Morpholin-3-One.
Triethyl Ortho Benzoate, 6-Methoxy Carbonyl-2-
Oxindole, 4-Chloro-3-Nitro Benzoic Acid, N-Methyl- Ami Organics is a supplier to the originator for key
Nintedanib
4-Nitroaniline, N-(Methyl-2-(4-Methyl Piperazine-1- intermediates for producing Nintedanib
Yl)-N-(4-Aminoph), N-Methyl Piperazine
2,4-Dichloropyrimidine, 5-Amino-2-Methyl Benzene The company holds 86–88% in the global market of
Pazopanib
Sulphonamide 2,4-Dichloropyrimidine.
1-(2-(2-Hydroxy Ethoxy)Ethyl Piperazine, Dibenzo- Ami Organics is a major manufacturer of the key
Quetiapine
(1,4)- Thazepine-11-(10H)-One intermediates for this API.
Ami Organics is a major manufacturer of the key
Aripiprazole 1-(2,3-Dichloro Phenyl) Piperzine intermediates for Aripiprazole API and has customers
across the world.
Methyl-5-Acetal-1H-Pyrazole-3- Ami Organics is a major manufacturer of one of the
Darulutamide
Carboxylate key intermediates for this API.
Ami Organics is a major manufacturer of the key
Ziprasidone/ Lurasidone 3-(1-Piperazinyl)1,2-Benzisothiazole Hcl
intermediates for these API.
1-Boc Piperazine,2,4 Dimethyl
Thiophenol, 1(3-Carboxypyridyl-
2)2-Phenyl 4-Methyl Piperazine, 1-Methyl-3-Phenyl
Piperazine, 1-(3- These are atypical antidepressant medicines and Ami
Hydroxymethyl-Pyridin-2-Yl)-4- Organics is a major manufacturer of key intermediates
Mirtazapine/Vortioxetine/Vilazodone
Methyl-2-Pp, 1-(3-Corboxypyrdyl- for the APIs belonging to atypical antidepressants
2)2-Phenyl 4-Methyl Piperazine, drug class.
Ethyl-5-Amino-1-Benzofuran-2-
Carboxylate, 1-(2-Aminocarbonyl
Benzofuran-5-Yl)Piperzi
Source: Ami Organics’ Red Herring Prospectus
 The company works closely with innovators on various new chemical entity (NCE)
molecules. An NCE molecule is a compound, without any precedent among the
regulated and approved drug products.

 Advanced pharmaceutical intermediates business contributed 77% to its total

revenue in FY22. Ami Organics has developed and commercialised over 480
pharma intermediates for active pharmaceutical ingredient (APIs) across 17
therapeutic areas. All these molecules are developed in house. 91% of these
intermediates target the chronic diseases market which has a robust demand for

Page | 15
Chemical: Sector Thematic 2.0

regular doses. The company’s top 5 product lines come from antidepressant,
anticoagulant, anti-parkinson, anti-retroviral and anti-diabetic therapeutic areas.
Exhibit 18: Business model of the advanced pharma intermediates business

Source: Company, HSIE Research

 Ami Organics is a cost-focused and efficiency-driven company and reviews its

expenses on a regular basis. It also passes on the cost benefits to its customers so
even after getting into the product early, it maintains its market share because of
timely supply of products and cost-efficient production.

 The company’s customer mix in this business segment includes some marquee
names such as Boehringer Ingelheim, Bayer, Organike, Sun Pharma, Zydus,
Laurus Labs, Cipla, Dr. Reddy’s, Lupin, etc.

Technical prowess and R&D-led company, a key success enabler

 Since inception, Ami Organics’ main focus has been on its technical and R&D
capabilities. It has a research team of 89 people, including 16 PhDs and 50 post
graduates. The company spent ~1.4% of its revenue on R&D activities in FY22. The
company has indigenously developed capabilities in plug flow, catalytic fixed-bed
flow as well as tubular flow reactors. The company is also shifting its products
under continuous flow technology in order to increase the efficiency and
effectiveness of its products and processes. The company has one process patent
granted, eight process patents published, while five process patents are under
review.

 The company’s R&D team is spearheaded by Dr. Sanjay Vasoya who holds a
doctorate and master’s degree in organic chemistry. He was previously associated
with Teva Pharmaceuticals, Alembic Pharmaceuticals and Rubamin
Pharmaceuticals. Dr. Ajit Choubey holds an advisory role in the company and has
previously worked with Ipca Laboratories. Ami Organics’ R&D team is led by
distinguished people in the chemical industry who ensure that the company is
constantly working towards innovative practices and products.

Page | 16
Chemical: Sector Thematic 2.0

Exhibit 19: Ami Organics has competencies over various chemistries

Source: Company, HSIE Research

 Ami Organics is present in multiple chemistries and it typically manufactures

products ranging from the n-1 to the n-8 stage via several synthesis pathways for
a single intermediate, against the backdrop of its robust innovative culture and
R&D team.

 Ami Organics is capable of executing complex reactions and has expertise in flow
reaction, enzymatic reaction, high temperature catalytic reaction, high vacuum
and high temperature distillation, etc. The company is 90% backwardly integrated
over all its products.

 The company has 380 new products in its pipeline for its advanced pharmaceutical
intermediates business that provides it growth visibility till FY35. This impressive
product pipeline is a fruit of the company’s R&D capabilities that creates a huge
competitive edge for it. We believe that Ami Organics has an edge over its peers
for its consistent research-driven innovation that allows it to keep a pipeline of
products ready which will be launched 10-15 years down the line.
Exhibit 20: Lab equipment at the company’s R&D center
Equipment No. of equipment installed
Fume hoods with temperature sensor 26
Gas chromatographer (GC) 05
Gas chromatographer-HS 01
Gas chromatographer-MS 01
Liquid chromatographer (LC)-MS 01
High performance liquid chromatographer (HPLC) 09
Continuous Flow Vapor Phase Catalytic Fixed Bed Reactor 04
Continuous Flow Micro Channel Reactor 01
Continuous Flow 3D Mix Tube Reactor 01
Continuous Plug Flow Reactor, Tube in tube & Coil Type 01
Source: Company, HSIE Research

Page | 17
Chemical: Sector Thematic 2.0

Acquisition of Gujarat Organics and focus on speciality

chemicals business
 Ami Organics acquired two facilities of Gujarat Organics for INR 930mn in March
2021, situated in Ankleshwar and Jhagadia, Gujarat. This acquisition offered the
company significant diversification in the existing product portfolio, which
furthers the company’s objective of achieving inorganic expansion. It also gave the
company access to speciality chemicals business, which caters to petrochemicals,
electronic chemicals, and cosmetic industries. This acquisition opened 600+ doors
(customers) for the company. Both plants acquired from Gujarat Organics are
fungible. The company has announced a Capex of INR 1,900mn at Ankleshwar for
the advanced pharma intermediate business. Jhagadia site is used to manufacture
speciality chemicals for the company. It has shifted the existing machinery at
Ankleshwar to Jhagdia.

