Speciality chemicals sector

Equity Research INDIA
December 16, 2021

BSE Sensex: 57788
Specialty Chemicals
ICICI Securities Limited
is the author and
distributor of this report ‘Smart and green’ chemistry – our preferred play
We initiate coverage on Tatva Chintan Pharma Chem (Tatva Chintan) with a BUY
Sector Thematic rating, and Clean Science & Technology (Clean Science) with a REDUCE rating.
These two companies operate in niche categories with significant exposure to
smart and green chemistries. They have demonstrated sustainable as well as
Specialty scalable business models with dominance in multiple products across the globe.
Chemicals Both started as single-product companies and expanded their offerings not only
in adjacent categories (through forward and backward integration), but have also
successfully added new chemistries. Each has a very small base and is in the
Tatva Chintan Pharma
Chem process of implementing large capex, which provides visibility on multi-year
(Rs2,484– BUY) growth potential. They are achieving growth rates with RoCEs significantly above
Target price Rs2,920 the industry average. Besides, opportunities are rising for these companies given
the green initiatives enforced through regulation, or large companies changing
Clean Science & their business models with emphasis on sustainability. We categorise both Tatva
Technology Chintan and Clean Science as disruptors among chemical companies.
(Rs2,404– REDUCE)
Target price Rs2,110  Continuous flow chemistry has competitive edge. Conventional manufacturing in
chemical industry suffers from generation of byproducts, which not only reduce yields
of the intended products but are sold at lower realisation leading to increased cost of
production. Higher use of solvents and reagents causes high generation of effluents,
which need to treated or cause environmental pollution otherwise. On the other hand,
smart zeolite-based catalyst processes impress on multiple counts and are truly
disruptors, in our view. The continuous flow chemistry increases efficiency, reduces
effluents and byproducts, requires less inputs (hence gives cost advantage), and
results in end products with high purity. For example: production of 1kg of anisole
requires >4kg of inputs if produced through the conventional route, but only 1.25kg if
produced through the catalyst route.
 Green chemistry – regulation, customer preference and differentiation. The UN,
through its Sustainable Development Goal, has set targets for governments and
corporates to implement environmentally safe, socially responsible and strict
governance principles. Following the UN model, many countries are announcing
ambitious targets to achieve carbon-neutral footprint. China, which was a major
pollution zone, declared war on pollution in 2014 in an effort to transition to a more
sustainable model and stem its deteriorating water, air and soil quality. Even many
large corporates worldwide have adopted sustainable themes, and have pledged to
cut pollution. These changes require significant shift in business models and product
designs, and chemical companies that fail to adapt to the change will eventually go
redundant, while green chemistry will witness rising demand.
 Small base, but robust business models. We are covering two manufacturers in
the green chemistry domain – Clean Science, and Tatva Chintan. Revenues for these
two companies stand at Rs5bn and Rs3bn respectively as at FY21. However, we
don’t consider them ‘small’ because: 1) they have been growing at a CAGR of ~30%
in past three years, and we believe they will grow faster; 2) they are among the
largest players in their key products; and 3) they command above-average RoCEs,
thus cashflow conversion over the longer term would be much higher. Further, they
Research Analysts:
have shown strong capabilities in expanding their product portfolios over the past few
Sanjesh Jain years, and have grabbed commendable market shares even in new products. Thus,
sanjesh.jain@icicisecurities.com they have won market not just by a one-product approach, but by strong underlying
+91 22 6807 7153
Akash Kumar basic chemistries. These two companies don’t significantly rely on the China+1
akash.kumar@icicisecurities.com strategy for growth, but they would have gained market share on the back of their
+91 22 6807 7637 capabilities and R&D investment, irrespective of regulatory tightening in China.
Please refer to important disclosures at the end of this report
Specialty Chemicals, December 16, 2021 ICICI Securities
 Initiate on Tatva Chintan with BUY (TP: Rs2,920). We initiate coverage on Tatva
Chintan with a BUY rating and target price of Rs2,920 valuing the stock at 40x
FY24E EPS. Our valuation is based on back-of-envelope calculation of ~1x PEG,
which is lower than the median PEG for chemical companies in our coverage
universe. The implied valuation works out to 29.3x FY24E EV/EBITDA. Tatva
Chintan offers strong revenue growth (>30%) prospect for a long period, margin
expansion with rising contribution from the high-margin SDA business, and
operating leverage. Apart from growth, we like: 1) the company’s exposure to a
high-growth industry (double-digit), which gives us confidence on sustainability of
its revenue growth; 2) the company has strong market shares in its product
categories; 3) it has enough headroom to increase market share in its largest
product, SDA; 4) it provides exposure to new-age industries such as super-
capacitor battery (through its production of electrolyte salt), and lithium-ion battery
(through glyme, solvent for electrolyte solution); and 5) low base, and higher capex
spend, which provide revenue growth visibility.
 Initiate on Clean Science with REDUCE (TP: Rs2,110). We initiate coverage on
Clean Science and Technology (Clean Science) with a REDUCE rating and target
price of Rs2,110. We have valued the company at 62x FY24E EPS (P/E). Though
the median P/E for chemical companies in our coverage universe is 27.8x FY24E
EPS, we have assigned a higher multiple to Clean Science due to: 1) its much
superior business model with strong focus on green processes and sustainability;
2) significant competitive advantage with its continuous flow chemistry and in-house
catalysts; 3) market share in anisole value chain, which would be difficult to rival; 4)
ability to add multiple products (other than in the anisole value chain) and achieve
global leadership in all of them; and 5) strong financial and return ratios. Our
REDUCE rating is due to very high valuations, and we don’t see much scope for
expansion in margins and return ratios. Thus, net profit growth will track revenue
growth at best.
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TABLE OF CONTENT
‘Smart’ chemistry – is it really smart? ........................................................................... 4

Green chemistry – regulation, customer preference and differentiation ................... 8
Small base, but robust business model ...................................................................... 12
Valuations ....................................................................................................................... 15
Index of Tables and Charts ........................................................................................... 17
COMPANIES
Tatva Chintan Pharma Chem ........................................................................................... 19

Clean Science & Technology ............................................................................................ 55
3
‘Smart’ chemistry – is it really smart?

Conventional manufacturing – most often results in lower yields and
higher effluents
Chemical manufacturing is in practice for long, and it has gone through various
improvements. Chemical reactions happen in sub-nanoseconds, but on commercial
scale it takes much longer. This is due to heat transferability. Conventional
manufacturing involves multiple solvents, reagents and other intermediates that help in
completing reactions. The impact of multiple intermediates is: production of
byproducts, which not only reduce yields of the intended products but are sold at lower
realisation or negative spreads leading to increased cost of production. Higher use of
solvents and reagents cause high generation of effluents, which need to treated, and
cause environmental pollution if not treated.
Case study: Manufacturing of anisole (part 1)

Atul Ltd manufactures anisole by the conventional route where it uses phenol, caustic
soda and dimethyl sulphate. For producing 1kg of anisole, it takes inputs totaling >4kg,
which means residues and effluents are >3kg. Further, dimethyl sulphate will create
certain impurities in the end-product due to the presence of sulphur.
Chart 1: Manufacturing process for anisole (at Atul Ltd)
Source: Company data
Table 1: Manufacturing of 1kg of anisole takes inputs of 4.034kg, which means

2.993kg of effluents and 0.036kg of residues are generated
4
Continuous flow chemistry based on catalyst (zeolites)
Chemical companies are working on newer routes, to manufacture certain chemicals.
The newer routes are more efficient and significantly reduce effluents. Chemical
companies involved in catalyst-based processes have emerged as new favourites and
we too prefer them as investment plays due to their better chemistry and financial
performance. These companies are well positioned to benefit from better product
quality and lower cost of production, which enables them to compete efficiently even
against Chinese manufacturers.
Zeolite has emerged as an efficient catalyst with the vapour phase route for producing
certain chemicals. Zeolites are crystalline aluminosilicates, which have molecular
sieves. They are porous solids with ordered, interconnected microporous channels
with diameters ranging from 0.2nm to 2nm, which resembles the size of many organic
molecules.
Shape and size selectivity is vital for many industrial catalytic processes, and it is
typically attained by utilising catalysts. Selectivity can be based on the shape/size of
the reactant, product or intermediate. Zeolites are made of 3-dimensional crystalline
networks that preferentially adsorb molecules and exclude larger ones. Each
nanoporous material has the potential to offer unique structural and chemical features
that can be beneficial for an industrial application. As a result of their high surface
areas, nanoporous catalysts contain a higher density of active sites that are directly
involved in the reaction at a molecular level.
The first zeolite was synthesised in 1930, and was used in the oil refining industry. The
benefit of adding zeolites into refinery has been impressive as it resulted in ~30%
increase in gasoline yield. Zeolites have found use in the chemical industry including
hydroxylation (phenol), alkylation (ethylbenzene, cumene), oximation (cyclohexanone
oxime) and epoxidation (propylene oxide).
Zeolites also offer many environmental benefits such as: 1) in detergents, it replaced
sodium phosphates, which were shown to distort the balance of freshwater
ecosystems; 2) usage in refineries increased as a result of reduced sulphur emission;
and 3) selective catalytic reduction (SCR) is currently the leading technology to revert
NOx into harmless N2 and H2O by using a reducing agent such as urea (ammonia).
Catalysts for industrial processes are selected on basis of the distinct structural,
morphological and compositional characteristics of the zeolite and the needs /
limitations of the reaction. Compatibility of the zeolite catalyst with the reaction can be
considered as the key for economic success of the process. We have seen certain
chemical companies using zeolite-based catalyst processes, which are disrupting
conventional manufacturing (though the limitation is that all chemistries cannot be
replaced with the catalyst process). Therefore, conventional manufacturing process
will continue to coexist.
5
Chart 2: Framework of zeolite (DX faujasite-type zeolite)
Source: industry
Smart chemistry impresses on multiple counts

The smart zeolite-based catalyst process has impressed on multiple counts, and we
believe they are truly disruptors for conventional manufacturing on various
parameters:
1. This process significantly increases efficiency of manufacturing, and improves

yield of the intended product.
2. The control and focused reaction reduces production of byproducts.
3. Lower usage of solvents and reagents significantly reduce not only the cost of
manufacturing; but also produces much less effluent.
4. Product quality is generally better due to lower impurities on fewer use of solvents
and reagents, particularly avoiding sulphur in process.
5. Overall cost of production is much lower vis-à-vis conventional manufacturing,
which means market competitiveness for the company and also enables
generation of above-average return ratios.
Case study: Manufacturing of anisole (part 2)
Clean Science manufactures anisole using the zeolite-based catalyst route, which
helps the company produce 1kg of anisole with inputs totaling 1.25kg. The process
involves use of only phenol and methanol, and avoids dimethyl sulphate, which has
sulphur content. Thus, anisole manufactured by Clean Science does not have sulphur-
based impurities. Water is the only effluent produced in process of anisole
manufacturing by Clean Science, while the conventional process produces ~3kg of
effluent for every 1kg of anisole.
6
Chart 3: Manufacturing process for anisole (for Clean Science)
Table 2: Anisole manufacturing of 1kg takes input of just 1.254kg for Clean
Science compared to Atul’s >4kg; further, the catalyst-based process has only
water as effluent
7
Green chemistry – regulation, customer preference

and differentiation
Rising regulation aimed at improving quality
The UN released Global Chemicals Outlook-II (2019) in which it has emphasised
regulation to control environmental degradation from chemical contamination. A few
key points from Ms Joyce Msuya, ED, UN Environment: 1) In 2017, the chemical
industry was worth more than US$5trn. By 2030, this will double, but whether this
growth becomes a net positive or net negative for humanity depends on how we
manage the challenge posed by chemicals; 2) large quantities of hazardous chemicals
and pollutants continue to leak into the environment, contaminating food chains and
accumulating in human bodies; 3) some progress in managing chemicals has been
achieved through national and stakeholder actions, international treaties and voluntary
instruments; however, at current pace, countries will not be able to achieve their
committed goal to minimise adverse effects by 2020; and 4) risks can be reduced via
existing solutions such as sustainable supply chain management, innovation in
green and sustainable chemistry and adopting common approaches to chemical
management.
The UN, through its Sustainable Development Goal (SDG), has set targets for
governments and corporates to implement environmentally safe, socially responsible
and strict governance principles. Each corporate annual report now speaks about ESG
(on UN SDG framework) at length.
China was considered a pollution haven, which helped it rapidly grow its chemical
industry, whose costs of manufacturing in North America and Europe were too high.
This helped Chinese chemical companies become cost-competitive, and also created
an unlevel playing field. China’s Central government declared a ‘war on pollution’ in
2014 in an effort to transition to a more environmentally sustainable model and stem
China’s deteriorating water, air, and soil quality. It also released pollution prevention
and control action plans, starting with the air pollution action plan in (2013) and for
water pollution (2015) and soil pollution (2016).
In 2015, China implemented an updated Environmental Protection Law, the first

revision in 26 years. Updates included enhanced polluter penalties and allow qualified
NGOs to file environmental public interest lawsuits. In a notable public interest lawsuit,
The Taizhou Case, the Court sentenced a few individuals to jail terms for illegally
dumping hazardous waste in river.
Government regulations are becoming stringent across major chemical manufacturing

countries, and driving higher investment in the business to make manufacturing
processes safer and efficient.
Government and customers shift to green and pledge to cut carbon

footprint
As per the Paris Agreement, 196 countries are committed to taking steps to limit
increase in global average temperature this century below 2oC over pre-
industrialisation levels, and ultimately limit the increase to 1.5oC. Each signatory has
8
submitted its own national plan, setting targets for emission reductions and specifying
pathways by which it aims to meet those targets. Not enough has been done by major
carbon emitters – the US, China and India – and government in these countries may
implement policies that may cause to increase capital investment or raise the cost of
production.
Many large corporates have pledged to go carbon-neutral in the foreseeable future,

including Unilever, AstraZeneca, Apple, BP, Ford, General Motors and others. We
expect many more international corporates to go green in coming years.
Case study-1: Unilever plans to achieve net zero emissions by 2039

Most cleaning and laundry products contain chemicals made from fossil fuel
feedstocks, a non-renewable source of carbon. Unilever announced it will source
100% of the carbon derived from fossil fuels in its cleaning and laundry product
formulations with renewable or recycled carbon.
Unilever is allocated EUR1bn for Clean Future programme to finance biotechnology

research, CO2 and waste utilisation, and low-carbon chemistry. Investment will also be
made to create biodegradable and water-efficient product formulations, to halve the
use of virgin plastic by 2025.
Unilever is partnering with biotechnology company Evonik Industries to develop the

production of rhamnolipids, a renewable and biodegradable surfactant which is
already used in its Sunlight dishwashing liquid. In Tuticorin, India, Unilever is sourcing
soda ash – an ingredient in laundry powders – made using a pioneering CO2 capture
technology. The soda ash is made with the CO2 emissions from the energy used in the
production process. It has partnered with LanzaTech and India Glycols to produce a
surfactant made from industrial carbon emissions instead of from fossil fuels. The
innovative shift in production utilises biotechnologies and a newly configured supply
chain between the three partners.
Case study-2: Emission control from automotive industry

Since Euro-6 norms were introduced in 2015, the standards for exhaust emissions had
a big impact on controlling air pollution. The pollutants that Euro-6 aimed to reduce
include nitrogen oxide (NOx), carbon monoxide (CO), hydrocarbons (THC and NMHC)
and particulate matter (PM), which is basically soot from diesel cars. Reducing these
pollutants also means improved fuel economy and lower CO2 emissions. NOx is a
harmful pollutant that is often blamed for damaging the environment, and has also
been proven to have serious health implications. Euro-7 norms are expected to be
introduced in 2025, and this may be the final emission standard before the sale of new
combustion-powered cars is phased out completely.
Are conventional manufacturers at risk?

Conventional manufacturers who are not investing in newer and cleaner technologies,
and alternate ways of manufacturing may see reduced opportunities in future. China
example has shown that chemical companies that are not focused on improving
processes, implementing robust effluent and pollution control system may see
diminished value – and, in worst case, shutdowns.
9
Certain parameters are required to be evaluated for each chemical company to reduce
environmental regulatory risks. It is hard to find chemical companies that can pass all
of these parameters, but if any chemical company misses a majority of the parameters
than they are to be completely avoided as investment ideas in our view.
Parameters relatively easier to evaluate

 Zero liquid discharge (ZLD): We prefer companies that have ZLD manufacturing
facilities. These companies recycle the effluent produced in manufacturing process
and use the water for domestic purpose within factories while the dry slurry is
supplied to government departments for proper disposal.
 Certifications: Various certifications are awarded by local and international
agencies verifying manufacturing processes. Some the key certifications awarded
after thorough process evaluations are the Responsible Care logo (issued by
Indian Chemical Council), Together for Sustainability (issued by Ecovadis), and
others.
 Good manufacturing process for safety: Implementation of good manufacturing
techniques such as Six Sigma, total quality control, etc. It is critical to evaluate the
number of incidents / accidents in manufacturing facilities in past. Automation of
manufacturing facilities too is a key component as many chemicals used in
processes are hazardous.
Parameters relatively difficult to evaluate
 Green chemistry or products: As per US EPA, green chemistry is the design of
chemical products and processes that reduce or eliminate the use or generation of
hazardous substances. Green chemistry applies across the lifecycle of a chemical
product, including its design, manufacture, use, and ultimate disposal. Green
chemistry is also known as sustainable chemistry. It outlines 12 principles for
green chemistry:
o Prevent waste
o Maximise atom economy
o Design less hazardous chemical syntheses
o Design safer chemicals and products
o Use safer solvents and reaction conditions
o Increase energy efficiency
o Use renewable feedstocks
o Avoid chemical derivatives
o Use catalysts, not stoichiometric reagents
o Design chemicals and products to degrade after use
o Real time analysis to prevent pollution, and
o Minimise the potential for accidents
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 Audits: Typically, buyers audit chemical facility of manufacturers periodically to
make sure manufacturers are maintaining the required standards, regulation and
SOP, which are expected from suppliers for sustainability. We have not seen
much of rejection or reports (or probably not reported!) from such audits, but audits
may become much more stringent in coming years with major buyers pledging for
sustainable chemistry.
 Investment in R&D: Chemical manufacturers have to step up their R&D
investment focusing on making their products green. This could involve
improvement in the manufacturing process, products, alternative raw materials,
among others.
 Investment in manufacturing process: China curtailment of pollution has forced
chemical companies to invest in improving processes, and lowering pollutions. We
prefer companies that have invested in green process to avoid capital shock in
future.
We prefer companies with green chemistry
From the foregoing, it is clear we prefer companies that are skewed towards green
chemistry. Green chemistry would benefit from:
o Rising opportunities as buyers shift from conventional products or processes to

green. As per Frost & Sullivan, evolution of green chemistry in the chemical
industry will be a critical trend fuelling the growth of the green chemicals market.
The global green chemicals market is expected to grow by US$45bn by 2025 at a
CAGR of 10.5% (vs 3-4% growth in conventional chemistry) between 2019 and
2025.
o Chemical companies will become preferred partners. This should help them work
closely with buyers.
o Differentiated suppliers, and ones that don’t compete head-on with the Chinese.
o Lower regulatory or capital shock; and
o Better margins or RoCE for green chemical companies in the foreseeable future.
11
Small base, but robust business model