 In its speciality chemicals business, the company manufactures parabens and

paraben formulations, salicylic acid, and other speciality chemicals that are used
in cosmetics, dyes, polymers and agrochemical industries, animal meals, and
personal care products. Ami Organics is increasing the efficiency of its plant
acquired from Gujarat Organics by conducting cost optimisation activities. The
company is shifting a few major products of this business to newer technologies
such as continuous flow reaction, which will help it ramp up its volume as well as
improve the margin. The company plans to increase its current 40% capacity
utilisation to 85% in the next two years.

 Ami Organics has launched two pharmaceutical import substitute products in

FY22 and plans to launch one agrochemical import substitute product and one
pharmaceutical import substitute product in H2FY23, and one agrochemical
import substitute product in early FY24. These new products will bolster future
growth by allowing it to exploit the import substitute opportunity.

 The company has some marquee customers in its speciality chemicals business
such as Sun Pharma, Reliance Industries, Bayer, Huntsman, Himalaya, Transmare
Chemie, etc.

 It wants the speciality chemicals business to contribute ~35% to its total revenues
in the next two to three years. Ami Organics is taking all the steps required to grow
its speciality chemicals business by increasing efficiencies, launch of new products,
adoption of new technology and increasing the wallet share of its customers.
Exhibit 21: Manufacturing facilities of Ami Organics
Facility Area (sq mtrs) Capacity (MTPA)
Sachin Unit 8,250 2,460
Ankleshwar Unit* 10,644 N/A
Jhagadia Unit 56,998 3,600
Warehouse - Sachin 2,812 1,050
Source: Company, HSIE Research | *Note: Currently, the Ankhleshwar site has been demolished. The new
plant will be set up at Ankhleshwar site to cater to the growing demand of advance pharmaceutical
intermediates

Page | 18
Chemical: Sector Thematic 2.0

Foray into the electrolyte additives business

 Ami Organics forayed into the electrolyte additive manufacturing business in
FY22, and became the first Indian and global company outside of China to
successfully develop core electrolyte additives for cells used in energy storage
devices. This electrolyte additives business shall form a part of the company’s
speciality chemicals business.

 The company has developed electrolyte additives, which are mainly used as a solid
electrolyte interface (SEI), which is an integral ingredient in an electrolyte solution.
The two products that the company has developed are vinylene carbonate and
fluoroethylene carbonate.

 Currently, the company’s products are with various customers in China, Korea,
India and Europe for approval, with some of the customers in an advanced stage
of qualification, and the company expects revenue to flow from this business in
H1CY23. It has already acquired a land parcel in Sachin, Surat for the future
expansion of the electrolyte business. As of now, the company’s capacity in its
Jhagadia unit is enough to cater to the initial demand for these products and if it
sees good traction from its customers, it will establish a dedicated plant for this
business.

 The global market opportunity of this business is expected to reach USD 2bn in
CY28, and Ami Organics plans to capture 10% of this market.
Exhibit 22: Industry analysis of the electrolyte additives business

Source: Company, HSIE Research

Exhibit 23: Revenue, growth, and EBITDA margin

Revenues (INR mn) (LHS) Growth YoY (RHS) EBITDA Margin (RHS)

10,000 % 60.0

8,000 50.0

40.0
6,000
30.0
4,000
20.0
2,000 10.0

0 0.0
FY19

FY20

FY21

FY22

FY25E
FY23E

FY24E

Source: Company, HSIE Research

Page | 19
Chemical: Sector Thematic 2.0

Exhibit 24: Segmental revenue mix (%)

Advanced Intermediates Chemicals Others

100% 6 5 4
14 7 3 3
3 5
1 18 18 22 22
80%

60%

85 91 88
40% 77 78 75 75

20%

0%

FY22
FY19

FY20

FY21

FY23E

FY24E

FY25E
Source: Company, HSIE Research

Exhibit 25: Geographical revenue mix (%)

Domestic sales Export sales
100%

80% 42%
48% 53% 47%

60%

40%

52% 58%
50% 46%
20%

0%
FY19

FY20

FY21

FY22
Source: Company, HSIE Research

Exhibit 26: Continued focus on improving operating leverage

Gross profit to sales (%) Opex to sales (%)
47% 48% 47% 48% 48%
50% 46%

45%

40% 38%

35%
29%
30% 27% 28%
26% 26%
24%
25%
20%
20%
FY23E

FY24E

FY25E
FY19

FY20

FY21

FY22

Source: Company, HSIE Research

Page | 20
Chemical: Sector Thematic 2.0

Exhibit 27: Return on equity ratio (%)

%
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0

FY25E
FY23E

FY24E
FY20

FY22
FY19

FY21
Source: Company, HSIE Research

Exhibit 28: Return on the capital employed ratio (%)

%
30.0

25.0

20.0

15.0

10.0

5.0

0.0

FY24E

FY25E
FY23E
FY20

FY22
FY19

FY21

Source: Company, HSIE Research

Exhibit 29: Net debt to equity ratio (x)

x
1.00
0.8
0.80 0.6
0.60 0.5

0.40

0.20
0.0
0.00

-0.20 -0.1 -0.1

-0.2
-0.40
FY25E
FY23E

FY24E
FY20

FY21

FY22
FY19

Source: Company, HSIE Research

Page | 21
Chemical: Sector Thematic 2.0

Exhibit 30: Capex investments over the years

Capex (INR mn)
1,400 1250
1,200
1000
938
1,000
800
600
400
400 311
197
200
0

FY23E

FY24E

FY25E
FY20

FY21

FY22
Source: Company, HSIE Research

Exhibit 31: Free cash flow to the firm (FCFF) positive from FY25
Operating cash flow (INR mn) Free cash flow to the firm (INR mn)