Small revenue base, but are they really small?
We are covering two key green chemistry manufacturers in our report – Clean Science
and Technology (Cleans Science), and Tatva Chintan. Revenues for these two
companies stand at Rs5bn and Rs3bn respectively, as of FY21. On revenue basis,
these two companies look quite small, but are they really small, and are revenues a
key metric to gauge the company’s capabilities?
We don’t consider these companies small because: 1) they have been growing at a
CAGR of ~30% in past three years, and we believe they will continue to grow faster
than the average India specialty chemical universe in the foreseeable future; 2) they
are among the largest players in their key products. Cleans Science is globally the
largest manufacturer of anisole and MEHQ with market share of >50%. Tatva Chintan
is among the top manufacturers for PTCs, and among only two manufacturers of
SDAs; and 3) these companies command above-average RoCEs, thus cashflow
conversion on long-term basis would be much higher for them. This is also reflected
from the fact that both companies started with very small capital base, and their entire
growth is achieved through internal cashflow generation and very limited use of debt.
Chart 4: Listed green chemistry manufacturers revenues

Clean Science Tatva Chintan
6,000
5,000
5,124
4,000
4,193
3,933
(Rs mn)
3,000
3,004
2,632
2,000 2,411
2,063
1,000 1,358
-
FY18 FY19 FY20 FY21
Source: I-Sec research, Company
Agility in capturing adjacent businesses

Clean Science and Tatva Chintan have shown strong capabilities in growing their
product portfolios over past few years, and have grabbed commendable market share
even in new products. Thus they have won market not just by a one-product approach,
but by strong underlying basic fundamental chemistry. Further, these companies don’t
significantly rely on ‘China+1’ strategy for growth, but they would have gained market
share irrespective of tightening in China driven by their capabilities and R&D
investment.
Clean Science started operations with single product MEHQ, and subsequently added
guaiacol, BHA, 4-MAP, DCC, ascorbyl palmitate and anisole. MEHQ, guaiacol, BHA
and 4-MAP are adjacent products from anisole value chain. Clean Science is
12
expanding its products into HALS (hindered amine light stabilisers), which again is an
adjacent product to be sold to the buyers of MEHQ. The common theme for Clean
Science is products manufactured using the catalyst-based process, and through the
vapour-phase route.
Similarly, Tatva Chintan started with PTC, and forward integrated to SDAs (structure
directing agents). SDA manufacturing has given the company a strong understanding
of zeolites, and the company is expanding into a new product range under
intermediates using the catalyst route. It has also entered into electrolyte salt
manufacture.
Chart 5: Clean Science product value chain
Source: I-Sec research, Company
Niche presence – chemistry and product categories

These companies have niche presence with very differentiated products or processes,
which impresses us; and not exactly in value chain of supplying to agrochemicals or
pharmaceuticals which is overcrowded. Further, they don’t have exposure to bulk
chemical commodities. Tatva Chintan has exposure to SDAs, which goes into making
zeolites which in turn are used to control emissions, particularly in automobiles.
Company also has presence in battery chemicals through its presence in electrolyte
salt for super capacitor batteries and glyme, which is used in lithium-ion batteries apart
from pharma. Incrementally, the company plans to add catalyst-based manufacturing
processes that would give it an edge over conventional manufacturers in intermediate
products in agrochemicals and pharmaceuticals.
Though Clean Science products are used in the mainstream industries of polymers,
pharmaceuticals, FMCG and others, it has unique manufacturing processes through
vapour-phase route using zeolite as catalyst.
13
Not just an alternative (China+1), but close partners to end-use
industries
India chemical company stocks have significantly rerated with the China+1 strategy,
and categories such as CDMO for intermediate products for agrochemicals and
pharmaceuticals have seen large benefits. These players had not seen such success
earlier when China manufacturing was in full swing, while Tatva Chintan and Clean
Science successes had more to do with own efforts with unique products. Notably,
China does not have any manufacturer of SDA (used in emission control), hence there
is no role for the China+1 strategy. Clean Science in fact exports to Chinese end-
industries, which means either its product is superior or Clean Science is more
competitive.
Further, Tatva Chintan and Clean Science have garnered huge market share in their
respective product categories, which also highlights that these companies work very
closely with their buyers; in fact, these companies are preferred partners and not
additions to existing suppliers. We agree they would have started off as alternative
suppliers but, over the years, have progressed to become partners. We are not
playing on the theme of Tatva Chintan or Clean Science becoming additional
suppliers, but strategic partners which we believe would create more value over the
longer term.
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Valuations
Tatva Chintan – Initiate with BUY (TP: Rs2,920)
We initiate coverage on Tatva Chintan with a BUY rating and target price of Rs2,920
valuing the stock at 40x FY24E EPS. Our valuation is based on back-of-envelope
calculation of ~1x PEG, which is lower than median PEG for chemical companies in
our coverage universe. The implied valuation works out to 29.3x FY24 EV/EBITDA.
Apart from growth, certain other factors justify Tatva Chintan’s premium
valuation
 Underlying industry growth for many of the company’s products is high with
double-digit growth while the overall chemical industry growth is 3-4%.
 Company has strong position in most of its products: 1) in SDA, it is the sole
manufacturer in India and one of the two globally; 2) it is the only manufacturer of
electrolyte salt for super-capacitors; 3) among the largest PTC producers globally,
and is largest manufacturer in India; 4) it is among the largest manufacturers of
glyme in India.
 Company has a proven track record in R&D with introduction of new products and
ability to expand its addressable market multifold in the past decade. It does not
intend to break-through into intermediate (from agrochemicals and
pharmaceuticals) market using continuous flow chemistry, and the financial
performance of Clean Science proves the method is highly profitable.
 Tatva Chintan provides good exposure to battery technology with glyme used as
solvent in lithium-ion battery, and electrolyte salt for super-capacity batteries.
 Low base and higher capex spend provide strong visibility on growth over the next
decade.
Further, sustainability and green portfolios are our preferred plays, and Tatva Chintan
fits the bill with multiple facets of smart chemistry. It has green manufacturing
processes, and its products significantly help reduce pollution / wastes.
Clean Science – Initiate with REDUCE (TP: Rs2,110)

We initiate coverage on Clean Science and Technology (Clean Science) with a
REDUCE rating and target price of Rs2,110. We have valued the company at 62x
FY24E EPS (P/E). Though the median P/E for our chemical coverage universe is
27.8x FY24E EPS, we have assigned a higher multiple to Clean Science due to: 1) its
much superior business model with strong focus on ‘green’ processes and
sustainability; 2) significant competitive advantage with continuous flow chemistry and
in-house catalysts; 3) market share in anisole value chain, which would be difficult to
challenge; 4) ability to add multiple products (other than in the anisole value chain)
and achieve global leadership in all of them; and 5) strong financial and return ratios.
Our REDUCE rating is due to very high valuations, and we don’t see much scope for
growth at best.
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Clean Science is green at its core and produces much less effluents. In fact, it
releases only water in manufacture of many products. It has higher yield and purity
due to avoidance of sulphur (and its derivatives) in entire processes. Its competitive
edge (cost and quality) gets endorsed by the fact that its largest geography is China,
which is a global leader in chemicals. We like Clean Science’s ability to introduce new
products and gain global leadership, which not many companies have done
successfully. We believe its core business in the anisole value chain (including MEHQ,
BHA, guaiacol, 4-MAP and anisole) will be difficult to challenged due to dominance
across the products.
The existing products of Clean Science have very small global addressable market,
which means it has kept gaining market share, it has simultaneously launched new
product every few years. HALS, unlike the existing products of the company, has a
global market size of >US$1bn. Clean Science will be competing in this huge segment
against BASF. Our estimates can see significant upgrades if Clean Science manages
to grab a market share of >10% in next few years. The other opportunity, which is not
clear as of now, is in intermediates for agrochemicals and pharmaceuticals, where the
company remains bullish on new products launches and revenue growth.
Clean Science has capex plans of Rs4bn over next few years (~3-4 years) and
potential to generate >Rs10bn additional revenues from this circa FY26E-FY27E, on a
revenue base of ~Rs6.5bn. Thus we see peak revenues reaching at best Rs18bn
(some revenues added on improvement in utilisation of existing capacity). We are
building-in Rs14bn revenues in FY27 and EBITDA margin of 54.7%. This gives us
potential net profit of Rs5.3bn. Even in a good case scenario, the stock is trading at
48.5x P/E multiple on FY27E numbers. Thus, much of the known facts about
company’s growth are completely discounted by the market. Risk:reward remains
unfavourable.
Table 3: Peer snapshot

CMP Revenue CAGR (%) EPS (Rs) CAGR (%)
(Rs mn) (Rs) Mcap FY22E FY23E FY24E FY21-24E FY22E FY23E FY24E FY21-24E
SRF 2,159 6,39,555 1,17,151 1,28,794 1,46,929 20% 55.5 62.6 73.3 22%
Navin Fluorine 4,000 1,98,001 13,999 20,715 23,361 26% 54.6 77.5 88.7 19%
Gujarat Fluoro 2,395 2,63,211 38,666 42,921 47,623 22% 67.4 86.8 102.9 46%
Chemplast 562 88,802 60,455 58,664 59,032 16% 41.0 47.0 45.6 30%
Galaxy 2,899 1,02,780 36,038 33,875 36,649 10% 70.8 95.8 104.2 7%
Rossari 1,344 69,768 15,143 17,430 18,960 39% 19.5 30.1 35.1 32%
Sudarshan 570 39,465 22,058 25,133 27,963 14% 22.2 25.7 31.5 16%
Median 20% 22%
Tatva Chintan 2,484 55,061 4,800 5,619 7,103 33% 47.7 56.9 73.0 41%
Clean Science 2,404 2,55,385 6,595 7,712 9,383 22% 21.6 28.2 34.0 22%
PE (x) EV/EBITDA (x) ROCE (pre-tax) GB turnover (x) Capex

(Rs mn) FY23E FY24E FY23E FY24E FY23E FY24E FY23E FY24E FY23E FY24E
SRF 34.5 29.5 21.1 17.8 14.6 14.9 1.0 1.0 19,218 11,967
Navin Fluorine 51.6 45.1 35.9 31.1 17.1 16.7 1.4 1.2 4,887 3,157
Gujarat Fluoro 27.6 23.3 16.8 14.5 16.2 17.9 0.9 0.9 8,000 7,000
Chemplast 12.0 12.3 6.6 6.7 29.8 24.9 1.5 1.4 2,586 2,392
Galaxy 30.3 27.8 19.7 17.8 18.6 18.0 2.3 2.3 1,612 650
Rossari 44.7 38.3 25.6 22.5 29.3 27.4 6.1 5.9 350 368
Sudarshan 22.2 18.1 11.8 9.9 12.5 13.9 1.6 1.7 2,300 600
Median 30.3 27.8 19.7 17.8 17.1 17.9 1.5 1.4
Tatva Chintan 43.6 34.0 32.6 24.9 21.0 23.3 1.8 2.0 850 460
Clean Science 85.2 70.7 61.2 50.1 34.5 34.5 1.4 1.3 1,700 1,785
Source: I-Sec research, Bloomberg
16
Index of Tables and Charts

Tables
Table 1: Manufacturing of 1kg of anisole takes inputs of 4.034kg, which means effluent of
2.993kg and residue of 0.036kg ...................................................................................... 4
Table 2: Anisole manufacturing of 1kg takes input of just 1.254kg for Clean Science
compared to Atul’s >4kg; further, the catalyst-based process has only water as effluent
........................................................................................................................................ 7
Table 3: Peer snapshot ....................................................................................................... 16
Charts
Chart 1: Manufacturing process for anisole (at Atul Ltd) ...................................................... 4
Chart 2: Framework of zeolite (DX faujasite-type zeolite) .................................................... 6
Chart 3: Manufacturing process for anisole (for Clean Science) .......................................... 7
Chart 4: Listed green chemistry manufacturers .................................................................. 12
Chart 5: Clean Science product value chain ....................................................................... 13
17
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18
December 16, 2021
BSE Sensex: 57788
Tatva Chintan Pharma Chem BUY
is the author and
distributor of this report A play on multi-year growth and optionality Rs2,484
We initiate coverage on Tatva Chintan with a BUY rating and target price of
Initiating coverage
Rs2,920 (based on 40x FY24E EPS). Company is active in niche chemistries such
as PTCs, SDAs and battery chemicals wherein it uses ‘smart and green’
processes. Tatva Chintan is a unique play wherein industry revenues are growing
Specialty in double digits (unlike 3-4% p.a. for chemical industry). Such a growth rate makes
Chemicals us confident of sustained growth over the longer term for the company. Further,
Tatva Chintan’s largest product-group (SDAs) is in a sweet spot with only two
Target price Rs2,920 credible manufactures worldwide amid a growing opportunity. The SDA business
has high entry barriers due to stringent regulations and its high importance for
Shareholding pattern customers. We have not factored in the rising opportunities from glyme (battery
Jun Sep
’21 ’21
chemical) and new product introductions based on the continuous flow process.
Promoters 79.2 79.2 Despite the conservative nature of our estimates, EBITDA and net profit CAGRs
Institutional are at 48.9% and 45.7% respectively over FY21-FY24E.
investors 9.6 10.9
MFs and others 3.4 6.8
FI/Banks 1.6 0.0  ‘Smart and green’ chemistry. Tatva Chintan is a strong play on ‘smart and green’
Insurance 0.5 0.6 chemistry with not only a portfolio of products that help reduce pollution, but also
FIIs 4.1 3.5
Others 11.2 9.9 processes that are efficient with lower generation of effluents. Its largest product-
Source: NSE group, SDA, goes into reducing NOx emissions from transport vehicles and we
expect other NOx-producing industries also to progressively adopt the technology.
Price chart PTCs improve efficiency in processing chemicals. In the PASC segment, Tatva
3100 Chintan plans to come up with intermediates using continuous flow chemistry.
2900
2700
Super-capacity batteries are likely to increase the lifecycle of energy storage.
2500
 Presence in high-growth industries: While the chemical industry is growing at 3-
(Rs)
2300
2100 4% CAGR, Tatva Chintan does business with an industry that is growing in double
1900 digits. SDA market is growing at ~25% CAGR and with the rising regulations the
1700
1500
growth is likely to sustain. Super-capacitor battery segment is growing at 26%
CAGR, which will drive similar growth in the electrolyte salt business. Within PASC,
17-Nov
15-Dec
20-Oct
25-Aug
28-Jul
22-Sep
‘green chemistry’ is growing at >10% CAGR, which will boost demand for production
using continuous flow chemistry. Demand for glyme (an organic solvent used in
lithium-ion batteries) is also on the fast growth path. Underlying industry tailwinds will
help Tatva Chintan to grow at an even faster clip for many years.
 SDAs – headstart for Tatva Chintan amid few global players. Global SDA market
is growing in double digits on the back of adoption of China 6a and 6b emission
 standards. Euro-7 is likely to be introduced in 2025, which should help drive higher
volumes for SDAs. Tatva Chintan will benefit from improved market share with
approval of new vehicle models. Considering that SDAs are largely used in
commercial vehicles, EV penetration in automotives (largely PVs) does not pose an
immediate threat. SDA to be used in Euro-7 may be novel / patented product(s)
unlike Euro-6 which came on non-patent thus will restrict competition.
Market Cap Rs55.1bn/US$724mn Year to Mar FY21 FY22E FY23E FY24E
Research Analysts: Bloomberg TATVA IN Revenue (Rs bn) 3.0 4.8 5.6 7.1
Sanjesh Jain Shares Outstanding (mn) 22.2 EBITDA (Rs bn) 0.7 1.3 1.7 2.2
sanjesh.jain@icicisecurities.com 52-week Range (Rs) 2878/1083 Rec. Net Income (Rs bn) 0.5 1.1 1.3 1.6
+91 22 6807 7153 Free Float (%) 20.8 EPS (Rs) 26.0 47.7 56.9 73.0
Akash Kumar FII (%) 3.5 P/E (x) 95.7 52.2 43.8 34.1
akash.kumar@icicisecurities.com
+91 22 6807 7637 Daily Volume (US$/'000) NA CEPS (Rs) 29.4 51.6 64.5 84.2
Absolute Return 3m (%) 13.9 EV/E (x) 77.4 41.8 32.7 25.0
Absolute Return 12m (%) NA Dividend Yield (%) 0.1 0.4 0.5 0.7
Sensex Return 3m (%) (1.5) RoCE (%) 21.9 25.8 21.0 23.3
Sensex Return 12m (%) 26.2 RoE (%) 36.8 32.9 24.0 25.4
19
Tatva Chintan Pharma Chem, December 16, 2021 ICICI Securities
 Interesting opportunities emerging; could further accelerate growth. Tatva
Chintan already produces glyme using the conventional route to service pharma
industry. However, it is in the process to come with a continuous flow method to
manufacturing glyme, which will increase its purity and reduce moisture. This
should allow Tatva Chintan to participate in lithium-ion battery industry. Glyme is
used to dissolve lithium-based electrolyte salt for formulation of the electrolyte
solution used by battery OEMs. It is also in the process of developing three agro
and pharma intermediates using continuous flow chemistry. Our estimates do not
factor in any of these opportunities.
 Large capex plan to provide growth visibility. Tatva Chintan is likely to
commission a greenfield plant in Dahej (adjacent to its existing plant) by Q3FY23,
which will add 200klpa of reactor capacity to existing 280klpa, and 10 assembly
lines on a base of 29. This should enable the company to reach peak revenues of
Rs8bn-9bn over the next few years (on base of Rs3bn in FY21). It has already
bought additional land in Dahej for a fourth plant whose commissioning is
expected in 2-2.5 years from now.
 Impressive financial performance. Tatva Chintan has shown steady growth with
production capacity expansion at 30% CAGR in the past decade, and it remains
confident of the high growth rates continuing. We estimate revenues to grow at a
CAGR of 33% over FY21-FY24E driven by 54% growth in SDA segment. We
expect gross profit margin to expand by 360bps on higher growth in SDAs, which
earn high margins. EBITDA is estimated to grow at an impressive 48.9% CAGR in
the same period and net profit at 45.7% CAGR, which though will be negatively
impacted by higher depreciation. We expect company to continue to have a
healthy balance sheet with net cash, but RoCE would likely dip in the near term on
capacity expansion (though it would improve with rise in utilisation). We expect
post-tax RoCE of 23.3% in FY24E.
20
TABLE OF CONTENT
About Tatva Chintan ...................................................................................................... 22