1,500

1,000

500

-500

-1,000 FY23E

FY24E

FY25E
FY20

FY21

FY22

Source: Company, HSIE Research

Exhibit 32: Continued focus on building a strong R&D infrastructure

R&D expense (INR mn)-LHS R&D expense as a % of sales-RHS

160 4.0%

140 3.6% 3.5%

120 3.0%

100 2.5%

80 1.9% 2.0%
1.4% 1.5% 1.5% 1.5%
60 1.5%

40 1.0% 1.0%

20 0.5%

0 0.0%
FY24E

FY25E
FY23E
FY19

FY22
FY20

FY21

Source: Company, HSIE Research

Page | 22
Chemical: Sector Thematic 2.0

Financials (Consolidated)
INCOME STATEMENT
INR mn FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Revenues 2,385 2,396 3,406 5,201 6,360 7,581 9,261
Growth % 0.5 42.1 52.7 22.3 19.2 22.2
Raw Material 1,484 1,289 1,795 2,728 3,365 3,960 4,810
Employee Cost 117 178 210 414 490 548 603
Other Expenses 363 519 599 1,008 1,270 1,440 1,760
EBITDA 421 410 802 1,052 1,236 1,633 2,089
EBIDTA Margin (%) 17.6 17.1 23.5 20.2 19.4 21.5 22.6
EBITDA Growth % (2.5) 95.4 31.2 17.5 32.1 27.9
Depreciation 26 35 42 101 126 171 210
EBIT 395 375 760 951 1,109 1,462 1,879
Other Income 4 28 14 28 31 32 33
Interest 48 56 56 64 1 4 7
PBT (before EO item) 351 348 717 915 1,140 1,490 1,904
Exceptional Income / Expenses - - - - - - -
PBT 351 348 717 915 1,140 1,490 1,904
Tax 118 73 177 195 292 375 479
RPAT 233 275 540 719 848 1,115 1,425
APAT 233 275 540 719 848 1,115 1,425
APAT Growth (%) 17.9 96.6 33.2 17.8 31.5 27.8
AEPS 6.4 7.5 14.8 19.7 23.3 30.6 39.1
AEPS Growth % 17.9 96.6 33.2 17.8 31.5 27.8
Source: Company, HSIE Research

BALANCE SHEET
INR mn FY19 FY20 FY21 FY22 FY23E FY24E FY25E
SOURCES OF FUNDS
Share Capital 105 105 315 364 364 364 364
Reserves And Surplus 717 1,013 1,354 4,858 5,579 6,526 7,738
Total Equity 822 1,118 1,669 5,223 5,943 6,891 8,102
Minority Interest - - - - - - -
Long-term Debt 221 199 726 6 6 106 106
Short-term Debt 261 339 445 - - - -
Current maturities of LT debt 57 56 195 3 3 3 3
Total Debt 539 594 1,366 8 8 108 108
Deferred Tax Liability 21 31 33 63 64 65 66
Long-term Provision and others 11 24 44 4 4 5 5
TOTAL SOURCES OF FUNDS 1,394 1,768 3,112 5,298 6,020 7,069 8,282
APPLICATION OF FUNDS
Net Block 788 852 1,863 2,045 2,741 3,663 4,027
Capital WIP 20 117 2 30 207 364 191
LT Loans And Advances 67 122 91 205 209 214 218
Total Non-current Investments 16 17 14 17 17 18 18
Total Non-current assets 891 1,109 1,970 2,297 3,175 4,259 4,454
Inventories 387 523 604 1,122 1,372 1,635 1,997
Debtors 761 564 1,207 1,637 2,002 2,386 2,915
Cash and Cash Equivalents 5 38 27 996 488 50 531
Other Current Assets 88 85 325 537 553 570 587
Total Current Assets 1,241 1,210 2,162 4,291 4,414 4,641 6,030
Creditors 684 514 844 1,184 1,460 1,719 2,088
Other Current Liabilities & Provns 54 37 176 106 109 112 115
Total Current Liabilities 738 551 1,020 1,291 1,569 1,830 2,202
Net Current Assets 503 659 1,142 3,001 2,845 2,810 3,828
TOTAL APPLICATION OF FUNDS 1,394 1,768 3,112 5,298 6,020 7,069 8,282
Source: Company, HSIE Research

Page | 23
Chemical: Sector Thematic 2.0

CASH FLOW STATEMENT

(INR mn) FY20 FY21 FY22 FY23E FY24E FY25E
Reported PBT 348 717 915 1,140 1,490 1,904
Non-operating & EO Items (28) (14) (28) (31) (32) (33)
Interest Expenses 56 56 64 1 4 7
Depreciation 35 42 101 126 171 210
Working Capital Change (123) (494) (890) (352) (403) (536)
Tax Paid (63) (176) (165) (291) (374) (478)
OPERATING CASH FLOW ( a ) 225 132 (3) 594 856 1,074
Capex (197) (938) (311) (1,000) (1,250) (400)
Free Cash Flow (FCF) 28 (806) (314) (406) (394) 674
Investments (1) 3 (3) (0) (0) (0)
Non-operating Income 28 14 28 31 32 33
Others (56) 31 (114) (4) (4) (4)
INVESTING CASH FLOW ( b ) (225) (890) (400) (974) (1,223) (372)
Debt Issuance/(Repaid) 55 772 (1,358) - 100 -
Interest Expenses (56) (56) (64) (1) (4) (7)
FCFE 27 (90) (1,736) (407) (298) 667
Share Capital Issuance - 210 49 - - -
Dividend - - (109) (127) (167) (214)
Others 34 (180) 2,855 0 0 0
FINANCING CASH FLOW ( c ) 34 746 1,373 (128) (71) (221)
NET CASH FLOW (a+b+c) 33 (12) 969 (508) (438) 482
EO Items, Others
Closing Cash & Equivalents 38 27 996 488 50 531