SDAs: Growth has just begun ...................................................................................... 25
PASC: Building capabilities and capacities using catalyst-based processes ........ 31
PTC – matured business ............................................................................................... 34
Electronic chemicals: Huge optionality ....................................................................... 37
Investment thesis ........................................................................................................... 40
Financials........................................................................................................................ 44
Valuations – Initiate with BUY ...................................................................................... 47
Risks ................................................................................................................................ 48
Financial summary ........................................................................................................ 49
21
About Tatva Chintan

Tatva Chintan Pharma Chem (Tatva Chintan), which was incorporated in 1996, is a
specialty chemical manufacturing company engaged in the manufacture of a diverse
portfolio of structure directing agents (SDAs), phase transfer catalysts (PTCs),
electrolyte salts for super capacitor batteries (electronic chemicals) and
‘pharmaceutical and agrochemical intermediates and other specialty chemicals’
(PASC). Currently, it is the only manufacturer of SDAs in India and the second-largest
in the world. It is also the largest producer of PTCs in India and a leader across the
globe. As of 31st Mar’21, it offered 47 products under SDA segment, 48 under PTC, 6
in electrolyte salts for super capacitor batteries, and 53 under PASC.
Considering the wide application of products, it serves customers across various

sectors, including the automotive, petroleum refinery, pharmaceutical, agricultural
chemical, paints & coatings, dyes intermediates, personal care, and flavour &
fragrance sectors. We are given to understand that top two end-industries which
contribute significantly to revenues are automotive (significant portion of SDA
revenues) and pharmaceutical (large part of PTC revenues).
Chart 1: Revenue mix (%) FY21

FY21 revenue (Rs mn)
Electronic chemicals,
30 , 1%
PTC, 816 , 27%
SDA, 1,202 , 41%
PASC, 912 , 31%
Source: Company data, I-Sec research
As a manufacturer of specialty chemicals, Tatva Chintan focuses on application of

green products, which form a key ingredient for customers’ manufacturing and
industrial processes. For instance, SDA and PTC products have various applications
in green chemistry, which is pertinent considering the growing focus on green and
sustainable technologies. It continuously strives to improve processes and
infrastructure to help reduce environmental impact and has accordingly undertaken
various green chemistry processes such as electrolysis.
Apart from customers in India, the company exports its products to over 25 countries
including the US, China, Germany, Japan, South Africa and the UK. Its customers
include Bayer AG, Asian Paints Ltd., Ipox Chemicals KFT, Laurus Labs Ltd., Tosoh
Asia Pte. Ltd., SRF Ltd, Navin Fluorine International, Oriental Aromatics Ltd., Atul Ltd,
Otsuka Chemical, Meghmani Organics, Divi’s Laboratories, Hawks Chemical
22
Company, Firmenich Aromatics Prod, Jiangsu Guotai Super Power New Materials Co,
and Jade Chem Co. Ltd.
Chart 2: Geographical mix (%) FY21

FY21 revenue (Rs mn)
India, 841 , 28%
Exports, 2,127 ,
72%
Company is promoted by Mr. Chintan Shah, Mr. Ajay Patel and Mr. Shekhar Somani,
who each have over 24 years in the specialty chemicals manufacturing industry and
have established strong business relationships with domestic and overseas
customers. Mr. Shah, managing director, takes care of international sales, and R&D.
Mr. Patel is responsible for plant operations while Mr. Somani oversees domestic
sales and sourcing.
Chart 3: Organisational structure
Source: Company, Note: Mr Mahesh Tanna, CFO, has resigned from the company; Mr Ashok Bothra has taken
over as CFO.
Currently, the company operates through two manufacturing facilities situated at

Ankleshwar and Dahej in Gujarat, both of which are located close to the Hazira port.
These facilities have an annual installed reactor capacity of 280klpa and 29 assembly
23
lines as at end-Q2FY22 (company added 12 assembly line ahead of expected timeline
due to increased demand for SDAs). Company is in the process of building a
greenfield project in Dahej, where it has bought land adjacent to the existing facility.
As part of its eco-friendly and environmentally sustainable initiatives, Tatva Chintan

has adopted various green chemistry manufacturing processes, including electrolysis.
Besides the single starting raw material, electrolysis uses only water and electricity to
produce the end product. Considering that no additional chemicals are used, no
additional waste or byproducts are generated.
Table 1: Manufacturing capacity and utilisation

FY19 FY20 FY21
Capacity
Reactor capacity (KL) 160 280 280
Assembly Lines 10 13 17
Utilisation
Reactor capacity (KL) 131 167 124
Assembly Lines 1 6 6
Utilisation (%)
Reactor capacity (KL) 90.4 92.6 68.9
Assembly Lines 12.5 56.7 54.4
24
SDAs: Growth has just begun

About SDAs – niche market
For the synthesis of zeolites and other related crystalline substances, inorganic ions
sources are required to structure the framework of atoms along with an additive and a
solvent. Without additive, a specific structure of the zeolite or any crystalline
substances cannot be obtained. This additive is termed as ‘structure directing agent’
(SDA) and is also known as template.
For a specific structure to be obtained, a specific SDA is essential and these templates
have a specific ‘structure directing’ ability for that particular structure. The proper role
of SDA is very complicated and difficult to understand for the lay mind. Suffice it that
the size, geometric structure and charge distribution of a template are the cause of the
‘structure directing’ ability.
Further, SDAs require very complex manufacturing process to get the proper
molecular arrangement in the template, and it also requires high purity level to achieve
the property of structure directing. Some of the structure directing agents are:
tetraethylammoniumhydroxide, tetrapropylammonium hydroxide, morpholine, pyridine,
isopropylamine, N-methyldiethanolamine (MDEA) among many others. Certain
surfactants also act as SDA for the production of zeolites and other related crystalline
materials.
The popular approach for synthesis of novel zeolites is the use of customised SDA.
This method resulted in many new and interesting zeolites; however, some of these
large and exotic SDAs are expensive. Thus, a small amount of the particular SDA was
used to drive the nucleation towards the desired structure, and other structuring
functions such as pore-filling and control of pH were fulfilled by an additional, low-cost
SDA.
The global SDA market is expected to witness significant growth aided by growing
demand for zeolites from various end-use industries and the growing R&D to innovate
the processes and reaction dynamics in the chemical industries. Zeolites are
indispensable in many catalytic processes like fluid catalytic cracking, hydrocracking,
dewaxing, production of octane boosters, hydrodesulphurization, Fischer–Tropsch
synthesis, methanol-to-olefin reaction, aromatic alkylation, nitration, halogenation,
nucleophilic substitution and addition, and many others.
Zeolites have also been introduced for catalytic emission control, for reducing the
emission levels of nitrogen oxides (NOx) from both stationary and mobile sources.
Zeolites are also gaining popularity in certain chemical manufacturing process as
catalysts, particularly in vapour phase route.
The key manufacturers of SDAs are: 1) SACHEM Inc, 2) Tatva Chintan; 3) Merck
KGaA, 4) Otto Chemie Pvt Ltd, 5) Alfa Aesar, and 6) TCI Chemicals.
There are very few SDA manufacturers in the Indian and global markets. Tatva
Chintan is the largest and only commercial manufacturer of SDA for zeolites in India,
and also the second largest position globally. The advanced chemistries make it
25
extremely difficult for new players to enter the market. Tatva Chintan has deep
knowledge of the zeolite market, which helps it gain market share.
Global production of tetramethyl ammonium hydroxide was US$1.2bn in 2019. It has

multiple applications in inhibiting nanoparticles and is expected to grow at >7% CAGR
through 2020-25F with Korea and China dominating. Nevertheless, with just 2-3
players in the domestic market, Tatva Chintan stands an opportunity to expand and
explore the global market.
Chart 4: Manufacturing process for tetramethyl ammonium hydroxide
Tightening regulation of auto-emission driving growth

Zeolite has been introduced in catalytic emission control to reduce harmful emission
levels of nitrogen oxide (NOx). In particular, zeolites promoted with transition metals
such as copper and iron have been proven to be active for the selective catalytic
reduction of NOx by ammonia, which is considered one of the preferred technologies
for NOx removal from lean exhaust gases in automotive applications.
Chart 5: Selective catalyst reduction (SCR) technology for NOx reduction
Source: Link
26
A diesel engine generates more torque than a gasoline (petrol) engine of the same
size, meaning the diesel burner can consume 20% to 40% less fuel when doing the
same amount of work (link). Further, diesel is usually sold cheaper compared to
gasoline. However, compared to gasoline vehicles, diesel engine produces higher
concentration of NOx, which reacts with hydrocarbons from the exhaust and forms
smog under sunlight. Smog is a mixture of pollutants with ozone (O3) as the main
component. While ozone in the upper atmosphere is beneficial because it blocks
ultraviolet rays, ground-level ozone has been linked to premature mortality and a
range of diseases such as asthma.
The European regulator’s pathway to reduce vehicle emission control consists of six
stages of increasingly stringent emission control requirements, starting with Euro-1 in
1992, and progressing through to Euro-6 in 2015. The Euro-6 emission standards
specifically noted that a considerable reduction in NOx emissions from diesel vehicles
is necessary to improve air quality. For more details on Euro-6 norms, refer to link.
Chart 6: Euro-5 and Euro-6 heavy-duty vehicle emission standards for diesel
engines
Source: ICCT; Note: a Steady-state testing; b Transient testing; c For Euro V for Natural Gas only, for Euro VI, NG
and LPG; d Total HC for diesel engines, non-methane HC for others
The world follows European regulation while a few countries adopt it with certain
modifications. India announced a leapfrog to Bharat Stage (BS) 6 emission standards.
India is the first country to dart to Euro-6 equivalent emission standards directly from
Euro-4 equivalent standards. One of the crucial features of BS-6 fuel is its limit of
10ppm sulphur content. This is recommended for the operation of modern after-
treatment technologies such as diesel particulate filters, gasoline particulate filters,
and SCR systems that are required to meet BS-6 emission limits.
In Dec’16, China’s ministry of environmental protection (MEP) issued China-6

standard for both gasoline and diesel vehicles. The China-6 standard, with
implementation dates of 1st July’20 for China 6a and 1st July’23 for China 6b, is one of
the most stringent emission standards around the world. However, due to coronavirus
outbreak and subsequent lockdown in 2020, China decided to delay the
implementation date for six months nationwide, hence China-6a standard was
implemented with effect from Jan’21.
27
Future regulation to be tougher and this may drive higher volumes for
SDAs
As per news article (link), Euro-6 emission standards were introduced only in 2015,
but EU regulators are already working the rules for Euro-7. It is expected that Euro-7
will be the final emission standard prior to all cars becoming zero-emission. The
proposals for Euro-7 are due to be presented to the European Parliament by end-
2021, and are likely come into force around 2025.
The EU is assessing three potential options for Euro-7: 1) Light-touch option would
see ‘a narrow revision of Euro-6’ and a streamlining of current rules. 2) It would see ‘a
wider revision of Euro 6’, comprising stricter CO2 and NOx limits, and new tests and
limits for non-CO2 greenhouse gas emissions. 3) Proposes that in addition to the
changes in options 1 and 2, cars would automatically carry out real-world emission
monitoring over the entire lifetime of a vehicle. This option would ensure compliance,
robustness against tampering, and enforcement over the entire lifetime of the vehicle.
The EC said that by 2050 transport should be (near) zero-emissions, but it recognises
that the automotive sector is concerned that a strict Euro-7 proposal could bring the
end of the internal combustion engine.
Pollution norms may be tightened for non-auto industry as well
As per ICCT, non-road vehicles mainly agricultural and construction equipment, are a
key source of pollution in many countries. In the United States, they account for three
quarters of the fine particulate matter (PM2.5) and one quarter of the nitrogen oxides
(NOx) emitted from mobile sources. In Europe, non-road vehicles contribute one
quarter of the PM2.5 and >15% of the NOx emitted from mobile sources. This is
mostly because the emission-control standards for non-road vehicles are years behind
that for heavy-duty vehicles, although the vehicles share similarities in the design of
diesel engines and exhaust emission control technologies. European standards for
non-road diesel engines – stage-4 standards were enforced from 2014. Stage-5
standards were phased-in from 2018 with full enforcement from 2021.
Similarly, as of Jan’15, in the EU, ships in the Baltic, the North Sea and the English
Channel are using fuels with a sulphur content of no more than 0.10%. In developing
countries, railroads also use diesel engines, and are large source of NOx.
Energy production, using thermal process is the second-largest source of NOx

emission. The other sources of NOx are industrial processes including captive power
plants, industrial boilers, cement kilns, turbines, etc. We are yet to see auto-like
stringent measures for NOx reduction in these industries, and we believe regulations
in these industries will only increase, and SCR remains the popular method in NOx
reduction, hence is likely to benefit.
28
Chart 7: NOx emission by sector in 2011
Industrial process Agriculture

2% 2%
Non road transport
7%
Energy in industries Road transport

13% 41%
Commercial,
instiutional &
household
13%
Energy production & distribution

22%
Source: EEA
Growth in SDAs has only begun

Tatva Chintan supplies SDAs to manufacturers of zeolite for catalytic convertors,
refineries, chemical industries for continuous flow manufacturing and others. Company
is not involved in manufacturing of zeolite for commercial sale to avoid any conflict of
interest with customers; however, it does manufacture for internal use, particularly for
continuous flow manufacturing process. Company started commercial manufacturing
of hydroxides (SDAs) in 2011, following start of research in 2008.
SSZ-13, an aluminosilicate zeolite, was patented by Chevron in 1985, and could

potentially be used as a solid catalyst for the methanol-to-olefins (MTO) process and
the selective catalytic reduction (SCR) of NOx. Euro-6, which required significant
reduction of NOx attracted attention wherein copper-loading SSZ-13 is industrially
applied to the emission control of diesel engines.
Our understanding is SDAs, supplied for synthesising zeolites which go into catalytic
convertors (emission control), have realisation of US$10-12/kg, and Tatva Chintan
sold ~1,500te of SDAs in FY21. Total SDA industry for emission control is pegged at
12ktpa, which means the company has 12-13% market share. The largest
manufacture of SDA is SACHEM Inc, US-based chemical company with ~85% market
share in SDAs (emission control).
Though demand for SDAs has been driven since 2015 with implementation of Euro-6
standard, Tatva Chintan saw real success with its SDA in past three years when its
revenues from SDA grew at a CAGR of 82% albeit on low base. This should have
resulted from implementation of BS-6 in India.
29
Chart 8: SDA revenues grew at a CAGR of 82% in past three years on low base,
and product approval
1,400 SDA revenue
1,200
1,202
1,000
1,017
800
(Rs mn)
600
400
200 254
198
-
FY18 FY19 FY20 FY21
In the next few years, SDA revenues for Tatva Chintan would benefit from adoption of
China-6a emission norm and the more stringent China-6b from 2023. Company would
benefit from higher volumes of SDAs with growing requirement of reducing NOx
emission. Euro-7 standard introduction should be the next trigger for Tatva Chintan as
it missed Euro-6 in the developed markets, but the company should see increased
volume sales in Europe and US markets.
Further, in the long run, introduction of stringent norms for other sectors should benefit
Tatva Chintan with increase in the addressable market. We are penning 54% CAGR
growth in SDA revenues over FY21-FY24E, and see upside risk to our numbers.
Chart 9: We expect SDA revenues to grow at a CAGR of 54% over FY21-FY24E

5,000 SDA revenue
4,500
4,000 4,420
3,500
3,000 3,433
(Rs mn)
2,500 2,778
2,000
1,500
1,000 1,202
500
-
FY21 FY22E FY23E FY24E
30
PASC: Building capabilities and capacities using

catalyst-based processes
About PASC
PASC stands for ‘Pharmaceutical and Agrochemical intermediates and other Specialty
Chemicals’. Chemical intermediates are generated at each and every step of the
chemical reactions meant to change a reactant into a final product. Specialty
intermediates are highly consumed in application segments such as manufacturing,
API, crop protection active ingredients, paints and coatings, detergents, textiles, etc.
Tatva Chintan manufactures various pharmaceutical and agrochemical products as

intermediates, disinfectants, catalysts, and solvents. In addition, it also manufactures
specialty chemicals under this category that are used in dyes and pigments, personal
care ingredients, flavour and fragrance sectors.
The key products in the category are: 1) glyme, which is used as solvent in
pharmaceuticals; also: low-moisture and high-purity glyme is used as solvent for
electrolytes of lithium-ion batteries; 2) agrochemical intermediates; 3) pharmaceutical
intermediates; 3) disinfectants and antiseptics (personal care) including cetyl group;
and 4) epoxy and resins.
Tatva Chintan focused on adding products using quaternary ammonium compounds

(quats), and import substitution. However, the company plans to introduce multiple
products over the next few years using zeolite-based catalysts and produce products
using continuous flow chemistry. It has strong understanding of SDAs, which helps it
to come up with zeolites for various products that are currently manufactured by
conventional processes.
Quats: In personal care products, quats are used as conditioning agents in the
manufacture of skin, fabric, and hair softeners and also as a conditioning agent in the
manufacture of skin, cloth, and hair softeners, as well as disinfectants in the food
industry. Quats are the among largest class of disinfectants used in food industry
because they are effective, non-tainting and have some detergency properties, hence
they can be used as single-stage cleaning and disinfection agents in low soiling
conditions. They cause minimal corrosion of materials of construction used in food
processing equipment and are cost-effective.
Quats are known for their antiseptic qualities and have been used in antiseptic
creams, liquids and gels. Being odourless, colourless and having an ability to blend
well both in aqueous and oily phases, they are used as antimicrobial ingredients in
disinfectants.
Tatva Chintan received FDA approval from Gujarat state for manufacturing cetrimide
and cetyl pyridinium chloride in 2004, which allowed it to expand its market in this
portfolio. Company has also expanded its geographical reach to other regions with
warehousing facilities in the US and Netherlands.
31
Epoxy and resins: 1) Ethyltriphenylphosphonium bromide (ETPB) is a PTC used to
speed up the treatment of epoxy resins based on phenolics, some fluoroelastomer
resins and powder coatings. We expect decent growth in the automotive and
construction industry, which will drive growth for epoxy resin market and thereby the
demand for ETPB; 2) benzyl trimethyl ammonium chloride (BTMAC) is used as a
cellulose solvent, polyester resin gel inhibitor, chemical intermediate, rubber industry
paint dispersant, and as an acrylic dyeing assistant. Growing demand from the
construction industry, coupled with rising infrastructure activities, is driving the demand
for paints and coatings thereby benefitting business in BTMAC.
Glyme provides entry into lithium-ion battery market, and huge growth
opportunity
Dimethoxyethane, also known as glyme, monoglyme, dimethyl glycol, ethylene glycol
dimethyl ether, dimethyl cellosolve, and DME, is a colourless, aprotic, and liquid ether.
It is used in various applications of drug research, battery research, biological
research and others. Global glyme market is estimated to register growth at a rate of
15-17% during 2020-25F. India has very few producers of glyme manufacturers
including Tatva Chintan, Prasol Chemicals, Sanjay Chemicals, Tolani Chemicals.
Tatva Chintan is the largest among them and third largest in the world. Global key
manufactures are Henan DaKen Chemical, Henan Tianfu Chemical Co,, Alfa Aesar,
Anhui Lixing Chemical, Capot Chemical and others.
Tatva Chintan has been producing glyme using the conventional method and caters to
demand from the pharmaceutical industry. However, glyme required for battery
(electrolyte) is of much higher purity and has very low moisture. Together with a high-
permittivity solvent (e.g. propylene carbonate), glyme is used as the low-viscosity
component of the solvent for electrolytes of lithium-ion batteries.
Glyme forms chelate complexes with cations and acts as a bidentate ligand. It is thus
used in organometallic chemistry like Grignard reactions, hydride reductions, and
palladium-catalysed reactions like Suzuki reactions and Stille couplings. It is also a
good solvent for oligo- and poly-saccharides.
Tatva Chintan has developed a lab-scale continuous flow manufacturing process for
glyme wherein it will be able meet requirements of the battery industry. We see glyme
as major revenue growth driver for the company in the near term on adoption of
commercial scale continuous flow method.
Applying deep knowledge in SDAs and zeolites for new product

process
Tatva Chintan has strong understanding of zeolites and catalyst-based processes due
to production of SDAs. Company does not intend to enter the zeolite trade market as it
would mean competing with customers. But it wishes to harness its understanding of
zeolites and is in the process of synthesising the same for its internal manufacturing
processes.
Tatva Chintan has been working on multiple products in agrochemical and

pharmaceutical intermediates using catalyst-based processes replacing conventional
manufacturing. Over next 3-4 years, the company plans to commercially manufacture
32
multiple products for MNCs using catalyst processes, which will not only aid revenue
growth, but also fetch much higher margins and RoCE.
Glyme and new products to drive growth, but our assumption looks
conservative
PASC products are generally based on import substitution; however, Tatva Chintan
has seen limited growth as it was focused on increasing production of SDAs, which led
to production bottlenecks. Further, the company wants to introduce new products
based on the continuous flow method, which are still in R&D stage. PASC revenues
grew at 12% CAGR in past three years (FY18-FY21).
Chart 10: PASC revenues grew at a CAGR of 12.2% in past three years
PASC revenue
5,000
4,500 4,783
4,582
4,000 4,408
3,500
(Rs mn)
3,000 3,383
2,500
2,000
1,500
1,000
500
-
FY18 FY19 FY20 FY21
We remain confident of growth in PASC segment in the medium term on the back of
introduction of glyme using catalyst-based processes, which should not only make the
company competitive in pharmaceutical market, but also open doors to the lithium-ion
battery industry. New product launches in agrochemicals and pharmaceutical
intermediaries should drive additional growth. We conservatively estimate PASC
revenue CAGR of 15% over FY21-FY24 due to low visibility on new product launches.
Chart 11: Expect PASC revenues to grow at a CAGR of 15% over FY21-FY24E
8,000 PASC revenue
7,000
7,260
6,000
6,050
5,000 5,500
(Rs mn)
4,783
4,000
3,000
2,000
1,000
-
33
PTC – matured business

About PTC (phase-transfer catalyst)
Tatva Chintan is one of the leading producers of the entire range of PTCs in India and
among the top across the globe.
PTCs facilitates migration of a reactant from one phase into another where the
reaction occurs. The catalyst functions as a detergent for solubilizing salts into the
organic phase. PTCs offer faster reactions, higher conversions or yields makes fewer
byproducts, eliminates the need for expensive or dangerous solvents, eliminates the
need for expensive raw materials, and minimises waste problems. PTCs are used in
green chemistry applications. Therefore, the increasing global focus of the chemical
industry on reducing residual waste and reducing the use of organic solvents is
boosting the PTC market.
PTCs have evolved over the years from being an agent used during chemical
transformation to a more useful catalyst, which is still following a sharply‐increasing
learning curve with the development of new uses, methods, concepts, theoretical
development, and worldwide recognition. The future of the product is expected to be
bright, not through its simple extension to old chemical reactions but because it
provides a tool to handle future chemical problems in highly material‐ and energy‐
efficient ways. PTCs are used for simple organic reactions, steps in synthesis of
pharmaceuticals, agricultural chemicals, perfumes, flavourants, and dyes; for specialty
polymerisation reactions, polymer modifications, and monomer synthesis; for pollution
and environmental control processes; for analysis of trace organic and inorganic
compounds; and in many other applications.
PTCs are extensively used by the pharmaceutical industry for synthesis, R&D,
formulations, and laboratory applications. The imposition of stringent regulations in
Western countries on the use of harmful compounds in pharmaceuticals is leading to
the increased consumption of PTCs.
Chart 12: PTC is a US$1bn market with ~40% of revenues coming from
pharmaceutical industry
Source: Frost & Sullivan, Company
34
Global PTC market is highly fragmented in nature with many players with no
substantial market share. Key players are SACHEM Inc (US), Tokyo Chemical
Industry, Nippon Chemical Industrial (Japan), Volant-Chem Corp (China), Evonik
Industries, Sigma Aldrich (Germany), and Solvay (Belgium). India has relatively few
players, including Tatva Chintan, Dishman Group, Central Drug House, Pacific
Organics, and Otto Chemie.
An increase in R&D activities in addition to the launch of innovative products is making

firms stand out in the global PTC market. To gain market share, companies are
adopting various strategies like launching new products, better formats of existing
products, M&A, marketing and promotional activities among others.
Quats with a bromide counter-ion is a tetra butyl ammonium bromide used as a

component transfer catalyst. It typically occurs in the form of a powder or white crystal.
Tetra butyl ammonium is low-cost, conjointly environmentally friendly, operationally
easy, and non-corrosive. It is used in the pharmaceutical and agrochemical industries.
Benzyl triethyl ammonium chloride is a lipophilic PTC that can be used to catalyse poly
condensation reactions to form polymers of high molecular weight under biphasic
conditions.
Customisation and faster turnaround helping Tatva Chintan

Tatva Chintan’s success in PTC business can be attributed to its ability to customise
PTCs for each reaction. PTCs have certain grades such as tetra butyl ammonium
bromide, benzyl triethyl ammonium chloride and others that are manufactured by
many producers, and are available on demand. However, considering that chemical
processes have various stages involving multiple chemicals, customers many a time
require variants of PTCs to specific reactions. Therefore, customisation is highly
desirable. Further, catalysts required are generally in small quantities.
Tatva Chintan has established a reputation for faster turnaround in R&D for unique
PTCs suited for customers’ requirement, and also supply in small quantities. This has
helped the company to have a large catalogue of PTCs, and to provide differentiated
experience to customers.
Growth restricted till FY23 on capacity bottlenecks

PTC revenues have been flattish in past three years due to reactor capacity
bottlenecks, and the company’s allocation of more capacity for growth of SDAs
(forward integration of PTCs). Its reactor capacity is fungible for PTCs and SDAs,
while SDAs undergo additional stage of electrolysis.
35
Chart 13: PTC revenue growth has been flattish
PTC revenue
2,500
2,450 2,474
2,400
2,350
(Rs mn)
2,300 2,332 2,322
2,250
2,200
2,150 2,170
2,100
2,050
2,000
FY18 FY19 FY20 FY21
The growth we estimate for FY22E and FY23E represents our expected normalisation
of revenues from the FY21 impact of covid-induced plant shutdown. Tatva Chintan is
planning a small debottlenecking in its existing Dahej facility. However, large growth
for PTC market will begin only from FY24E on new greenfield plant commercialisation.
Chart 14: We expect PTC revenues to grow at a CAGR of 8% over FY21-FY24E

3,000 PTC revenue
2,900
2,925
2,800
2,700
2,600
(Rs mn)
2,500
2,400 2,438 2,438
2,300
2,322
2,200
2,100
2,000
36
Electronic chemicals: Huge optionality

About electrolyte salt for super-capacitor batteries
Tatva Chintan is the largest producer of organic battery electrolytes for super-
capacitors in India. Growth in this category of batteries will help drive higher sales from
electrolyte salt in the future. Though the segment’s present contribution is small, its
future growth potential is huge, in our view. Company’s thinking on these lines is also
evident from the fact that it has an independent segment for electrolyte salt.
Super-capacitors, a.k.a. ultra-capacitors, are charge storage devices that store

electrical charges via electrochemical and electrostatic processes. These have an
unusually high energy density vs common capacitors. Due to their beneficial
properties such as fast-charging ability, superior low-temperature performance, long
service and cycle life, and reliability, super-capacitors hold the potential to replace or
complement traditional batteries and capacitors in several applications. These are
already being used in a number of applications ranging from automotives and
renewable energy to electronics.
Super-capacitors are steadily paving the way for hybrid power storage applications,
such as complementary batteries especially in two-wheeler applications. Various
market reports estimate the global demand for super-capacitors to grow tremendously,
primarily driven by different consumer electronics and automotive applications, to
provide backup power. Super-capacitors provide the necessary power backup
required for the smooth functioning of applications such as video calling, cameras,
wireless communications and GPS navigation.
Other industrial handheld devices – such as GSM/GPRS and radio frequency

identification (RFID) communication tools, LED flashlights, thermal printers, barcode
scanners and GPS chips – can also be operated more conveniently with the help of
super-capacitors, to provide the required power boost. Using super-capacitors in line
with batteries in these electronic devices increases the lifecycle of conventional
batteries, by reducing the load of voltage drops. Thus, battery runtime and operational
life are improved extensively by using super-capacitors. The current practice, across
the globe, of upgrading to power generation from renewable resources to reduce rapid
depletion of natural resources is also expected to drive demand for super-capacitors.
Global super-capacitors market was seen at US$1.4bn in 2019 and is anticipated to

grow at a CAGR of 26% to US$4.4bn by 2024E. This growth, which in turn is driving
the electrolyte market, is primarily driven by the increased use of super-capacitors in
energy harvesting applications, vehicles such as aircraft & trains, and large storage
capacity of the super-capacitor.
High prices of raw materials, the availability of low-priced substitutes, customer

traditionalism and high-level competition from the established high-capacity battery
vendors are challenges to the market.
37
Chart 15: Super-capacitor market expected to grow at a CAGR of 26% over 2019-
24E (US$bn)
Chart 16: Consumer electronics and portable devices constitute the biggest
market for super-capacitors; next is transportation (US$bn)
Electrolyte: Electrolyte is the medium that provides the ion transport mechanism
between the cathode and anode of a cell. Electrolytes are often thought of as liquids,
such as water or other solvents, with dissolved salts, acids or alkalis that are required
for ionic conduction. The rising use of consumer electronics, such as laptops,
smartphones and other portable equipment, is expected to drive the demand for
electrolytes.
Lithium-ion battery vs super-capacity batteries

Unlike lithium-ion batteries, super-capacitors don’t rely on a chemical play to function.
Instead, they store potential energy electrostatically within them. It basically captures
static electricity for future use. The most significant advantage of this is that a 3V
capacitor now will remain a 3V capacitor for 15-20 years. In contrast, on the other
hand, a battery may lose voltage capacity over time and repeated usage.
Also, unlike a battery, super-capacitors have a higher power throughput, which implies
it can charge and discharge in a fraction of the time. Yet, they have a very low specific
energy as compared to batteries. Super-capacitors are best suited for very small
bursts of power.
38
Chart 17: Comparison of super-capacitor with lithium-ion battery
Source: Battery University (link)
Super-capacitors are superior to traditional capacitors due to their ability to store and
release energy; however, they have not been able to replace the function of lithium-ion
batteries. This is mainly because lithium-ion batteries pack a punch that super-
capacitors can’t, in the form of specific energy or energy density (~250Wh/kg for
lithium-ion batteries vs ~20 Wh/kg for super-capacitors).
Peugeot-Citroen, Toyota, Mazda and Lamborghini have released vehicle models that
use some combination of super-capacitors and conventional lithium-ion batteries. Cars
like Toyota’s Hybrid-R concept and Lamborghini’s high powered Sian are using super-
capacitors for a precise role, e.g. they have used it in power-regeneration systems
during deceleration of the car.
In Switzerland a fleet of buses has to halt at various charging stations along their daily
commutation route. Just 15 seconds can top the energy-charge off, and only a few
minutes would suffice for a full charge. With frequent top-offs, it makes up for the lack
of energy density and storage.
Chart 18: Small base, but huge opportunity; our revenue projection is irrelevant
Electrolyte revenue
250
200
208
150
(Rs mn)
139
129
100
106
99
90
50
11
-
FY18 FY19 FY20 FY21 FY22E FY23E FY24E
39
Investment thesis
Smart and green chemistry
Tatva Chintan is strong play on smart and green chemistry with not only a portfolio of
products that help reduce pollution, but is also equipped with the ability for more
efficient processes with lower generation of effluents.
 Company’s largest product-group SDA is mainly used in zeolites which go into

reduction of NOx (hazardous gases generated on burning fuel at high
temperatures) and significantly cut air pollution. SDAs are also used for
manufacturing zeolites, which serve as catalysts in chemical manufacturing
processes that are very efficient and generate less effluents than conventional
processes. Further, the company manufactures SDAs by the electrolysis process,
which is among the clean processes and uses only water and electricity as inputs.
 PTCs offer faster reactions, higher conversions or yields, with fewer byproducts. It
eliminates the need for expensive or dangerous solvents as well as for expensive
raw materials, and minimises waste. In fact, in many reactions it converts water
into solvents.
 PASC: Company is planning to synthesise zeolites that suit manufacturing of
some of chemicals using the catalyst route, which otherwise are manufactured by
conventional methods. Continuous flow chemistry offers an efficient method of
manufacturing chemicals with high purity (impurity which are carcinogenic), and
less waste and byproducts.
 Electronic chemicals: Electrolyte salts for super-capacitor batteries provide Tatva
Chintan exposure to battery storage industry. Super- capacitors are even more
efficient compared to lithium-ion batteries with lifecycle going beyond a million
cycles unlike lithium-ion which has 2,000-5,000 lifecycle.
Presence in high-growth categories
Chemical industry is a matured sector with growth in range of 3-4% p.a., with very few
chemicals having growth rate exceeding 6-7% p.a. However, Tatva Chintan has
exposure to a chemistry whose industry growth rate itself is in double digits.
 Green chemistry is expected to grow at >10% in next five years, and a large part
of Tatva Chintan’s business in based on green chemistry.
 The SDA market for emission control is expected to grow in double digits with
adoption of stringent regulations. Application of emission control is likely to extend
from largely road transport today to non-road transport, energy production and
industrial processes in the foreseeable future.
 Super- capacitor market is expected to grow at 26% CAGR, which should also
drive stronger growth for electrolyte salt segment for super-capacitor batteries.
 Within PASC, glyme and catalyst-based products should see strong growth in the
foreseeable future.
40
 PTCs have versatile applications though, unlike other catalysts, they are non-
regenerative in nature which helps create recurring and consistent demand for the
product.
Tatva Chintan’s presence in higher-growth markets gives us huge confidence in its
ability to deliver consistently strong (~30%) revenue growth for multiple years to come.
SDAs: Fewer players globally – and headstart for Tatva Chintan

Tatva Chintan’s largest product-group (SDA) is in a sweet spot as discussed in the
foregoing due to it being a green product and manufactured using clean processes.
Further, global SDA market is expected to grow in double digits in the foreseeable
future with adoption of China 6a and 6b emission standards. Further, Euro-7 is
expected to be introduced in 2025, which should help drive higher volumes for SDAs.
Tatva Chintan’s SDA market share would likely improve in the coming years as it
receives more approvals from new models from OEMs. We are not really
apprehensive of EV disruptions in passenger vehicle (PV) segment as SDAs are
predominantly used in diesel vehicles, and large quantities are sold for commercial
vehicles where EV penetration is expected to be more gradual compared to PVs.
Tatva Chintan is also working on Euro-7 products, which unlike Euro-6 may not be
launched as a generic (SSZ-13). This would pose an additional barrier for entry. We
don’t see much risk of a large number of new entrants in the SDA market – and we
indeed see high probability that it may remain a two-player market for the foreseeable
future.
Further, the cost of SDA in any vehicle is a fraction of the total vehicle cost, and any
change in input may require OEMs to undergo long and expensive process of testing
and regulation requirements.
Catalyst-based manufacturing processes for new products could be

margin-accretive
We understand SDAs are higher-margin business for Tatva Chintan, which is also
established from the fact that it has seen its gross profit margin expanding to 50.6% in
FY21 from 47.7% in FY18, and its EBITDA margin improving to 21.9% to 16.9% in the
same timeframe. In FY21, SDA segment accounted for 40.6% of total revenues vs
14.8% in FY18. We expect the SDA mix in revenues to further increase to 62.6% in
FY24E. This should help expand gross profit and EBITDA margins to 53.9% and
30.6% respectively in FY24E.
Further, we have not factored in the margin expansion possibility from introduction of
products in PASC using catalyst-based processes. Clean Science, which is fully
backward-integrated and has strong deployment of vapour phase continuous process,
earns a gross profit margin of >70%.
Tatva Chintan is expanding its R&D capabilities; has strong technical

knowhow
Company started business with a single product category, PTC; however, over the
years it has diversified into many higher-growth and niche products with commendable
41
market positioning. Expansion of the product portfolio was driven by the continuously
evolving needs of customers, which was supported by its strong R&D capabilities.
Most products of the company are among the base raw materials required by its
customers for manufacture of their own products. Tatva Chintan’s strength lies in the
quick turnaround in developing the product sample, following receipt of request for a
new product.
Company’s R&D efforts are mainly dedicated to development of new products,

improvement of existing production processes, adoption of advanced production
technologies, and improvement in the quality of existing products. Its success can be
measured by its capabilities, which enabled it to explore green and continuous flow
chemistry processes that may give a competitive edge in the future. In past 10 years,
Tatva Chintan has successfully commercialised 82 products, which contributed 24% of
its total revenues in FY21.
Further, production of SDAs and electrolyte salts for super-capacitor batteries requires
strong technical knowhow and sound technical expertise.
Company has been spending 1.5-2% of its revenues in R&D apart from a step-up
spend in FY18. Out of the IPO proceeds, the company estimates an additional spend
of Rs250mn on R&D, which will help it expand its R&D facility at Vadodara.
Chart 19: Tatva Chintan’s R&D spend as % of revenues is higher than the
average R&D spend by chemical companies industrywide
R&D spend at % of revenue
8.0
7.0
7.0
6.0
5.0
4.0
3.0
2.1
1.6 1.7
2.0
1.0
-
FY18 FY19 FY20 FY21
Capex plan provides comfort on growth visibilities