KEY RATIOS
FY19 FY20 FY21 FY22 FY23E FY24E FY25E
PROFITABILITY %
Gross profit margin 37.8 46.2 47.3 47.5 47.1 47.8 48.1
EBITDA Margin 17.6 17.1 23.5 20.2 19.4 21.5 22.6
EBIT Margin 16.6 15.6 22.3 18.3 17.4 19.3 20.3
APAT Margin 9.8 11.5 15.9 13.8 13.3 14.7 15.4
RoE 28.3 28.3 38.7 20.9 15.2 17.4 19.0
RoIC N/A 20.1 24.5 20.4 17.3 18.3 19.8
RoCE 19.0 20.2 23.9 18.3 15.0 17.1 18.6
EFFICIENCY
Tax Rate % 33.7 21.0 24.7 21.3 25.6 25.2 25.2
Fixed Asset Turnover (x) 2.6 2.5 2.3 2.4 2.3 2.1 2.1
Inventory (days) 59 80 65 79 79 79 79
Debtors (days) 116 86 129 115 115 115 115
Other Current Assets (days) 14 13 35 38 32 27 23
Payables (days) 168 146 172 158 158 158 158
Other Current Liab & Provns (days) 8 6 19 7 6 5 5
Cash Conversion Cycle (days) 13 27 38 65 61 57 54
Net Debt/EBITDA (x) 1.3 1.4 1.7 (0.9) (0.4) 0.0 (0.2)
Net D/E 0.6 0.5 0.8 (0.2) (0.1) 0.0 (0.1)
Interest Coverage 8.3 6.7 13.5 14.8 1,877.7 384.8 266.6
PER SHARE DATA (INR)
EPS 6.4 7.5 14.8 19.7 23.3 30.6 39.1
CEPS 7.1 8.5 16.0 22.5 26.7 35.3 44.9
Dividend N/A N/A N/A 3.0 3.5 4.6 5.9
Book Value 22.6 30.7 45.8 143.3 163.1 189.1 222.4
VALUATION
P/E (x) 155.2 131.6 66.9 50.2 42.6 32.4 25.4
P/Cash EPS (x) 139.6 116.6 62.1 44.1 37.1 28.1 22.1
P/BV (x) 44.0 32.3 21.7 6.9 6.1 5.2 4.5
EV/EBITDA (x) 87.2 89.5 46.8 33.4 28.9 22.2 17.1
EV/Revenue (x) 15.4 15.3 11.0 6.8 5.6 4.8 3.9
Dividend Yield (%) N/A N/A N/A 0.3 0.4 0.5 0.6
OCF/EV (%) N/A 0.6 0.4 (0.0) 1.7 2.4 3.0
FCFF/EV (%) N/A 0.1 (2.2) (0.9) (1.1) (1.1) 1.9
FCFE/M Cap (%) N/A 0.1 (0.2) (4.8) (1.1) (0.8) 1.8
Inventory/revenue % 16 22 18 22 22 22 22
Source: Company, HSIE Research
Page | 24
Chemical: Sector Thematic 2.0

Clean Science and Technology Ltd

‘Clean’ along with ‘science’
TP INR 1,230, SELL
Process innovation and sustainable chemistry are the pillars of Clean Science and
Technology Ltd (CSTL)’s business. The aim of the company is to produce chemicals
that find application in high-growth industries and there is limited competition. The
company uses its deep understanding of complex chemistries to create an alternate
supply chain for their customers using technologies that are cleaner and cost
effective. The company’s focus is to maximise atom economy and backward
integrate all its processes. This enables the company to produce maximum desired
product with minimal by-products and effluents, and increase yields of its
processes.
Offering value proposition to its customers enables the company to gain market
share. CSTL registers robust growth and gains market share in the introductory
phase of the product life cycle. Post the acquisition of significant market share
globally in a product, its growth matures and softens. In order to sustain the high
growth rate momentum, the company has to launch new products regularly. Thus,
innovating environment friendly and cost optimal new processes on a regular basis
is essential for CSTL’s business to deliver strong growth, going ahead.
We believe EBITDA and PAT will grow of 24/21% over FY22-25, while RoE to
decline from 34.9% in FY22 to 27.6% in FY25 owing to reduction in margin. The stock
is trading at 48.1x FY24E EPS, which we believe is contextually high. We initiate
coverage on CSTL with a SELL recommendation. Our DCF-based target price of INR
1,230/share (WACC of 11% and terminal growth rate 6%) implies a downside of 18%
from the current level.

Foraying into hindered amine light stabilizers (HALS) series

 CSTL on the back of its R&D infrastructure and innovative catalytic processes has
announced its foray into the HALS series, which shall drive the company’s growth,
going ahead. CSTL has already commercialised two lines from its HALS series (701
and 770) in its unit-3 facility on 17 November 2022. The company is fully
backwardly integrated in HALS.

 HALS 701 and 770 have a similar chemistry but different applications. HALS 701
is used for water purification and as a stabilizer in the monomer industry. HALS
770 is used by all master batches in India and is imported ~3,000-4,000 tons per
annum to India, and the company’s first set of capacity is 2,000 tons. Hence, even
after being a part of the HALS series, different HALS have different applications,
customers and target varied geographies.

 CSTL would be the first Indian company to manufacture HALS in the domestic
market. The company plans to become a key player in this segment within 3-4
years of its launch. Initially, the company wants to cater to the domestic market
and grab the import substitution opportunity.

 CSTL has also incorporated a new subsidiary, Clean Fino-Chem Limited (unit-4
facility), where it plans to introduce other lines of HALS series in the coming years.
The company has allocated a Capex of INR 3bn for HALS in unit-4 and expects the
commercial production to commence next year.

 The global market size for HALS is estimated to be USD ~1bn, and is growing at a
~10% CAGR. BASF is the biggest player globally in the HALS series. Owing to the
high energy prices in Europe, BASF has announced price hikes a few times already

Page | 25
Chemical: Sector Thematic 2.0

in their entire HALS segment. While energy prices have gone up for CSTL too, they
haven’t gone up as much as for a European producer or an American producer.
This delta shall increase CSTL’s price competitiveness and in turn garner new
customer interest. Furthermore, the inhouse developed catalyst that CSTL uses to
produce HALS series is less costly than the catalyst used by BASF.
(Refer to Annexure for more information on HALS).

Process innovation at the company’s core

 CSTL is a process innovator and not a product innovator company. It launches
products that are already being manufactured by its competition and focuses on
developing innovative chemical catalytic processes that allow it to manufacture
these products in the most cost efficient and sustainable way. This helps the
company garner better margins than its competitor. The company works
extensively in this niche space, supported by value engineering and inhouse R&D.
CSTL is one of the very few companies that develops its own catalyst and then uses
it for commercial production.

 The company’s unique and innovative chemistries and strong plant engineering
capabilities have enabled it to maximise atom economy and avoid usage of
hazardous raw materials and, hence, increase efficiencies and yields in its
processes.

 CSTL uses a novel catalyst to manufacture anisole from phenol using the vapour
phase technology. It further conducts hydroxylation of anisole to produce
monomethyl ether of hydroquinone (MEHQ) and guaiacol. This unique
manufacturing route has led to CSTL becoming one of the largest manufacturers
of anisole, MEHQ and guaiacol in the world.

 The company has emerged as the global market leader in five products and
second-largest global player in four products out of its portfolio of nine products
(Refer Exhibit-33). CSTL’s processes ensure high levels of backward as well as
forward integration.

 R&D forms the backbone of CSTL as it bolsters process innovation. CSTL has a
R&D team of 70 people. The company focuses its R&D efforts on three core areas:
(1) new product development largely in the performance chemicals segment where
India does not have a large global presence, (2) continuously improving yields and
efficiencies of existing processes, and (3) developing new intermediates that can
address import substitution.

 We believe that the company’s constant focus on process innovation shall lead to
a robust product pipeline as well as improve yield of its existing products.
However, the company will have to run fast on the so called innovation treadmill
to come up with newer catalytic processes to ensure success, which is a key
monitorable, going ahead.