Tatva Chintan has capacity to expand revenues to Rs4bn-4.5bn given that it has
excess capacity in assembly line for manufacturing SDAs. However, there is a
bottleneck in reactor capacity, which means the company will have to limit PTC growth
until new capacity commercialises. Company has undertaken certain debottlenecking
opportunity at the existing Dahej plant, but it cannot add huge capacity there; however,
debottlenecking at Dahej should take care of FY22E growth.
Company plans for greenfield capex at an adjacent facility in Dahej with spend of
Rs1.5bn. It would include expanding reactor capacity and probably capex towards a
dedicated facility for glyme, and other products using the catalyst method. This should
42
potentially have an asset turn of 2.5-3x. Greenfield expansion provides us visibility on
growth over the next few years.
Impressive financial performance

Tatva Chintan has strong revenue visibility on the back of strong underlying industry
growth, opportunity to gain market share (particularly in SDAs and PASCs) and new
product launches. Further, the company is expanding its capacity to achieve peak
revenues of Rs8-9bn vs Rs3bn in FY21. It has shown steady growth with capacity
expansion of 30% in past decade, and it remains confident of its growth rates
continuing.
We estimate revenues to grow at a CAGR of 33% over FY21-FY24E driven by 54%

growth in SDAs. We expect gross profit margin to expand by 360bps on higher growth
in SDAs, which earn high margins. EBITDA is estimated to grow at an impressive rate
of 48.9% in the same period driven by higher gross profit margin and operating
leverage. We forecast net profit growth at 45.7% CAGR, which will be negatively
impacted by higher depreciation.
Company would likely have a healthy balance sheet with net cash, though RoCE may
dip in the near term due to capacity expansion; however, RoCE would improve with
rise in utilisation. We expect post-tax RoCE at 23.3% in FY24E with more upside in
the coming years.
43
Financials
Chart 20: Tatva Chintan revenues to grow at a Chart 21: … driven by growth at 54% CAGR in
CAGR of 33% over FY21-FY24E… SDAs, which would benefit from stringent
emission regulations
8,000 Revenue SDA PASC PTC Electronic chemicals
7,000 8,000
7,103
7,000 74
6,000
1,102
6,000
5,619
Revenue (Rs mn)

5,000 49
5,000 900 1,469
(Rs mn)
4,800
34
4,000 883
4,000 1,201
3,000 1,070
3,000 30
3,004
46 816
2,632
2,000 2,000 749 4,420

912 3,433
765 2,778
1,000 1,000
1,017 1,202
- 0
FY20 FY21 FY22E FY23E FY24E FY20 FY21 FY22E FY23E FY24E
Source: Company data, I-Sec research. Source: Company data, I-Sec research.
Chart 22: Gross profit margin to expand on rise in Chart 23: … leading to EBITDA growth at 48.9%
contribution from SDAs… CAGR on operating leverage
Gross profit GPM (RHS) EBITDA EBITDA margin (RHS)
2,500 33.0
4,500 55.0 30.6
53.7 53.9 29.7 31.0
4,000 54.0
53.2 2,000
27.2 29.0
3,825
3,500 53.0
2,171
3,000 27.0
52.0 1,500
1,668
3,020
(Rs mn)
25.0
(Rs mn)
2,500
(%)
(%)
51.0
2,554
50.3 21.9
1,305
2,000 23.0
49.6 1,000 20.9
50.0 21.0
1,500
1,510
1,000 49.0 19.0

1,305
500
657
550
500 48.0 17.0
- 47.0 - 15.0
44
Chart 24: Net profit to grow at a CAGR of 45.7% over FY21-FY24E
Net profit EPS (RHS)
1,800 85.0
1,600 73.0
75.0
1,400
65.0
1,200 56.9
55.0
(Rs mn)
1,000 47.7
(Rs)
800 45.0
600
35.0
400 26.0
18.8 25.0
200
378 523 1,057 1,261 1,617
- 15.0
FY20 FY21 FY22E FY23E FY24E
Source: I-Sec research, Bloomberg
Chart 25: Working capital investment seen at Chart 26: … while we expect working capital days
Rs0.6bn p.a. with rise in revenues… to remain steady though high
Operating cashflow WC change CFO Inventory Receivables Payables WC
2,000 1,816
150
140 141 142 143
1,500 1,392
1,118 1,184 100 113
1,040 110 111 111 112
1,000 88 88 88 89 89
621 50 69
(Days)
480
(Rs mn)
500 378
253 243
-
-
(500) (226) (50)

(378) (351) (44)
(632) (58) (58) (58) (58)
(1,000) (740)
(100)
Chart 27: Greenfield expansion to drive capex in Chart 28: Company to turn ‘net debt free’ in FY22E
FY22E and FY23E, post which it would normalise from IPO money raised & strong operating
cashflows
Capex FCF Net debt
1,000 1,000
800 724
799 849
600 500
400
190
(Rs mn)
200 33 -
(Rs mn)
-
(200)
(500) (643) (619)
(400) (229) (210)
(600) (482) (460) (988)
(574) (1,000)
(800)
(1,000) (850)
(952)
(1,200) (1,500)
45
Chart 29: RoCE to dip on investment in greenfield Chart 30: Asset turnover has huge upside from
plant, and should improve with rise in utilisation FY24E levels
post-tax ROCE ROE Gloss block Gloss block turnover
40.0 38.3
36.8 4,000 3.5
3,500 3.0
35.0 32.9 3,512
3.1
3,000
3,062 2.5
30.0
(Rs mn)
2,500
2.4 2.4 2.0
(%)
(x)
25.4
24.0 2,000 2.0
25.0 1.8 1.5
25.8 1,500
1,562
23.3 1.0
20.0 1,000 1,262
21.8 21.9 1,104
21.0
500 0.5
15.0
- -
46
Valuations – Initiate with BUY

We initiate coverage on Tatva Chintan with a BUY rating and target price of Rs2,920
valuing the stock at 40x FY24E EPS. Our valuation is based on back-of-envelope
calculation of ~1x PEG, which is lower than median PEG for chemical companies in
our coverage universe. The implied valuation works out to 29.3x FY24E EV/EBITDA.
Apart from growth, certain other factors justify Tatva Chintan’s

premium valuation
 Underlying industry growth for many of the company’s products is high with
double-digit growth while the overall chemical industry growth is 3-4%.
 Company has strong position in most of its products: 1) in SDA, it is the sole
manufacturer in India and one of the two globally; 2) it is the only manufacturer of
electrolyte salt for super-capacitors; 3) among the largest PTC producers globally,
and is largest manufacturer in India; 4) it is among the largest manufacturers of
glyme in India.
 Company has a proven track record in R&D with introduction of new products and
ability to expand its addressable market multifold in the past decade. It does not
intend to break-through into intermediate (from agrochemicals and
pharmaceuticals) market using continuous flow chemistry, and the financial
performance of Clean Science proves the method is highly profitable.
 Tatva Chintan provides good exposure to battery technology with glyme used as
solvent in lithium-ion battery, and electrolyte salt for super-capacity batteries.
 Low base and higher capex spend provide strong visibility on growth over the next
decade.
Further, sustainability and green portfolios are our preferred plays, and Tatva Chintan
fits the bill with multiple facets of smart chemistry. It has green manufacturing
processes, and its products significantly help reduce pollution / wastes.
47
Risks
Upside risks
 Higher than expected revenue growth in SDAs considering strong demand and
market share gains.
 Stringent regulations in non-road transport, energy and industrial processes, which
would increase demand for NOx-reducing zeolites, which in turn would drive
growth for SDAs.
 Significant success in the use of glyme as a battery solvent and uptick in demand
for super-capacitor batteries.
 Faster than expected launch of products using continuous flow chemistry.
 Higher than expected margins, and operating leverage.
Downside risks
 Rise in competition in SDA market and reduction in prices and market share loss.
 Faster than expected adoption of electric vehicles in the commercial vehicle
category.
 Delay in regulation of NOx emission in categories other than road transport.
 Slower than expected new launches in PASC segment.
 Lower margins and higher investments impacting RoCE.
48
Financial summary
Table 2: Profit and Loss statement
(Rs mn, year ending Mar 31)
Net revenue 2,632 3,004 4,800 5,619 7,103
Growth (%)
Less:
Cost of goods sold 1,328 1,494 2,253 2,605 3,283
Gross profit 1,305 1,510 2,554 3,020 3,825
Gross profit margin (%) 49.6 50.3 53.2 53.7 53.9
Total Operating Expenses 755 853 1,249 1,351 1,654
EBITDA 550 657 1,305 1,668 2,171

EBITDA margin (%) 20.9 21.9 27.2 29.7 30.6
Growth (%)
Less: Depreciation & Amortisation 48 67 86 167 248
EBIT 502 590 1,219 1,501 1,923
Less: Financial expenses 39 42 37 28 19

Add: Other income 14 59 62 65 69
Recurring Pre-tax Income 476 607 1,244 1,538 1,973
Less: Taxation 98 84 187 277 355
Recurring Net Income 378 523 1,057 1,261 1,617
Add: Extraordinary Items - - - - -
Net Income (Reported) 378 523 1,057 1,261 1,617

49
Table 3: Balance sheet
ASSETS
Current Assets, Loan & Advances
Cash & cash equivalent 108 53 1,346 1,121 1,291
Debtors 496 907 1,457 1,713 2,175
Inventories 636 720 1,158 1,363 1,732
Other current assets 89 164 263 308 389
Total Current Assets 1,329 1,845 4,223 4,504 5,587
Current Liabilities & Provisions

Creditors 316 475 765 896 1,133
Current Liabilities 40 84 134 157 198
Provisions 5 7 11 12 16
Total Current Liabilities & Provisions 361 565 910 1,065 1,346
Net Current Assets 968 1,280 3,313 3,440 4,241
Investments (Other Marketable) - - - - -
Fixed Assets
Net block 1,161 1,303 2,168 2,851 3,063
Goodwill
Total Assets 2,128 2,583 5,481 6,290 7,304
LIABILITIES AND SHAREHOLDERS' EQUITY

Shareholders Fund
Equity share capital 80 201 222 222 222
Reserves and surplus 1,097 1,459 4,536 5,546 6,759
Total Shareholders Fund 1,177 1,660 4,758 5,767 6,980
Borrowings 907 902 702 502 302
Deferred Tax Liability 45 21 21 21 21

Minority Interest - - - - -
Total Liabilities & Shareholders' Equity 2,128 2,583 5,481 6,290 7,304
50
Table 4: Cashflow statement
Cash Flow from Operating Activities
PAT 394 509 1,057 1,261 1,617
Add: Depreciation 48 67 86 167 248
Add: Other Operating activities 38 45 (25) (37) (50)
Operating Cash Flow Before Working Capital change (a) 480 621 1,118 1,392 1,816
Changes in Working Capital (226) (378) (740) (351) (632)
Net Cash flow from Operating Activities (a) + (b) 253 243 378 1,040 1,184
Cash Flow from Capital commitments (c) (482) (210) (952) (850) (460)
Free Cash flow after capital commitments (a) + (b) + (c) (229) 33 (574) 190 724
Cash Flow from Investing Activities

Purchase of Investments 74 2 - - -
Others 5 (3) 62 65 69
Net Cash flow from Investing Activities (d) 80 (0) 62 65 69
Cash Flow from Financing Activities

Increase in reserves - - 2,253 - -
Proceeds from fresh borrowings 135 (4) (200) (200) (200)
Dividend paid including tax and Others (36) (84) (249) (280) (423)
Net Cash flow from Financing Activities (e) 100 (88) 1,804 (480) (623)
Total Increase / (Decrease) in Cash (49) (55) 1,292 (224) 170

(a) + (b) + (c) +(d) + (e)
Opening Cash and Bank balance 157 108 53 1,346 1,121

Closing Cash and Bank balance 108 53 1,346 1,121 1,291
Increase / (Decrease) in Cash and Bank balance (49) (55) 1,292 (224) 170
51
Table 5: Key ratios
(Year ending Mar 31)
Per Share Data (in Rs.)
Recurring EPS 18.8 26.0 47.7 56.9 73.0
Reported EPS 18.8 26.0 47.7 56.9 73.0
Recurring Cash EPS 21.2 29.4 51.6 64.5 84.2
Dividend per share (DPS) - 2.1 9.5 11.4 18.2
Book Value per share (BV) 58.6 82.6 214.6 260.2 314.9
Growth Ratios (%)

Operating Income 27.6 14.1 59.8 17.1 26.4
EBITDA 62.6 19.6 98.6 27.9 30.1
Recurring Net Income 84.0 38.3 102.3 19.3 28.2
Diluted Recurring EPS 90.9 38.3 83.3 19.3 28.2
Diluted Recurring CEPS 73.4 38.5 75.6 25.0 30.6
Valuation Ratios (x)

P/E 132.4 95.7 52.2 43.8 34.1
P/CEPS 117.5 84.8 48.3 38.6 29.6
P/BV 42.5 30.1 11.6 9.6 7.9
EV / EBITDA 92.5 77.4 41.8 32.7 25.0
EV / Operating Income 19.3 16.9 11.4 9.7 7.6
EV / Operating FCF (341.8) 1,535.4 (106.6) 213.3 68.4
Operating Ratio
Other Income / PBT (%) 2.9 9.8 5.0 4.3 3.5
Effective Tax Rate (%) 20.6 13.9 15.0 18.0 18.0
NWC / Total Assets (%) 34.5 39.0 30.8 31.5 34.1
Inventory Turnover (days) 88.1 87.5 88.0 88.5 89.0
Receivables (days) 68.7 110.3 110.8 111.3 111.8
Payables (days) 43.8 57.7 58.2 58.2 58.2
Net Debt/EBITDA Ratio (x) 1.5 1.3 (0.5) (0.4) (0.5)
Capex % of sales 18.3 7.0 19.8 15.1 6.5
Return/Profitability Ratio (%)

Recurring Net Income Margins 14.4 17.4 22.0 22.4 22.8
RoCE -post tax 21.8 21.9 25.8 21.0 23.3
RoIC 23.5 22.6 31.3 26.6 28.3
RoNW 38.3 36.8 32.9 24.0 25.4
Dividend Yield - 0.1 0.4 0.5 0.7
Gross Margins 49.6 50.3 53.2 53.7 53.9
EBITDA Margins 20.9 21.9 27.2 29.7 30.6
52

Tables
Table 1: Manufacturing capacity and utilisation .................................................................. 24
Table 2: Profit and Loss statement ..................................................................................... 49
Table 3: Balance sheet ....................................................................................................... 50
Table 4: Cashflow statement .............................................................................................. 51
Table 5: Key ratios .............................................................................................................. 52
Charts
Chart 1: Revenue mix (%) FY21 ......................................................................................... 22
Chart 2: Geographical mix (%) FY21 .................................................................................. 23
Chart 3: Organisational structure ........................................................................................ 23
Chart 4: Manufacturing process for tetramethyl ammonium hydroxide .............................. 26
Chart 5: Selective catalyst reduction (SCR) technology for NOx reduction ....................... 26
Chart 6: Euro-5 and Euro-6 heavy-duty vehicle emission standards for diesel engines .... 27
Chart 7: NOx emission by sector in 2011 ........................................................................... 29
Chart 8: SDA revenues grew at a CAGR of 82% in past three years on low base, and
product approval ........................................................................................................... 30
Chart 9: We expect SDA revenues to grow at a CAGR of 54% over FY21-FY24E ........... 30
Chart 10: PASC revenues grew at a CAGR of 12.2% in past three years ......................... 33
Chart 11: Expect PASC revenues to grow at a CAGR of 15% over FY21-FY24E ............. 33
Chart 12: PTC is a US$1bn market with ~40% of revenues coming from pharmaceutical
industry .......................................................................................................................... 34
Chart 13: PTC revenue growth has been flattish ................................................................ 36
Chart 14: We expect PTC revenues to grow at a CAGR of 8% over FY21-FY24E ........... 36
Chart 15: Super-capacitor market expected to grow at a CAGR of 26% over 2019-24E
(US$bn) ......................................................................................................................... 38
Chart 16: Consumer electronics and portable devices constitute the biggest market for
super-capacitors; next is transportation (US$bn) .......................................................... 38
Chart 17: Comparison of super-capacitor with lithium-ion battery ...................................... 39
Chart 18: Small base, but huge opportunity; our revenue projection is irrelevant .............. 39
Chart 19: Tatva Chintan’s R&D spend as % of revenues is higher than the average R&D
spend by chemical companies industrywide ................................................................. 42
Chart 20: Tatva Chintan revenues to grow at a CAGR of 33% over FY21-FY24E…......... 44
Chart 21: … driven by growth at 54% CAGR in SDAs, which would benefit from stringent
emission regulations ..................................................................................................... 44
Chart 22: Gross profit margin to expand on rise in contribution from SDAs… ................... 44
Chart 23: … leading to EBITDA growth at 48.9% CAGR on operating leverage ............... 44
Chart 24: Net profit to grow at a CAGR of 45.7% over FY21-FY24E ................................. 45
Chart 25: Working capital investment seen at Rs0.6bn p.a. with rise in revenues… ......... 45
Chart 26: … while we expect working capital days to remain steady though high ............. 45
Chart 27: Greenfield expansion to drive capex in FY22E and FY23E, post which it would
normalise ....................................................................................................................... 45
Chart 28: Company to turn ‘net debt free’ in FY22E from IPO money raised & strong
operating cashflows ...................................................................................................... 45
Chart 29: RoCE to dip on investment in greenfield plant, and should improve with rise in
utilisation ....................................................................................................................... 46
Chart 30: Asset turnover has huge upside from FY24E levels ........................................... 46
53
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54
December 16, 2021
BSE Sensex: 57788
Clean Science and Technology REDUCE
is the author and
distributor of this report Strong business moat; near-term value capped Rs2,404
Initiating coverage REDUCE rating and target price of Rs2,110. We have valued the company at 62x
27.8x FY24E EPS, we have assigned a higher multiple to Clean Science due to: 1)
Specialty its much superior business model with strong focus on ‘green’ processes and
Chemicals sustainability; 2) significant competitive advantage with continuous flow
chemistry and in-house catalysts; 3) market share in anisole value chain, which
Target price Rs 2,110 would be difficult to challenge; 4) ability to add multiple products (other than in
the anisole value chain) and achieve global leadership in all of them; and 5) strong
Shareholding pattern financial and return ratios. Our REDUCE rating is due to very high valuations, and
Jun
’21
Sep
’21
we don’t see much scope for expansion in margins and return ratios. Thus, net
Promoters 78.5 78.5 profit growth will track revenue growth at best.
Institutional
investors 8.2 8.6  ‘Green’ and catalyst-based processes are key strengths. Clean Science is
MFs and others 2.4 4.2
FI/Banks 0.9 0.0 focused on novel processes (based on size-selective catalysts, or zeolites), which
Insurance 0.4 0.1 eliminate the use of sulphur and reduce waste. ‘Green’ processes are the biggest
FIIs 4.5 4.3
Others 13.3 12.9 differentiator for Clean Science vis-à-vis competition, and the biggest attraction for
Source: NSE buyers as this helps them increase the ‘green’ factor in their own businesses. The
processes provide cost advantage to Clean Science as they require lower solvents/
Price chart reagents, and enable the company to be backward-integrated, which means Clean
3010 Science buys bulk commodities. Better quality + low cost = market leadership: this
2510 mantra has helped Clean Science achieve market leadership in each of its products.
2010
 Revenue growth visibility from new product launches. Clean Science has
(Rs)
1510
achieved a large market share in its key product (MEHQ, 46% of revenues, 55%
1010
global market share), which limits the scope for significant outperformance.
510
However, we see opportunity for the company to grab more share in BHA (22% of
10
revenues, 15-16% global share). It is adding more products in polymer inhibitor /
Nov-21
Dec-21
Oct-21
Jul-21
Aug-21
Sep-21
stabiliser segments (including HALS and phenothiazine), which is interesting

considering HALS is >US$1bn market. Indeed, HALS is the biggest addressable
market product for Clean Science and it is sold to same customers as MEHQ.
 New product may lead to lower margins initially, but should improve with
product maturity. Clean Science’s benchmark margins are among the best in
industry and it would be unfair to expect the company to deliver the same in all its
 new products. However, it remains confident of: 1) margin improvement in new
products as well with maturity of the products, 2) acquisition of premium-paying
customers who take time to onboard, and 3) process improvement. Further, the
company will start production of its largest new product-series, HALS, with bulk raw
materials (acetone and ammonia). However, we are not sure if commodity start
material can give an advantage similar to anisole (for which it buys phenol).
Market Cap Rs255bn/US$3.4bn Year to Mar FY21 FY22E FY23E FY24E
Bloomberg CLEAN IN Revenue (Rs bn) 5.1 6.6 7.7 9.4
Shares Outstanding (mn) 106.2 EBITDA (Rs bn) 2.6 3.1 4.1 5.0
52-week Range (Rs) 2568/900 Rec. Net Income (Rs bn) 2.0 2.3 3.0 3.6
Free Float (%) 21.5 EPS (Rs) 18.7 21.6 28.2 34.0
Research Analysts: FII (%) 4.3 P/E (x) 136.0 117.7 90.0 74.7
Daily Volume (US$/'000) NA CEPS (Rs) 20.3 24.1 31.8 38.7
Sanjesh Jain Absolute Return 3m (%) 32.6 EV/E (x) 103.2 86.8 64.7 52.9
sanjesh.jain@icicisecurities.com
+91 22 6807 7153 Absolute Return 12m (%) NA Dividend Yield (%) 0.0 0.2 0.4 0.7
Akash Kumar Sensex Return 3m (%) (1.5) RoCE (%) 41.9 33.3 34.5 34.5
akash.kumar@icicisecurities.com Sensex Return 12m (%) 26.2 RoE (%) 56.4 57.7 48.6 48.0
+91 22 6807 7637
55
Clean Science and Technology, December 16, 2021 ICICI Securities
 Large capex plans establish growth pathway. Clean Science’s capex plans
include a spend of Rs1bn on unit-3, which is being commissioned in a phased
manner from Dec’21 to Sep’22. It has already incurred capex of Rs750mn on this
unit by Q2FY22, and the rest would be done over next two quarters. Total
investment in unit-4 is estimated at Rs3bn, which should start with a spend of
Rs1.5bn in FY23E. The average asset turn for the company has been 2.7x and it
believes this should be achievable on the new capex as well. Company’s planned
spend is Rs4bn over next 3-4 years, which should add potential revenues of
>Rs10bn (on base of Rs5bn in FY21).
 Top-quartile financials among chemical peers. We expect Clean Science
revenues to grow at a CAGR of 22.3% to Rs9.4bn over FY21-FY24E.
Performance chemicals revenue is estimated grow at 25.7% CAGR to Rs7bn in
the same period and would likely be aided by continued growth in BHA, while
MEHQ growth rate is likely to be modest. HALS launch would also likely aid
revenue growth in performance chemicals. Though gross profit margins are
impacted in FY22E from sharp raw material inflation, we expect margins to
normalise in FY23E on the back of price increases and drop in raw material prices.
We expect EBITDA CAGR of 24.8% to Rs5bn over FY21-FY24E driven by
revenue growth, and net profit CAGR of 22% to Rs3.6bn. Company is net-cash
and the entire capex requirement can be met through internal accruals. Its return
ratios are strong (post-tax RoCE at 34.5%, RoIC at 44.2% in FY23E).
 Why REDUCE rating? Clean Science has capex plans of Rs4bn over next few
years (~3-4 years) and potential to generate >Rs10bn additional revenues from
this circa FY26E-FY27E, on a revenue base of ~Rs6.5bn. Thus, we see peak
revenues reaching at best Rs18bn (some revenues added on improvement in
utilisation of existing capacity). We are building in Rs14bn revenues in FY27 and
EBITDA margin of 54.7%. This gives us potential net profit of Rs5.3bn. Even in a
good case scenario, the stock is trading at 48.5x P/E multiple on FY27E numbers.
Thus, much of the known facts about company’s growth are completely discounted
by the market. Risk:reward remains unfavourable, in our view.
56
TABLE OF CONTENT
About Clean Science ..................................................................................................... 58

Performance chemicals: Dominance in anisole chain; HALS is new opportunity . 61
Pharmaceutical intermediates: Dominant player in guaiacol ................................... 68
FMCG chemicals: 4-MAP and anisole are key products ............................................ 71
Backward integration and catalyst process enables the company to earn higher
margins ........................................................................................................................... 73
Investment thesis ........................................................................................................... 75
Financial analysis .......................................................................................................... 78
Valuations – Initiate with REDUCE ............................................................................... 83
Risks ................................................................................................................................ 84
Financials........................................................................................................................ 85
57
About Clean Science

Incorporated in 2003, Clean Science & Technology (Clean Science) is among the few
chemical companies that developed new technologies using in-house catalytic
processes. In fact, a few of the processes developed by the company are global firsts.
The processes developed are cleaner (less effluents) and cost-effective, which has
helped the company gain leadership in each of the products it introduced in past few
years. The success is based on the company’s ability to continuously focus on product
identification, process innovation, catalyst development, large scale of operations (for
each product) and backward integration where required. It is promoted and run by
technocrats – Mr. Ashok Boob, who has >25 years of experience in the chemical
industry, and Mr. Siddhartha Sikchi, who has >10 years of experience; both are alumni
of UDCT, Mumbai. Mr. Sikchi also has masters in synthetic organic chemistry from
University of Manitoba, Canada.
Chart 1: Management organisational chart
Source: Company data, I-Sec research.
Company has divided its revenues into three buckets: 1) Performance chemicals,
which includes products such as MEHQ, BHA and AP. It is also in the process of
launching HALS series products. 2) Pharmaceutical intermediates (guaiacol and
DCC). 3) FMCG chemicals (4-MAP and anisole). Clean Science products are used as
key starting materials, as inhibitors or as additives, by customers, for products sold in
the regulated markets. Customers’ products find end-use in industries including
monomers, food and animal nutrition, pharmaceuticals, personal care (cosmetics),
agrochemicals, flavour and fragrances, and automotive.
58
Chart 2: Product-wise revenue mix (estimated, %)
Revenue (FY21, Rsm n)
DCC, 115 , 2% Others, 189 , 4%
Anisole, 164 , 3%
4-MAP, 468 , 9%
MEHQ, 2,332 ,
46%
Guaiacol, 715 , 14%
BHA, 1,142 , 22%

Table 1: Product and market position of the company in each product

Product Global market (ktpa) Position Global market share (%) Start year
MEHQ 12.5 #1 globally 55.0 FY08
BHA 9.0 #1 globally 15-16 FY15
Guaiacol 60.0 #3 globally / #2 India 3-4 FY08
Anisole 34.0 #1 globally 45-55 FY18
4-MAP 7.2 #1 globally 18-20 FY12
DCC 7.0 #1 India 4-5 FY20
Ascorbyl Palmitate 0.5 #2 globally / #2 India 10.0 FY20
Considering its strong global position in each of the aforementioned products, Clean
Science’s substantial revenues come from export markets. In FY21, 69% of its
revenues came from exports and 31% from domestic sales. China contributed 37.1%
of revenues in FY21; this shows the competitive edge (read: cost advantage), which
Clean Science enjoys in its products.
Chart 3: China was the largest market for Clean Science in FY21
Revenue (FY21, Rsm n)
ROW, 313 , 6%
India, 1,592 ,
31%
China, 1,882 ,
37%
Americas, 582 ,
12%
Europe, 701 , 14%

59
Clean Science has two production facilities, both located at Kurkumbh (Maharashtra).
Each facility has an onsite R&D unit, quality control department, warehouse, and
effluent treatment system, and both are zero liquid discharge facilities. It has dedicated
production line for each of the products with a combined capacity of 29.9ktpa as of
FY21. In FY21, its capacity utilisation stood at 71.9%. Company is in the process of
setting up its third facility, close to the existing ones at Kurkumbh, and has already
bought land for its fourth facility again at Kurkumbh (34-acre land, which is higher than
the three existing sites cumulatively).
Further, Clean Science’s facilities for manufacturing BHA and AP are registered with
the USFDA as approved food facilities.
Table 2: Products manufactured by the company in each of its existing two

facilities
Table 3: Capacity details from environment clearance filing

Product (ktpa) Plant 1 Plant 2 Plant 3
Anisole 1,200 9,000 10,000
MEHQ, Guaiacol & 4-MAP 7,900 10,000 5,000
BHA 1,800 2,400 2,400
Phenothiazine 5,000
HALS (TAA & TEMPOOH) 4,000
Table 4: Category-wise capacity and utilisation in FY21

Product (ktpa) Capacity Utilisation (%)
Performance chemicals 9,640 73.5
Pharmaceutical intermediates 4,060 64.1
FMCG chemicals 16,200 73.0
Total 29,900 71.9
Clean Science has two R&D units within the premises of its manufacturing facilities. Its
R&D is broadly bucketed into three activities: 1) existing products and catalysts to
improve yields and selectivity; 2) expanding product range in stabilisers and additives;
and 3) identifying products with high demand that only a few manufacturers produce
within India and globally. Company has incrementally focused on intermediate
applications in pharmaceuticals and agrochemicals. It has a total of 36 employees in
R&D, second-highest only after production, which highlights the company’s focus.
Clean Science has not patented its processes, hence if competition efficiently copies
them, it may face competitive intensity. However, considering that the company has
already garnered significant market share across the anisole value chain, it would be
difficult for a new entrant to compete for many years until it can build size.
60
Performance chemicals: Dominance in anisole

chain; HALS is new opportunity
Monomethyl ether of hydroquinone (MEHQ)
MEHQ is an organic compound and synthetic derivative of hydroquinone. It is also
known as mequinole, 4-hydroxy anisole, para-guaiacol, etc. MEHQ is manufactured by
the hydroxylation of anisole or by free radical reaction between p-benzoquinone and
methanol. MEHQ has various industrial applications from polymerisation inhibitor,
dermatology, agrochemicals, ink and as an intermediate for manufacturing of BHA.
The two main uses of MEHQ are: 1) In polymers, it is used as a polymerisation

inhibitor in the manufacture of various monomers such as acrylics, methacrylics and
other acrylates, vinyl acetate monomers, etc., along with unsaturated polyesters.
MEHQ is also used as a stabiliser for cosmetics, liquid detergents, and cellulose
materials. 2) It is the building block for agrochemical and organic chemical
manufacturing industries.
Global MEHQ market is seen at US$122mn in 2019 and expected to grow at 5.8%
CAGR over 2019-25E. Demand of MEHQ is estimated at 12.5ktpa growing at CAGR
of 5.2% in the same period.
Chart 4: Global MEHQ demand is expected to grow at 5.8% CAGR over 2019-25
Source: Company
Acrylic acid growth is key growth driver for MEHQ. The demand for acrylic acid is
expected to grow at a CAGR of 5.2% over 2019-25E. Acrylic acid finds significant
application in superabsorbent polymer (SAP) which used in making baby diapers,
adult incontinence and female hygiene products.
61
Chart 5: SAP and surface coating (paints) are largest uses of acrylic acid
Source: Company
Clean Science is the world’s largest manufacturer of MEHQ and accounts for 55% of
the global capacity. Solvay SA, and Camlin Fine Sciences are other key producers.
MEHQ is manufactured through the anisole route by Clean Science, which uses
hydrogen peroxide and acetone along with zeolite-based catalysts. The process
produces guaiacol as a co-product, which it sells to pharmaceutical intermediates. The
other route is through diphenol, which produces hydroquinone and catechol.
Hydroquinone is base to manufacture MEHQ, TBHQ and BHA, while catechol is used
to make guaiacol.
Chart 6: Clean Science process chart for MEHQ
Source: Company
62
Chart 7: Diphenol route for manufacture of MEHQ
Source: Company
Butylated hydroxyanisole (BHA)

Antioxidants are molecules that inhibit oxidation of other molecules. There are various
types of antioxidant including vitamin E, vitamin C, BHT, BHA, propyl gallate,
ethoxyquin, etc. Antioxidants are used for providing protection to essential nutrients
such as vitamins, fats, and pigments from deterioration. Furthermore, these
ingredients are capable of extending the storage period and durability of the products.
BHA is used as an antioxidant and prevents rancidification of food (rancidification

causes obnoxious odours). It is a waxy solid with the E-number E320. It was first used
as an antioxidant in 1947 and is now added to a wide variety of foods, including
beverages, ice cream, candy, baked goods, instant mashed potatoes, edible fats and
oils, breakfast cereals, dry yeast, and sausages. It prevents spoilage by reacting with
oxygen. It slows down development of off-flavours, odours and colour changes caused
by oxidation.
Antioxidants market was estimated at US$3.5bn in 2019 and growing at 6.3% CAGR
over the subsequent five years. Their largest application is in food & beverages
followed by pharmaceuticals.
Chart 8: Globally, antioxidants have largest application in F&B industry
63
Animal feed market is among the key industries for antioxidants and was estimated at
US$243mn in 2020, and likely to grow at a CAGR of 4.8% in the subsequent five
years. Antioxidants are used as animal feed additives for various purposes such as to
prevent damage to cells, to reduce the singlet oxygen, and others. Synthetic
antioxidants dominate the market with over 55-60% share of the global market.
BHA is widely used in the animal feed industry, and BHT is used in conjunction with
BHA for greater efficiency since it is not as thermally stable as BHA. BHA is intended
to be used as an antioxidant in feedstuffs for all animal species and categories except
dogs with a maximum content of 150mg/kg (FEEDAP) complete feeding stuffs (alone
or together with BHT (E 321) and/ or ethoxyquin (E 324)) and for dogs with a
maximum content of 150 mg/kg complete feeding stuffs (alone or together with BHT {E
321}).
Chart 9: BHA and BHT global market wherein BHA is expected to grow at 3.3%
CAGR over 2019-25E
The biggest risk for BHA market is represented in the debate whether BHA is human
carcinogen or not. The National Toxicology Program classified BHA as ‘reasonably
anticipated’ to be human carcinogen; however, the International Cancer Agency stated
it as a possible human carcinogen and is listed as a carcinogen under California’s
proposition 65. The USFDA regulations limit the use of BHA in commercial food
products to 0.02% in fat and oil based products.
Globally there are three large manufacturers of BHA: Solvay SA, Camlin Fine
Sciences, and Clean Science. Our estimates suggest Clean Science has 15-16%
market share in the global BHA market.
Ascorbyl palmitate
Ascorbyl palmitate (AP) is produced from ascorbic acid, or vitamin C. Ascorbic acid in
the form of sodium ascorbate, or AP, is extensively used in anti-aging cosmetics. AP is
part of vitamin C derivatives of anti-aging active ingredients. AP and BHA have
applications as antioxidants in the personal care segment. In cosmetic preparations,
antioxidants have two functions: 1) as the active ingredients, and 2) protectors of other
ingredients against oxidation. Three antioxidants have been widely proven to decrease
the effect of the sun on skin and prevent it from further damage – selenium, vitamin E,
and vitamin C.
64
Globally, AP market is seen at US$10mn as of 2020, and forecast to grow at a CAGR
of 5.8% over the next five years. Growth would predominantly come from strong
underlying growth in anti-aging ingredients market, which indeed is growing due to
increase in the aging population.
Clean Science is also the second-largest manufacturer of AP in India; its Indian peers
are: Yasho Industries, DSM Nutrition Products, and Camlin Fine Sciences. The key
manufacturers in China are: Shandong Huihai Pharma, Hongrui Fine Chemicals, and
Tianxin Pharmaceutical Co. We estimate Clean Science has ~10% market share in
the global AP market.
Hindered amine light stabilisers (HALS)