Page | 26
Chemical: Sector Thematic 2.0

Exhibit 33: CSTL emerged a global leader, owing to process innovation

Product Application Growth Prospects Global position Domestic position
Polymerization inhibitor in Rising population, increasing
acrylic acids, acrylic esters, awareness with regards to basic
MEHQ (Monomethyl ether of super absorbent polymers sanitation and hygiene have Largest
Largest manufacturer
Hydroquinone) (diapers and sanitary pads) augmented the growth of the manufacturer
Pre-cursor for the agrochemical diaper and sanitary pads
industry market.
The animal feed industry is
Anti-oxidant in food and animal poised to reach the value of Largest
BHA (Butylated Hydroxy Anisole) Largest manufacturer
feed industry USD 460bn by 2026 from USD manufacturer
345bn in 2020.
The global Ascorbyl Palmitate
market is anticipated to register
a CAGR of 5.8% over 2020-2025
and projected to reach USD 13
Infant food formulations, Largest
AP (L-Ascorbyl Palmitate) mn by 2025. Largest manufacturer
breakfast cereals and cosmetics manufacturer
The global personal care market
is expected to reach USD 720bn
by 2030 at a CAGR of 3.6% over
2020-2030.
The global edible oils market is
expected to register a CAGR of
Second largest Second largest
TBHQ (Tertiary Hydroquinone) Stabilizer in oil industry 5.1% to reach an estimated value
manufacturer manufacturer
of USD 130 billion by the end of
2024
The global cough syrup market
Precursor to manufacturing is expected to grow at a CAGR Second largest Largest
Guaiacol
APIs for cough syrup of approximately 3.5 % to reach manufacturer manufacturer
USD 4.9bn by 2025.
Anti-retro viral drugs are
essential in treating HIV
Second largest Largest
DCC (Dicyclohexyl Carbodiimide) Reagent in anti-retroviral infections. The HIV drugs
manufacturer manufacturer
market is likely to reach USD
34bn by 2030.
An increased requirement for
agrochemicals is triggered by
the rising population and higher
food demand. Agrochemicals
are extensively used to generate
Intermediate in agrochemical Second largest Largest
p-BQ (para Benzoquinone) higher yields and reduce the
industry manufacturer manufacturer
gap between food supply and
demand. The market for
agrochemicals is expected to
grow to USD 246bn by 2025
from USD 209bn in 2020.
The global sunscreen market is
Used in UV blockers in expected to record a CAGR of Largest
4-MAP (4-Methoxy Acetophenone) Largest manufacturer
sunscreens (cosmetics industry) 2.6% over 2021-26, reaching a manufacturer
market size of USD 787mn.
The market size of Anisole is
estimated to reach USD 127mn
by 2027.
Precursor to perfumes, insect The global market for perfume Largest
Anisole Largest manufacturer
pheromones, pharmaceuticals is projected to reach a market manufacturer
size of
USD 33bn in 2020, registering a
CAGR of 6% over 2021-26.
Source: Company, HSIE Research

Page | 27
Chemical: Sector Thematic 2.0

Exhibit 34: CSTL’s R&D infrastructure

Source: Company, HSIE Research

Technocrat promoters at the helm

 CSTL is led by a team of technocrat promoters, each individual bringing in a great
skillset. They are highly driven individuals who understand the industry, given
their experience and knowledge, and steer the company towards R&D, innovation,
and better practices.

 Ashok Boob, the company’s managing director, holds a bachelor’s degree in

chemical engineering from the Institute of Chemical Technology, Mumbai. He has
over 25 years of experience in the chemical industry. He overlooks projects and
manufacturing operations of the company.

 Siddharth Sikchi, executive director, holds a master’s degree in science from the
University of Manitoba in Canada and a bachelor’s degree in technology from the
Institute of Chemical Technology, Mumbai. He has over fifteen years of experience
in the chemical industry. He looks after the R&D and marketing operations of the
company.

 Krishna Boob, executive director, has over two decades of experience in the
chemical industry and looks after purchase and public relations for CSTL.

 Parth Maheshwari, vice president, has over six years of experience in the chemical
industry and looks after some of the business operations.

 CSTL also has some distinguished people on its board, including Prof. G D Yadav
and Pradeep Rathi. Prof. G D Yadav is a chemical engineer, inventor and academic,
known for his research on nanomaterials, gas absorption with chemical reaction
and phase transfer catalysis. Pradeep Rathi, chairman, holds a bachelor’s degree in
science from University of Poona and a master’s degree of science in chemical
engineering practice from Massachusetts Institute of Technology, US. He is also
the promoter of Sudarshan Chemicals.

 CSTL benefits from the guidance of its leaders and this has led to venturing into
better products, processes and garnered confidence of customers as well as of
investors.

Page | 28
Chemical: Sector Thematic 2.0

Exhibit 35: CSTL’s manufacturing facilities

Facility Number of plants Area
Unit-1 7 30,000 sq. mtr.
Unit-2 4 23,337 sq. mtr.
Unit-3 5 40,343 sq. mtr.
Unit-4 First phase of facility to come on stream in H2FY24 with HALS series 34 acres
Source: Company, HSIE Research

Exhibit 36: Milestones achieved by the company

•Technocrat promoters collaborated to develop novel, clean and sustainable chemical

2006 processes

•Commercialised unique catalytic technology to manufacture MEHQ and Guaiacol

2009

•Commercialised unique catalytic technology to manufacture 4-MAP

2011

•Commercialised unique catalytic forward integration to manufacture BHA

2014

•Commercialised unique vapour phase route to manufacture Anisole

2018 •Backward integration for flagship products

•Commercialised unique technology to manufacture DCC

2020

•Commercialised plant to manufacture p-BQ and TBHQ

2021

•Expanded capacity of MEHQ, Guaiacol and BHA by 50%

2022 •Commercialising unique technology to foray into HALS series

Source: Company, HSIE Research

Exhibit 37: Revenue, growth, and EBITDA margin

Revenues (INR mn) (LHS) Growth YoY (RHS) EBITDA Margin (RHS)
%
16,000 70.0
14,000 60.0
12,000 50.0
10,000
40.0
8,000
30.0
6,000
4,000 20.0

2,000 10.0
0 0.0
FY24E

FY25E
FY23E
FY19

FY20

FY21

FY22

Source: Company, HSIE Research

Page | 29
Chemical: Sector Thematic 2.0

Exhibit 38: Segmental revenue mix (%)