HALS are a range of compounds containing an amine functional group that are used
as stabilisers, particularly as plastics additives, to make them UV resistant. If plastics/
polymers have prolonged exposure to sunlight or any other UV light, they would
degrade, and the chemical structure stability of polymers would begin to dissipate.
HALS do not absorb UV radiation, but act to inhibit degradation of the polymer by
continuously and cyclically removing free radicals that are produced by photo-
oxidation of the polymer. HALS' high efficiency and longevity are due to this cyclic
process wherein the HALS are regenerated rather than consumed during the
stabilisation process.
HALS are also increasingly being used as thermal stabilisers, particularly for low and
moderate levels of heat; however, during the high temperature processing of polymers
(e.g. injection moulding), they remain less effective than traditional phenolic
antioxidants.
HALS are extremely effective in polyolefins, polyethylene and polyurethane though

ineffective in polyvinyl chloride (PVC). HALS find application in packaging films,
automotive, agricultural films, construction, etc.
Since HALS were developed in the late 1970s, they have received widespread
attention in the market, not only for their excellent light stability and application
performance, but also for synergistic effect with UV absorbers and antioxidants.
Although there are wide structural differences in the HALS products available, all
share the 2,2,6,6-tetramethylpiperidine ring structure.
As per Market Data Forecast (link), HALS have a market size of US$1.24bn as of
2021, which is anticipated to grow at a CAGR of 8.2% during 2021-26. The major
players are: BASF, Clariant, SABO (Italy), Solvay, Adeka Corp (Japan), Chitec
Technology (Taiwan), Everspring Chemical (Taiwan), Everlight Chemical (Taiwan),
Sunshow (China), Addivant (US) and others.
From the company’s environmental clearance filing, we understand Clean Science has
been working on two HALS products 2,2,6,6-tetramethyl-4-piperidinol (TAA), and 4-
hydroxy-2,2,6,6-tetramethylpiperdin-1-yloxyl (TEMPOOH). The total HALS capacity in
the third facility is 4ktpa.
In the Q2FY22 earnings call, management mentioned it has already worked on a few
HALS series including 701, 770, and 622, and is going to introduce new series, e.g.
65
944, 292, etc. The entire series of HALS is focused on the inhibitor market. Company
will immediately commission two products – 701 (which will predominantly go in export
market), and 770 (which will cater to demand in the domestic market). India imports
3ktpa of 770 HALS series, and Clean Science will add 1.5ktpa capacity, which will
serve as import substitution.
Phenothiazine
Phenothiazine (PTZ) is an organic compound is related to the thiazine-class of
heterocyclic compounds. Phenothiazine is a prototypical pharmaceutical lead structure
in medicinal chemistry. Derivatives of phenothiazine are highly bioactive and have
widespread use in pharmaceuticals. The derivatives chlorpromazine and
promethazine revolutionised the fields of psychiatry and allergy treatment,
respectively. An earlier derivative, methylene blue, was one of the first antimalarial
drugs.
Clean Science plans to add 5kpta capacity for phenothiazine in its third facility, and we
see the company’s interest aligning more with its use as an anaerobic inhibitor for
acrylic acid polymerisation, often used as an in-process inhibitor during the purification
of acrylic acid. This product finds significant overlap with MEHQ users and has a ready
market for Clean Science.
Performance chemicals likely to grow at a healthy CAGR of 25.7%

over FY21-FY24E
Performance chemicals contributed 69% of total revenues for Clean Science and grew
at a CAGR of 34.3% to Rs3.5bn over FY18-FY21. Company’s segment includes the
its top two products, MEHQ and BHA. In past three years, 57% of incremental
revenues in performance chemicals came from MEHQ where the company has gained
significant market share. However, with its current MEHQ market share at 55%, we
expect the pace of revenue growth to decelerate over next three years.
We expect revenues from performance chemicals to grow at a CAGR of 25.7% to

Rs7bn over FY21-FY24E. However, MEHQ is expected to add only 25% of
incremental revenues in the forecast period, while BHA, where we expect Clean
Science to continue grabbing higher market share, will add 32% to incremental
revenues. The new HALS series of products are anticipated to have 39% share in
incremental revenues. HALS is among the largest total addressable markets Clean
Science has entered, and any major breakthrough can help the company accelerate
its revenue growth pace significantly, in our view. However, considering that it is
adding 4ktpa capacity in the first phase, we would wait to see product acceptability
and expansion plans.
66
Chart 10: Performance chemicals revenue grew at Chart 11: …of which 57% of incremental revenues
CAGR of 34.3% over FY18-FY21… came from MEHQ on significant market share gain
Performance Chemicals revenue Performance Chemicals revenue
4,000 4,000
809 78 3,548
3,500 3,500
3,548
3,000 3,000
1,196
2,500 2,721 2,500
(Rsmn)
(Rsmn)
2,490
2,000 2,000
1,500 1,465
1,500
1,465
1,000 1,000
500 500
- -
FY18 FY19 FY20 FY21 FY18 MEHQ BHA AP FY21
Chart 12: We expect performance chemicals Chart 13: …though incremental revenue gain will
revenue to continue growing at 25.7% CAGR over come from BHA (on market share gain) and HALS
FY21-FY24E… (new category launch)
Performance Chemicals revenue Performance Chemicals revenue
8,000 8,000
7,000 1,352 7,048
7,000
7,048
6,000 6,000 186
1,116
5,000 5,619
5,000
(Rsmn)
(Rsmn)
846
4,000 4,693
4,000 3,548
3,000 3,548 3,000
2,000 2,000
1,000 1,000
- -
FY21 FY22E FY23E FY24E FY21 MEHQ BHA AP HALS FY24E
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Pharmaceutical intermediates: Dominant player in

guaiacol
Guaiacol
Guaiacol is a naturally occurring organic compound used as a precursor in the
manufacture of vanillin and synthesis of pharmaceuticals. It is used as a reducing co-
substrate for COX reactions and mainly used as expectorant and antiseptic. The
unique aromatic odour of guaiacol makes it suitable for acting as perfumery and
flavouring agents.
The key raw materials used to manufacture vanillin are guaiacol and guaethol.
Synthetic vanillin has been segmented into lignin vanillin, guaiacol vanillin and ethyl
vanillin. Guaiacol vanillin is biggest segment with ~85% share of total vanillin market.
Guaiacol is used in the synthesis of expectorants such as guaifenesin and

sulfoguaiacol. Drug intermediates obtained from guaiacol are used in the synthesis of
muscle relaxants and cardiovascular drugs such as methcarbamol, carvedilol and
ranolazine.
Table 5: Guaiacol major application in certain large drugs such as ranolazine

and guaifenesin
Global guaiacol market is estimated at US$309mn and likely to grow at a CAGR of

1.3% during 2019-25. Global guaiacol capacity is estimated at 60ktpa, and Solvay is
the largest producer. In India, Camlin Fine Sciences is largest producer and Clean
Science the second largest. However, Clean Science has negligible exposure to
vanillin market, and predominantly caters to pharmaceuticals. We estimate the
company has 3-4% share in guaiacol market, and probably much larger market share
if we exclude the vanillin market.
68
N,N'-Dicyclohexylcarbodiimide (DCC)
DCC is effective dehydrating agent used for the preparation of amides, esters, and
anhydrides. It is also used in peptide and nucleic synthesis. Besides, it is used as a
reagent in anti-retroviral drugs. DCC is used as a key starting material to produce APIs
like valaciclovir, amikacin, glutathione, etc. Unlike peers who use conventional
methods, Clean Science manufactures DCC without using carbon disulphide, which
enables its DCC to be sulphur-free.
The drugs used to treat HIV are called antiretroviral drugs and DCC is widely used as
one. Global DCC market size was US$66mn in 2020 and expected to grow at a CAGR
of 4.9%.
Clean Science is the largest producer of DCC globally, and others include Shandong
Huihai Pharma (China), Hongrui Fine Chemicals (China), etc. In India, Atul Ltd. also
supplies on make-to-order basis. Clean Science has 4-5% share in global DCC
market.
Veratrole (1,2-Dimethoxybenzene)
Clean Science has moved to vapour phase plant for manufacturing anisole, and past
few years it has built enough capacity for captive and global markets. This is a much
efficient way to manufacture anisole compared to the earlier liquid phase plant. This
has made the company’s liquid phase plant redundant and it has been partly using the
plant to make veratrole.
Veratrole is a building block for the organic synthesis of other aromatic compounds. It
is relatively electron-rich and thus readily undergoes electrophilic substitution. It finds
application in agro and pharmaceutical industries.
Pharmaceutical intermediates likely to grow at 17.2% CAGR over

FY21-FY24E
Pharmaceutical intermediates contributed 16% of revenues in FY21 and have grown
at a CAGR of 18.7% to Rs830mn over FY18-FY21. The segment has significant
advantage from manufacturing of guaiacol, which is a co-product from MEHQ
manufacturing process. It has introduced DCC where Clean Science has grown to
become global leader in past few years. Recently it has started manufacturing
veratrole.
Company is in the process of adding more products in pharmaceutical space and

import substitution offers huge opportunity to replace Chinese manufacturers. Entry
into phenothiazine also opens doors for Clean Science in manufacturing of
intermediates for psychiatric and anti-allergic drugs.
We expect Clean Science’s pharmaceutical intermediates revenue to grow at a CAGR

of 17.2% to Rs1.3bn over FY21-FY24E.
69
Chart 14: Pharmaceutical intermediates grew at Chart 15: …and we expect it grow at a CAGR of
18.7% CAGR over FY18-FY21… 17.2% over FY21-FY24E with large opportunity in
import substitution
Pharm aceutical intermediates revenue Pharm aceutical intermediates revenue
900 1,600
800 1,400
830
700 1,200 1,335
600 681
644 1,154
1,000
(Rsmn)
(Rsmn)
500 1,000
496 800
400 830
600
300
200 400
100 200
- -
FY18 FY19 FY20 FY21 FY21 FY22E FY23E FY24E
70
FMCG chemicals: 4-MAP and anisole are key

products
4-Methoxy-Acetophenone (4-MAP)
4-MAP is an aromatic chemical compound with an aroma described as sweet, fruity,
nutty, and similar to vanilla. 4-MAP occasionally also has the aroma of butter or
caramel. It is used as a cigarette additive, a fragrance, ingredient to manufacture UV
filter, and in food flavouring. Its majority use is as a chemical intermediate in
manufacturing cosmetic additives like avobenzone. It is one of the most common UV-
filters in sunscreens and is able to absorb entire spectrum of UV rays.
Global 4-MAP market size was US$34mn in 2020 and expected to grow at 3.6%
CAGR over next five years. The demand is driven largely by underlying growth in UV
filter market, which is expected to grow at 3.2% CAGR in the same period.
Clean Science is the largest producer of 4-MAP globally. Other manufacturers of the
product include HaiNing Sino Fine Chemical Co (China) and Cosmos Nanjing (China).
We estimate Clean Science has a global market share at 18-20% in 4-MAP.
Anisole
Anisole or methoxybenzene is an organic compound, which is a colourless liquid with
a smell reminiscent of anise seed. It is an ether and precursor to other synthetic
compounds. Anisole is a precursor to perfumes, insect pheromones and
pharmaceuticals.
Chart 16: Anisole is used predominantly as an intermediate, or for cosmetics
Global anisole market size was US$85mn in 2019 and is likely to grow at 5.0% CAGR
over 2019-25E. Demand was 34ktpa, growing at a CAGR of 4.5-4.8%. Clean Science
is the world’s largest manufacturer of anisole with 45-55% of the global capacity.
Peers include Solvay, Atul Ltd, and Westman Chemicals. Clean Science has recently
shifted to vapour phase method to manufacture anisole, which has given it significant
cost advantage, and is among the key reasons for margin expansion in previous few
years.
71
FMCG chemicals likely to grow at 10.7% CAGR over FY21-24E
Clean Science’s FMCG chemicals business saw huge growth with expansion into
anisole, which was further helped with the introduction of vapour phase method.
Though the segment has grown at a CAGR of 24% to Rs632mn over FY18-FY21, and
contributed 12% to revenues, it has been flattish for past two years. This should have
been the result of slowdown in end-cosmetic industry due to covid-induced lockdown.
We estimate FMCG chemicals to grow at a CAGR of 10.7% to Rs858mn over FY21-
FY24E on easing of covid situation.
Chart 17: FMCG chemicals revenue grew at 24% Chart 18: …and we expect it to grow at a CAGR of
CAGR over FY18-FY21… 10.7% over FY21-FY24E
FMCG chem icals revenue FMCG chem icals revenue
700 1,000
900
666
600 632
612 800 858
779 807
500 700
600
(Rsmn)
(Rsmn)
400 632
500
300 332 400
200 300
200
100
100
- -
FY18 FY19 FY20 FY21 FY21 FY22E FY23E FY24E
72
Backward integration and catalyst process enables

the company to earn higher margins
Clean Science’s gross profit / EBITDA and net profit margins were 75.9% / 50.5% and
38.7% respectively in FY21. These margins are significantly higher compared to any
listed chemical companies. Further, gross profit margins have improved from 53% in
FY18 to 75.9% in FY21, and our understanding is prices of key products have broadly
remained stable with MEHQ realisation at US$8/kg and guaiacol at US$4.5/kg.
Margins benefited from multiple counts in our view: 1) backward integration and shift
to vapour-phase to manufacture anisole. Clean Science started anisole manufacturing,
a key input, in 2017. This has significantly saved margins for the company; later, in
FY19, it shifted to anisole manufacturing using the more efficient vapour phase, which
has added more to margins; 2) market share gain, and scale of manufacturing. In
past three years, Clean Science has grown revenues 2.1x on the back of significant
market share gain in MEHQ, guaiacol and BHA. This has helped the company to
expand its scale of operations and improve efficiency; and 3) catalyst process which
enables Clean Science to maximise yield and reduce co-products, which are sold at
lower prices. Water is the largest effluent in catalyst process, and other chemical
wastes are minimal.
Clean Science has become the price setter, and price of phenol (a key raw material)
has been favourable till FY21, which has only helped the company to improve its
profitability.
We believe gross profit margins will dilute with launch of new products, which may not
earn same margins as the existing product portfolio. However, we expect operational
efficiency to help protect EBITDA / net profit margins. However, FY22E could be a
challenging year due to sharp increases in phenol prices and lag in passing on raw
material inflation. In Q2FY22 earnings call, Clean Science said it is in the process of
taking price increase of 3-10% across product categories. It had avoided price hikes in
1HFY22 despite sharp inflation in raw material prices, and this helped the company
establish itself as a credible supplier, and gain more market / mind share of
customers.
73
Chart 19: Margins are strong and have exponentially improved
Gross profit EBITDA Net profit
75.9
80.0
69.2
70.0
Clean science margin (%)

56.5
60.0 53.0 50.5
50.0 44.2
40.0 34.7
30.5
30.0 38.7
33.3
20.0
24.8
20.3
10.0
-
FY18 FY19 FY20 FY21
Chart 20: Phenol prices have been favourable in past few years
Phenol prices
1.40
1.30
1.35
1.20
1.10
(US$/kg)
1.00 1.09
0.90 0.97
0.80
0.70
0.60 0.69
0.50
FY18 FY19 FY20 FY21
Among new product introductions, the HALS series of products is likely to be the
largest revenue contributor. HALS incorporate a complex chemistry, but it starts with
bulk commodities – acetone and ammonia – which are priced <US$1 per kg, while the
end HALS series are priced US$7-15. This provides us comfort that the new products
will not significantly dilute margins.
74
Investment thesis
Green process is key strength
Green chemistry is the design of chemical products and processes that reduce /
eliminate the use, or generation, of hazardous materials. Green chemistry applies
across the lifecycle of a chemical product, including its design, manufacture, use, and
ultimate disposal. Companies are actively designing novel concepts to reduce
emission of pollutants. The changes can be as large as changing the entire chemistry,
or even as small as changing a catalyst to reduce carbon footprint.
Pharmaceutical sector was among the first to embrace green chemistry for its
significant potential to reduce costs and risks. Green pharmaceuticals as a segment
are projected to grow to US$96bn in 2026. The industry has implemented key metrics
to keep track of green chemistry, which includes the E-factor, process mass intensity
(PMI), atom economy, number of steps, carbon footprint, etc. While E-factor was the
first metric used by the industry, PMI is the most preferred metric among big pharma.
PMI measures the ratio between the mass of all materials used to make a product and
the mass of the product.
As explained earlier, Clean Science, as the name suggests, is focused at novel

processes (based on size-selective catalysts, or zeolites). These processes have
eliminated the use of sulphur in manufacturing of chemicals such as anisole and DCC.
Company has also significantly reduced waste (i.e. increased yield), hence higher PMI
score. Green processes are the biggest differentiator for Clean Science compared to
competition, and the biggest attraction for buyers as this helps them increase the
green factor.
Significant cost advantage over peers

Clean Science has significant cost advantage due to higher yield or lower co-products,
reduced effluents (due to catalyst processes developed in-house), and reduced side
reactions (which helps increase the efficiency of manufacturing processes). The
manufacturing processes also use much lower quantities of solvents and reagents,
thereby cutting input cost. Also, the company is backward-integrated, which means
buys only bulk commodities. Backward integration helps it reduce end-product price
volatility. Example: unlike competition, which starts manufacturing from diphenol (not a
bulk commodity), Clean Science starts with phenol (for anisole value change).
Company achieved large margin expansion when it backward-integrated anisole

manufacturing in 2017, which further expanded when Clean Science upgraded anisole
manufacturing to the vapour-phase process (from liquid-phase). Premium customer
acquisition is possible only when company acquires a large market share, and these
premium customers pay higher for reliability and consistency. Clean Science achieved
this faster as its product (anisole) was manufactured by green process; avoidance of
sulphur helped improve purity of the product vs peers.
75
Revenue growth visibility from new product pipeline
Company has shown credibility in new product launches and its ability to scale new
products to global demand whereby it became a leading supplier in past few years. It
launched 4-MAP (anisole value chain) in FY12 and has become its largest supplier
globally. It launched BHA (anisole value chain) in FY15 and has scaled up to become
largest manufacturer globally. Clean Science has a proven track record in non-anisole
value chain with the launch of DCC and ascorbyl palmitate in FY20, and has become
largest producer of both in India, which is commendable. We estimate these products
together should be contributing 35% of total revenues in FY21. It has helped the
company not only to grow faster, but also diversify from concentration on MEHQ /
guaiacol sales.
Company’s strong track record of scaling new products makes us confident of the
management’s capability to add more products, and scale them to global requirement
over subsequent few years. It has recently converted its old liquid-phase anisole plant
to manufacture veratrole, which finds application in agro and pharmaceutical
intermediates. Clean Science is also in the process of adding more products in
polymer inhibitors / stabilisers category, including HALS, phenothiazine and others.
We find this interesting given that HALS has a global market size of >US$1bn, which
makes it the biggest addressable-market product for Clean Science (it is sold to the
same category of customers as MEHQ, the company’s largest product). Any material
success in HALS could potentially add huge revenues for the company in next few
years. Company is currently adding 9ktpa capacity in HALS / phenothiazine,
equivalent to 30% of the total capacity in FY21.
Further, over next 3-5 years, the company plans to launch many new products in
performance chemicals and agro / pharmaceutical intermediates. It has already
developed processes for a few of these products, and it expects to be the only
producer of these products in India, and among five or six globally.
Clean Science plans large capex over next few years