Performance chemicals Pharma and agro intermediates FMCG Chemicals HALS

100% 0 0 0 0 0 2 5
13 12 7
14 16 17 11 10 10
80% 17 17 20
22 18 16 21 20

60%

40%
66 68 71 71 68 69 70
64
20%

0%

FY23E

FY24E

FY25E
FY19

FY20
FY18

FY21

FY22
Source: Company, HSIE Research

Exhibit 39: Geographical revenue mix (%)

Domestic sales Export sales

100%

31% 29%
80%

70% 74% 70%

60%

40%
69% 71%
20%
30% 26% 30%
0%
FY18

FY19

FY20

FY21

FY22
Source: Company, HSIE Research

Exhibit 40: Healthy margins owing to cost efficient processes

Gross profit to sales (%) Opex to sales (%)

76%
80%
69% 67%
70% 63% 62% 61%
56%
60% 53%

50%

40%
25% 25% 23%
30% 23% 22% 23% 22% 22%
20%
FY23E

FY24E

FY25E
FY18

FY19

FY20

FY21

FY22

Source: Company, HSIE Research

Page | 30
Chemical: Sector Thematic 2.0

Exhibit 41: Return on equity ratio (%)

%
50.0

40.0

30.0

20.0

10.0

0.0

FY24E
FY23E

FY25E
FY19

FY20

FY21

FY22
Source: Company, HSIE Research

Exhibit 42: Return on the capital employed ratio (%)

%
50.0
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
FY23E

FY24E

FY25E
FY19

FY20

FY21

FY22

Source: Company, HSIE Research

Exhibit 43: Net debt to equity ratio (x)

x
0.00

-0.05 0.0 0.0

0.0

-0.10 -0.1
-0.1
-0.15 -0.1
-0.2
-0.20

-0.2
-0.25
FY23E

FY24E

FY25E
FY18

FY19

FY20

FY21

FY22

Source: Company, HSIE Research

Page | 31
Chemical: Sector Thematic 2.0

Exhibit 44: Capex investments over the years

Capex (INR mn)
2,500

2,000

1,500

1,000

500

FY23E

FY24E

FY25E
FY19

FY20

FY21

FY22
Source: Company, HSIE Research

Exhibit 45: Operating cash flow and free cash flow

Operating cash flow (INR mn) Free cash flow (INR mn)

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
-500

FY23E

FY24E

FY25E
FY19

FY20

FY21

FY22

Source: Company, HSIE Research

Exhibit 46: Continuous investment in R&D to come up with innovative processes

R&D expense (INR mn) - LHS R&D expense to revenue % - RHS
INR mn
1.5% 1.5% 1.5%
250 1.6%
1.3%
1.4%
200
1.2%
150 1.0%
0.6% 0.6% 0.8%
0.5%
100 0.6%
0.4%
50
0.2%
0 0.0%
FY24E
FY23E

FY25E
FY19

FY21
FY20

FY22

Source: Company, HSIE Research

Page | 32
Chemical: Sector Thematic 2.0

Annexure: What are hindered amine light stabilizers (HALS)?

 Polymeric materials when exposed to sunlight undergo degradation which
decreases their use value and shortens their service life, mainly due to
photoxidation. The inherent characteristics and appearance of polymer materials
may be weakened as a result of photodegradation.

 HALS are a type of thermal/light stabilising agents of polymeric materials. They

are 2-4 times better stabilising agents than ultraviolet stabilisers. In general, HALS
are applied with other antioxidants and ultraviolet absorbers. HALS inhibit the
processes of autoxidation (is the spontaneous oxidation of a compound in air. In
the presence of oxygen, ethers slowly autoxidise to form hydroperoxides and
dialkyl peroxides) by transformation of the parent amines to nitroxide radicals
either by reaction with peroxy radicals or occasionally by reaction with singlet
oxygen. The nitroxide radicals stop oxidative degradation by coupling of alkyl
radicals.

 HALS are transparent to visible light and are assumed to dissipate the absorbed
energy in a harmless manner, that is, by converting the absorbed photon energy
into heat without being chemically affected.

 HALS series finds application in diverse industries including water treatment,

paints and coatings, plastics, master batches, polymerization inhibitor, etc.

 HALS are effective in poly olefins, polyethylene and polyurethane but they are
ineffective in PVC.

Page | 33
Chemical: Sector Thematic 2.0

Financials (Consolidated)
INCOME STATEMENT
INR mn FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Revenues 2,411 3,933 4,193 5,124 6,849 9,735 12,146 14,666
Growth % 63.1 6.6 22.2 33.7 42.1 24.8 20.7
Raw Material 1,134 1,712 1,292 1,236 2,247 3,602 4,676 5,720
Employee Cost 160 249 310 436 345 432 518 596
Other Expenses 382 609 738 863 1,258 1,801 2,186 2,566
EBITDA 734 1,363 1,853 2,590 2,999 3,900 4,766 5,784
EBIDTA Margin (%) 30.5 34.7 44.2 50.5 43.8 40.1 39.2 39.4
EBITDA Growth % 85.7 35.9 39.8 15.8 30.1 22.2 21.4
Depreciation 76 110 137 172 249 365 488 590
EBIT 658 1,253 1,716 2,417 2,750 3,536 4,277 5,194
Other Income (Including EO Items) 45 113 109 256 300 170 173 177
Interest 1 0 1 1 1 0 0 0
PBT 703 1,365 1,823 2,673 3,048 3,705 4,450 5,370
Tax 214 389 427 689 763 928 1,114 1,344
PAT 489 977 1,396 1,984 2,285 2,778 3,336 4,026
EO (Loss) / Profit (Net Of Tax) - - - - - - - -
APAT 489 977 1,396 1,984 2,285 2,778 3,336 4,026
Share from associates - - - - - - - -
Minority Interest - - - - - - - -
Consolidated APAT 489 977 1,396 1,984 2,285 2,778 3,336 4,026
Consolidated APAT Growth (%) 99.7 43.0 42.1 15.2 21.6 20.1 20.7
AEPS 4.6 9.2 13.1 18.7 21.5 26.1 31.4 37.9
AEPS Growth % 99.7 43.0 42.1 15.2 21.6 20.1 20.7
Source: Company, HSIE Research

BALANCE SHEET
INR mn FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
SOURCES OF FUNDS
Share Capital 14 14 13 106 106 106 106 106
Reserves And Surplus 1,864 2,706 3,408 5,290 7,578 9,936 12,768 16,186
Total Equity 1,879 2,721 3,421 5,397 7,684 10,043 12,875 16,292
Minority Interest - - - - - - - -
Long-term Debt 1 1 3 3 3 - - -
Short-term Debt 5 25 24 - 1 1 1 1
Total Debt 6 26 27 3 3 1 1 1
Deferred Tax Liability 102 139 102 176 209 209 209 209
Long-term Provision and others 2 3 3 4 1 1 1 1
TOTAL SOURCES OF FUNDS 1,988 2,888 3,553 5,579 7,898 10,254 13,086 16,503
APPLICATION OF FUNDS
Net Block 1,024 1,270 1,656 1,858 2,957 4,424 5,893 6,918
Capital WIP 15 39 34 550 441 610 653 538
Other non-current assets 73 40 39 239 145 145 145 145
Non-current Investments - - - - - - - -
Total Non-current assets 1,111 1,349 1,729 2,648 3,544 5,179 6,691 7,601
Inventories 290 370 346 529 881 1,253 1,563 1,887
Debtors 397 598 698 742 1,535 2,183 2,723 3,288
Cash and Cash Equivalents 295 94 93 157 747 812 1,573 3,497
Other Current Assets 268 863 1,433 2,523 2,540 2,616 2,694 2,775
Total Current Assets 1,250 1,926 2,570 3,951 5,703 6,863 8,553 11,447
Creditors 264 223 357 610 1,021 1,451 1,811 2,187
Other Current Liabilities & Provns 109 163 389 410 327 337 347 358
Total Current Liabilities 373 386 746 1,020 1,348 1,789 2,158 2,544
Net Current Assets 877 1,539 1,825 2,932 4,355 5,075 6,395 8,903
TOTAL APPLICATION OF FUNDS 1,988 2,888 3,553 5,579 7,898 10,254 13,086 16,503
Source: Company, HSIE Research

Page | 34
Chemical: Sector Thematic 2.0

CASH FLOW STATEMENT

INR mn FY19 FY20 FY21 FY22 FY23E FY24E FY25E
Reported PBT 1,365 1,823 2,673 3,048 3,705 4,450 5,370
Non-operating & EO Items (113) (109) (256) (300) (170) (173) (177)
Interest Expenses 0 1 1 1 0 0 0
Depreciation 110 137 172 249 365 488 590
Working Capital Change (863) (287) (1,043) (833) (655) (560) (584)
Tax Paid (352) (464) (616) (729) (928) (1,114) (1,344)
OPERATING CASH FLOW ( a ) 148 1,102 931 1,436 2,318 3,092 3,856
Capex (381) (518) (891) (1,239) (2,000) (2,000) (1,500)
Free Cash Flow (FCF) (233) 584 40 197 318 1,092 2,356
Investments - - - - - - -
Non-operating Income 113 109 256 300 170 173 177
Others 33 1 (201) 95 - - -
INVESTING CASH FLOW ( b ) (235) (408) (835) (845) (1,830) (1,827) (1,323)
Debt Issuance/(Repaid) 20 1 (24) - (3) - -
Interest Expenses (0) (1) (1) (1) (0) (0) (0)
FCFE (212) 584 16 195 315 1,091 2,355
Share Capital Issuance - (1) 93 - - - -
Dividend (128) (153) (33) - (420) (504) (608)
Others (6) (541) (67) 0 0 0 (0)
FINANCING CASH FLOW ( c ) (114) (696) (32) (1) (423) (504) (609)
NET CASH FLOW (a+b+c) (201) (2) 64 590 66 761 1,924
Closing Cash & Equivalents 95 93 157 747 812 1,573 3,497
Source: Company, HSIE Research

KEY RATIOS
FY18 FY19 FY20 FY21 FY22 FY23E FY24E FY25E
PROFITABILITY %
Gross Margin 53.0 56.5 69.2 75.9 67.2 63.0 61.5 61.0
EBITDA Margin 30.5 34.7 44.2 50.5 43.8 40.1 39.2 39.4
EBIT Margin 27.3 31.9 40.9 47.2 40.1 36.3 35.2 35.4
APAT Margin 20.3 24.8 33.3 38.7 33.4 28.5 27.5 27.5
RoE N/A 42.5 45.5 45.0 34.9 31.3 29.1 27.6
RoIC N/A 40.4 42.5 43.2 35.6 34.1 32.6 33.4
RoCE N/A 40.1 43.4 43.5 33.9 30.6 28.6 27.2
EFFICIENCY
Tax Rate % 30.4 28.5 23.4 25.8 25.0 25.0 25.0 25.0
Fixed Asset Turnover (x) 1.8 2.5 2.1 2.1 2.1 2.0 1.8 1.7
Inventory (days) 44 34 30 38 47 47 47 47
Debtors (days) 60 55 61 53 82 82 82 82
Other Current Assets (days) 41 80 125 180 135 98 81 69
Payables (days) 85 48 101 180 166 147 141 140
Other Current Liab & Provns (days) 17 15 34 29 17 13 10 9
Cash Conversion Cycle (days) 43 107 81 61 81 67 58 49
Net Debt/EBITDA (x) (0.4) (0.1) (0.0) (0.1) (0.2) (0.2) (0.3) (0.6)
Net D/E (0.2) (0.0) (0.0) (0.0) (0.1) (0.1) (0.1) (0.2)
Interest Coverage 626.8 3,796.2 1,418.0 2,656.6 1,870.5 N/A N/A N/A
PER SHARE DATA (INR)
EPS 4.6 9.2 13.1 18.7 21.5 26.1 31.4 37.9
CEPS 5.3 10.2 14.4 20.3 23.9 29.6 36.0 43.4
Dividend N/A N/A N/A N/A 3.3 4.0 4.7 5.7
Book Value 17.7 25.6 32.2 50.8 72.3 94.5 121.2 153.4
VALUATION
P/E (x) 328.1 164.3 114.9 80.9 70.2 57.8 48.1 39.8
P/Cash EPS (x) 284.0 147.6 104.6 74.4 63.3 51.0 41.9 34.8
P/BV (x) 85.4 59.0 46.9 29.7 20.9 16.0 12.5 9.8
EV/EBITDA (x) 218.1 117.6 86.5 61.9 53.2 40.9 33.3 27.1
EV/Revenue (x) 66.4 40.8 38.2 31.3 23.3 16.4 13.1 10.7
Dividend Yield (%) N/A N/A N/A N/A 0.2 0.3 0.3 0.4
OCF/EV (%) N/A 0.1 0.7 0.6 0.9 1.5 1.9 2.5
FCFF/EV (%) N/A (0.1) 0.4 0.0 0.1 0.2 0.7 1.5
FCFE/M Cap (%) N/A (0.1) 0.4 0.0 0.1 0.2 0.7 1.5
Source: Company, HSIE Research

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Chemical: Sector Thematic 2.0

Exhibit 47: Peer valuation

CMP TP EBITDA margin % EPS (INR/sh) RoE % P/E (x)
Company RECO
(INR) (INR) FY22 FY23E FY24E FY25E FY22 FY23E FY24E FY25E CAGR % FY22 FY23E FY24E FY25E FY22 FY23E FY24E FY25E
Alkyl Amines 2,829 SELL 2,470 21.2 22.3 25.0 26.1 44.0 52.7 66.0 80.5 22% 25.2 24.5 25.2 25.1 64.3 53.7 42.8 35.2
Navin Fluorine 4,419 BUY 5,140 24.4 25.0 30.1 32.6 52.6 67.6 109.5 155.3 43% 15.0 17.0 23.6 27.6 84.0 65.4 40.4 28.5
Galaxy Surfactants 2,759 BUY 3,690 10.9 11.4 10.8 11.8 74.1 106.7 110.2 137.5 23% 18.3 22.0 19.4 20.8 37.2 25.9 25.0 20.1
Vinati Organics 2,144 SELL 1,820 26.9 26.9 28.1 29.8 33.7 43.3 54.1 74.0 30% 20.6 22.1 22.7 24.9 63.6 49.5 39.7 29.0
SRF 2,399 ADD 2,650 25.2 24.9 25.5 26.3 61.7 77.6 90.7 106.1 20% 23.7 24.3 23.4 22.7 38.9 30.9 26.4 22.6
Aarti Industries 674 BUY 825 27.6 16.5 18.9 21.9 36.1 14.1 21.0 26.6 N/A 27.8 9.4 14.3 15.8 18.7 47.9 32.1 25.4
Sudarshan Chemical 392 ADD 425 12.5 8.0 11.2 12.8 18.8 3.9 13.8 24.8 10% 16.5 3.2 10.9 18.0 20.9 100.8 28.4 15.8
NOCIL 234 BUY 300 18.0 17.6 18.4 18.6 10.6 11.3 12.3 14.6 11% 13.0 12.8 13.3 15.0 22.2 20.7 19.0 16.0
Fine Organics 6,106 ADD 6,550 19.4 26.4 22.7 22.4 84.7 197.6 156.3 185.6 30% 30.7 51.1 30.1 28.6 72.1 30.9 39.1 32.9
Deepak Nitrite 2,210 SELL 1,665 23.6 17.6 22.4 23.5 78.2 68.3 103.8 122.7 16% 37.5 24.9 29.3 26.8 28.3 32.4 21.3 18.0
Neogen Chemicals 1,291 BUY 1,890 17.8 18.0 21.6 22.9 17.9 20.7 33.9 56.8 47% 14.3 11.2 16.2 22.7 72.1 62.4 38.1 22.7
Aether Industries 908 BUY 1,070 28.5 29.2 31.4 32.0 8.8 12.4 19.7 26.9 45% 38.8 18.3 17.3 19.6 103.8 73.2 46.1 33.8
Ami Organics 992 BUY 1,160 20.2 19.4 21.5 22.6 19.7 23.3 30.6 39.1 26% 20.9 15.2 17.4 19.0 50.2 42.6 32.4 25.4
Clean Science 1,510 SELL 1,230 43.8 40.1 39.2 39.4 21.5 26.1 31.4 37.9 21% 34.9 31.3 29.1 27.6 70.2 57.8 48.1 39.8
Source: Company, HSIE Research

Page | 36
Chemical: Sector Thematic 2.0

Thematic reports by HSIE

Cement: WHRS – A key cog in the Autos: Where are we on “S” curve? FMCG: Defensive businesses but Autos: A changed landscape Banks: Double whammy for some India Equity Strategy: Atma Indian IT: Demand recovery in
flywheel not valuations Nirbhar Bharat sight

Life Insurance: Recovery may be Retail: Whole flywheel is broken? Appliances: Looing beyond near- Pharma: Chronic therapy – A Indian Gas: Looking beyond the India Equity Strategy: Quarterly Real Estate: Ripe for consumption
swift with protection driving term disruption portfolio prescription pandemic flipbook
margins

Indian IT: expanding centre of Indian Chemical: Evolution to Life Insurance: ULIP vs. MF Infrastructure: On the road to Cement: Spotting the sweet spot Pharma: Cardiac: the heartbeat of Life Insurance: Comparative
gravity revolution! rerating domestic market annual report analysis

Indian microfinance: Should you India Equity Strategy: Quarterly Autos: Divergent trends in PVs and India Internet: the stage is set FMCG: Opportunity in adversity - Logistics: Indian Railways - getting Industrials: Triggering a new cycle
look micro as macros disappoint? flipbook 2Ws A comparative scorecard aggressive

Indian IT: raising the bar India Equity Strategy: Quarterly FinTech Playbook: P2M Payments India Hospitals: capital discipline Autos: Will EVs impact the ‘EV’? Cement: Riding High Power: Reforms essential for
flipbook | Surging pool, dwindling yields improving, sustenance is key rennaissance

Fashion & Lifestyle: From a India Equity Strategy: Quarterly Indian Gas Sector: Resilience in the Consumer Durables: Fans - a Quarterly flipbook: Q2FY22– FinTech Playbook: Discount Footwear: No bargains here!
disruptor’s lens II flipbook eye of the storm compounding story but underrated Demand environment improves Brokers
but input cost inflation dents
profitability

Holdcos for portfolio Cement: A concrete road for net- FinTech Playbook: Buy Now Pay India Equity Strategy: PLI: Power: Shifting energy landscape: IT sector: Decoding signal from Vehicle Financing: Secular
diversification zero emissions Later | De-mystifying the Spearheading India’s Grey to green gains pace noise opportunity meets cyclical
tablestakes manufacturing push tailwinds

Health Insurance 1.0: Advantage India Equity Strategy - Capex: on a India City Gas Sector: Weathering
SAHIs sustainable upswing the ‘Perfect Storm’

Page | 37
Chemical: Sector Thematic 2.0

1Yr Price History

Ami Organics Clean Science & Technology

1400 3000

1200 2500
1000
2000
800
1500
600
1000
400
500
200

0 0

Dec-21

Dec-22
Aug-22
Mar-22

Nov-22
Jan-22

Apr-22

Jun-22

Jul-22

Sep-22
Feb-22

May-22

Oct-22
Dec-22
Dec-21

Aug-22
Mar-22

Jun-22

Nov-22
Jan-22

Apr-22

Jul-22

Sep-22
Feb-22

May-22

Oct-22
Rating Criteria
BUY: >+15% return potential
ADD: +5% to +15% return potential
REDUCE: -10% to +5% return potential
SELL: > 10% Downside return potential

Page | 38
Chemical: Sector Thematic 2.0

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