Clean Science has incurred an average capex of Rs580mn p.a. in past three years,
and less than half in prior period to this. It plans a capex of Rs1bn in FY22 to ramp-up
production capacity at the third plant. It has already commenced manufacturing of
vapour-phase anisole in the third site, and another plant (P-13) is expected to
commence operations in H2FY22. Company has already bought its fourth plot (34
acres) in Kurkumbh (Maharashtra). It plans to get environmental clearance by end-
FY22 and is likely incur huge capex over next two years.
Capex plan includes Rs1bn spend on unit-3, which is being commissioned in a phased
manner from Dec’21 to Sep’22. It has already incurred capex of Rs750mn on this unit
by Q2FY22 and the rest would be done over next two quarters. Estimated capex for
unit-4, which should start with a spend of Rs1.5bn in FY23. The potential capex in
unit-4 seen at Rs3bn over next few years.
The average asset turn for the company has been 2.7x and it believes this should be
achievable for new the capex as well. Company estimates a spend of Rs4bn over next
3-4 years which should add revenues of >Rs10bn (on base of Rs5bn in FY21). New
product launches with large capex investment give us good visibility on revenue
growth for next few years.
76
New products will have lower margins, but should gradually improve
over years
The new products will have lower utilisation / efficiency; hence we expect gross
margins to be relatively lower. The benchmark company margins are among the best
in the industry it would be unfair to expect it to deliver the same in all new product
launches. However, the company remains confident of margin improvement in the new
products as well with maturity of product, acquisition of premium paying customers
who take time to onboard (due to product testing, audit, and relationship with existing
supplier), and process improvement.
Further, production of the company’s largest new product-series, HALS, will start with
bulk raw materials (acetone and ammonia); however, it remains to be seen if it can get
anisole-like advantage (for which it buys phenol) for existing products MEHQ.
We are not so bothered about gross margin decline by a few basis points as we
expect operating leverage will still help drive better EBITDA growth in forecast period.
Clean Science margins / return ratios are at top quartile of chemical

companies
Clean Science revenues are expected to grow at a CAGR of 22.3% to Rs9.4bn over
FY21-FY24E. It is partly due to price increase; nonetheless a significant part of the
growth is driven by volumes. Performance chemicals revenues are expected grow at a
CAGR 25.7% to Rs7bn in the same period and would be aided by continued growth in
BHA, while MEHQ is expected to grow at a modest rate. HALS launch would likely aid
performance chemicals revenue growth. Though gross profit margins are impacted in
FY22E due to sharp raw material inflation, we expect margins to normalise in FY23E
driven by prices increases and drop in raw material prices. We expect EBITDA to grow
at a CAGR of 24.8% to Rs5bn over FY21-FY24E on revenue growth and some
operating leverage. Clean Science’s EBITDA margin is estimated at ~53% in FY23,
which is very strong but also restricts any further meaningful improvement. Net profit is
likely to grow at a CAGR of 22% to Rs3.6bn in the same period; and restricted from
higher depreciation.
77
Financial analysis
Chart 21: Performance chemicals will be a strong show with launch of HALS
series. The segment is estimated to grow at a CAGR of 25.7% over FY21-
FY24E…
Performance Intermediates FMCG
10.0
9.0 0.9
Clean Science revenue (Rs bn)
8.0
1.3
7.0 0.8
6.0 0.8 1.2
5.0 1.0
0.6
4.0 0.8
0.6 0.7 7.0
3.0 0.7 0.6 5.6
4.7
2.0 3.5
2.5 2.7
1.0
-
FY19 FY20 FY21 FY22E FY23E FY24E
Chart 22: …and its contribution would likely jump to 75.1% in FY24E (vs 69.2%
in FY21)
Performance Intermediates FMCG
100
12.3 11.8 10.5 9.1
90 15.6
Clean Science revenue mix (%)
15.9
80 15.0 14.2
16.2 15.2
70 17.3 15.4
60
50
40 75.1
69.2 71.2 72.9
30 63.3 64.9
20
10
0
78
Chart 23: Revenues are expected to grow at 22.3% CAGR over FY21-FY24E
10.0 Clean Science revenue
9.0 9.4
8.0
7.0 7.7
6.0 6.6
(Rsbn)
5.0
5.1
4.0
3.9
4.2
3.0
2.0
1.0
-
Chart 24: Though gross profit margin dips to 70% in FY22E, it is likely to
normalise with decline in raw material prices and implementation of planned
price increases of 3-10%
Gross profit GPM
8.0 80.0
75.9 75.7
74.2
7.0 75.0
69.2 70.2 7.0
6.0 70.0
5.8
5.0 65.0
(Rsbn)
(%)
4.0 56.5 4.6 60.0
3.9
3.0 55.0
2.9
2.0 50.0
2.2
1.0 45.0
- 40.0
Chart 25: EBITDA margin estimated to remain strong at >53% FY23E onwards
EBITDA EBITDA margin
6.0 53.3 53.6 55.0
50.5
5.0
50.0
5.0
46.6
4.0 44.2 4.1 45.0
(Rsbn)
(%)
3.0
3.1
40.0
2.6
2.0
34.7 1.9
35.0
1.0 1.4
- 30.0
79
Chart 26: Net profit CAGR restricted at 22.3% on two likely greenfield
expansions over FY21-FY24E
4.0 Net profit
3.5
3.6
3.0
3.0
2.5
(Rsbn) 2.0 2.3

2.0
1.5
1.4
1.0
1.0
0.5
-
Chart 27: Operating cashflows after WC to remain strong at >90% of net profit
4.0 CFO before WC CFO after WC
3.5 3.8
3.5
3.0
Cashflows (Rsbn)
3.1
2.9
2.5
2.0 2.3
2.1 2.0
1.9
1.5
1.6
1.5
1.0
1.1
0.5 0.8
-
Chart 28: Capex guidance at Rs1bn in FY22 and higher in FY23 and FY24 with
expansion planned in unit-4
2.0 Capex FCF
1.5 1.7
1.0 1.2
1.1 1.1
1.0
0.5
(Rsbn)
0.5
-
(0.4) (0.5)
(0.5)
(0.8)
(1.1)
(1.0)
(1.5) (1.7) (1.8)
(2.0)
80
Chart 29: Working capital days to remain steady at 50-52 days
Inventory Receivables Payables WC
80 69
60
60 50 52 52
47
61
55 53 54 55 55
40
34 38 38 38 38
20 30
(Days)
-
(20)
(21)
(40) (31)
(43) (41) (40) (40)
(60)
Chart 30: Clean Science is a net cash company; plans to maintain one-year net
profit as cash
Net debt
-
(0.5) (0.8)
(1.0)
(1.4)
(1.5)
(Rsbn)
(2.0)
(2.5)
(2.5)
(3.0) (3.2)
(3.4) (3.5)
(3.5)
(4.0)
Chart 31: Return ratios to remain among the best in chemical industry
ROCE (post tax) ROE
60.0
55.0 57.7
56.4
50.0
45.0 49.8
48.6 48.0
(x)
40.0 37.7
41.9
35.0 39.6
30.0 34.5 34.5

33.3
25.0 29.5
20.0
81
Chart 32: Lower gross block turnover is due to lower utilisation in units 3 & 4,
which will ramp up over the next 2-3 years
GB turnover Asset turnover
2.5 2.3
2.3
2.0
2.1 1.9
1.9 1.7
1.7
(x)
1.5 1.4
1.3
1.3
1.4
1.1
1.2
0.9
0.7 0.9 0.9 0.9
0.8
0.5
82
Valuations – Initiate with REDUCE

REDUCE rating and target price of Rs2,110. We have valued the company at 62x
27.8x FY24E EPS, we have assigned a higher multiple to Clean Science due to: 1) its
much superior business model with a strong focus on ‘green’ processes and
sustainability; 2) significant competitive advantage with continuous flow chemistry and
in-house catalysts; 3) market share in anisole value chain, which would be difficult to
challenge; 4) ability to add multiple products (other than in the anisole value chain)
and achieve global leadership in all of them; and 5) strong financial and return ratios.
Our REDUCE rating is due to very high valuations, and we don’t see much scope for
growth at best.
Clean Science is green at its core and produces much less effluents. In fact, it
releases only water in manufacture of many products. It has higher yield and purity
due to avoidance of sulphur (and its derivatives) in entire processes. Its competitive
edge (cost and quality) gets endorsed by the fact that its largest geography is China,
which is a global leader in chemicals. We like Clean Science’s ability to introduce new
products and gain global leadership, which not many companies have done
successfully. We believe its core business in the anisole value chain (including MEHQ,
BHA, guaiacol, 4-MAP and anisole) will be difficult to challenge due to dominance
across the products.
The existing products of Clean Science have very small global addressable market,
which means it has kept gaining market share, it has simultaneously launched new
product every few years. HALS, unlike the existing products of the company, has a
global market size of >US$1bn. Clean Science will be competing in this huge segment
against BASF. Our estimates can see significant upgrades if Clean Science manages
to grab a market share of >10% in next few years. The other opportunity, which is not
clear as of now, is in intermediates for agrochemicals and pharmaceuticals, where the
company remains bullish on new products launches and revenue growth.
Clean Science has capex plans of Rs4bn over next few years (~3-4 years) and
potential to generate >Rs10bn additional revenues from this circa FY26E-FY27E, on a
revenue base of ~Rs6.5bn. Thus we see peak revenues reaching at best Rs18bn
(some revenues added on improvement in utilisation of existing capacity). We are
building in Rs14bn revenues in FY27 and EBITDA margin of 54.7%. This gives us
potential net profit of Rs5.3bn. Even in a good case scenario, the stock is trading at
48.5x P/E multiple on FY27E numbers. Thus, much of the known facts about
company’s growth are completely discounted by the market. Risk:reward remains
unfavourable, in our view.
83
Risks
Upside risks
 Higher than expected market share in MEHQ and BHA: We have factored-in only
a marginal gain in market share from existing levels.
 Successful breakthrough in HALS series, and higher than expected market share.
 Rising awareness of green processes and rising demand offering higher pricing
power for the company.
 New launches in agrochemical and pharmaceutical intermediates which are not
factored in our estimates.
 Drop in prices of key raw materials such as phenol, hydrogen peroxide, acetic
anhydride, tertiary butyl alcohol, acetone, etc.
Downside risks
 Clean Science has not patented its catalytic processes; hence, if any of the
competitors imitate the processes, it could significantly erode the company’s
competitive advantage.
 High revenue concentration: Revenues of Rs2.45bn, or 48% of total revenues,
came from top 10 customers in FY21.
 Lower than expected growth in key products in the anisole value chain impacting
revenue growth.
 Lower than expected success in new products, particularly the HALS series.
 Price volatility in key raw materials – including phenol, hydrogen peroxide, acetic
anhydride, tertiary butyl alcohol, acetone, methanol and others – can negatively
impact margins.
84
Financials
Table 6: Profit and Loss Statement
Net revenue 2,411 3,933 4,193 5,124 6,595 7,712 9,383
Growth (%) 63.1 6.6 22.2 28.7 16.9 21.7
Less:
Cost of goods sold 1,134 1,712 1,292 1,236 1,964 1,875 2,422
Gross profit 1,277 2,221 2,901 3,888 4,631 5,837 6,962
Gross profit margin (%) 53.0 56.5 69.2 75.9 70.2 75.7 74.2
Total Operating Expenses 542 857 1,048 1,299 1,558 1,724 1,931
EBITDA 734 1,363 1,853 2,590 3,073 4,114 5,031

EBITDA margin (%) 30.5 34.7 44.2 50.5 46.6 53.3 53.6
Growth (%) 85.7 35.9 39.8 18.7 33.9 22.3
Less: Depreciation & Amortisation 76 110 137 172 266 386 502
EBIT 658 1,253 1,716 2,417 2,807 3,728 4,529
Less: Financial expenses 1 0 1 1 1 1 1

Add: Other income 45 113 109 256 282 310 341
Recurring Pre-tax Income 703 1,365 1,823 2,673 3,088 4,037 4,869
Less: Taxation 214 389 427 689 796 1,041 1,255
Recurring Net Income 489 977 1,396 1,984 2,292 2,996 3,614
Add: Extraordinary Items - - - - - - -
Net Income (Reported) 489 977 1,396 1,984 2,292 2,996 3,614
Source: I-Sec research
85
Table 7: Balance Sheet
ASSETS
Current Assets, Loan & Advances
Cash & cash equivalent 295 295 93 157 839 1,121 1,217
Debtors 397 397 698 742 973 1,159 1,411
Inventories 290 290 346 529 681 796 969
Other current assets 162 162 142 442 568 665 809
Total Current Assets 1,144 1,144 1,279 1,870 3,062 3,741 4,405
Current Liabilities & Provisions

Creditors 264 264 357 610 749 855 1,040
Current Liabilities 109 109 387 408 526 615 748
Provisions 2 2 5 5 7 8 10
Total Current Liabilities & Provisions 375 375 749 1,024 1,281 1,477 1,797
Net Current Assets 769 769 530 846 1,781 2,264 2,608
Investments (Other Marketable) 178 178 1,330 2,321 2,321 2,321 2,321
Fixed Assets
Net block 1,038 1,038 1,690 2,408 3,192 4,507 5,790
Goodwill - - - - - - -
Total Assets 1,986 1,986 3,550 5,576 7,294 9,092 10,718
LIABILITIES AND SHAREHOLDERS' EQUITY

Shareholders Fund
Equity share capital 14 14 13 106 106 106 106
Reserves and surplus 1,864 1,864 3,408 5,290 7,009 8,807 10,433
Total Shareholders Fund 1,879 1,879 3,421 5,397 7,115 8,913 10,539
Borrowings 6 6 27 3 3 3 3
Deferred Tax Liability 102 102 102 176 176 176 176
Minority Interest
Total Liabilities & Shareholders' Equity 1,986 1,986 3,550 5,576 7,294 9,092 10,718
86
Table 8: Cashflow Statement
Cashflow from Operating Activities
PAT 482 1,010 1,399 2,014 2,292 2,996 3,614
Add: Depreciation 76 110 137 172 266 386 502
Add: Other Operating activities (22) (64) (65) (109) (281) (309) (340)
Operating Cashflow Before Working
536 1,057 1,471 2,077 2,277 3,073 3,776
Capital change (a)
Changes in Working Capital (87) (209) 130 (149) (252) (202) (248)
Net Cashflow from Operating Activities

450 847 1,601 1,928 2,025 2,871 3,528
(a) + (b)
Cashflow from Capital commitments

(320) (388) (503) (844) (1,050) (1,700) (1,785)
(c)
Free Cashflow after capital

130 459 1,098 1,083 974 1,171 1,743
commitments (a) + (b) + (c)
Cashflow from Investing Activities

Purchase of Investments 137 (576) (563) (1,078) - - -
Others 8 15 2 55 282 310 341
Net Cashflow from Investing Activities
145 (561) (561) (1,023) 282 310 341
(d)
Cashflow from Financing Activities

Increase in reserves - - - - - - -
Proceeds from fresh borrowings 1 20 1 (24) - - -
Dividend paid including tax and Others (52) (128) (554) (34) (574) (1,200) (1,989)
Net Cashflow from Financing Activities
(51) (108) (553) (58) (574) (1,200) (1,989)
(e)
Total Increase / (Decrease) in Cash 224 (211) (16) 2 683 282 96

(a) + (b) + (c) +(d) + (e)
Opening Cash and Bank balance 71 305 108 92 157 839 1,121
Closing Cash and Bank balance 295 94 92 93 839 1,121 1,217
Increase/ (Decrease) in Cash and Bank
224 (211) (16) 2 683 282 96
balance
87
Table 9: Key ratios
Per Share Data (in Rs)
Recurring EPS 4.6 9.2 13.1 18.7 21.6 28.2 34.0
Reported EPS 4.6 9.2 13.1 18.7 21.6 28.2 34.0
Recurring Cash EPS 5.3 10.2 14.4 20.3 24.1 31.8 38.7
Dividend per share (DPS) 25.0 75.0 90.0 0.3 5.4 11.3 18.7
Book Value per share (BV) 17.7 25.6 32.2 50.8 67.0 83.9 99.2
Growth Ratios (%)

Operating Income 26.5 63.1 6.6 22.2 28.7 16.9 21.7
EBITDA 1.4 85.7 35.9 39.8 18.7 33.9 22.3
Recurring Net Income 4.3 99.7 43.0 42.1 15.5 30.8 20.6
Diluted Recurring EPS 4.3 99.7 43.0 42.1 15.5 30.8 20.6
Diluted Recurring CEPS 6.1 92.4 41.1 40.6 18.6 32.2 21.7
Valuation Ratios (x)

P/E 551.8 276.3 193.2 136.0 117.7 90.0 74.7
P/CEPS 477.6 248.2 175.9 125.1 105.5 79.8 65.6
P/BV 143.6 99.2 78.9 50.0 37.9 30.3 25.6
EV / EBITDA 366.9 197.3 144.9 103.2 86.8 64.7 52.9
EV / Operating Income 111.7 68.4 64.0 52.2 40.4 34.5 28.4
EV / Operating FCF 2,077.4 586.1 244.4 246.8 273.6 227.5 152.8
Operating Ratio
Other Income / PBT (%) 6.5 8.3 6.0 9.6 9.1 7.7 7.0
Effective Tax Rate (%) 30.4 28.5 23.4 25.8 25.8 25.8 25.8
NWC / Total Assets(%) 23.9 25.3 12.3 12.4 12.9 12.6 13.0
Inventory Turnover (days) 44.0 34.4 30.1 37.7 37.7 37.7 37.7
Receivables (days) 60.0 55.5 60.8 52.9 53.9 54.9 54.9
Payables (days) 40.0 20.7 31.1 43.4 41.4 40.4 40.4
Net Debt/EBITDA Ratio (x) (0.6) (0.6) (0.8) (1.0) (1.0) (0.8) (0.7)
Capex % of sales 13.3 9.9 12.0 16.5 15.9 22.0 19.0
Return/Profitability Ratio (%)

Recurring Net Income Margins 20.3 24.8 33.3 38.7 34.7 38.9 38.5
RoCE -post tax 26.6 37.7 39.6 41.9 33.3 34.5 34.5
RoIC 35.8 27.7 45.7 53.1 52.2 44.2 44.3
RoNW 37.8 29.5 49.8 56.4 57.7 48.6 48.0
Dividend Yield 1.0 3.0 3.5 0.0 0.2 0.4 0.7
Gross Margins 53.0 56.5 69.2 75.9 70.2 75.7 74.2
EBITDA Margins 30.5 34.7 44.2 50.5 46.6 53.3 53.6
88

Tables
Table 1: Product and market position of the company in each product ............................. 59
Table 2: Products manufactured by the company in each of its existing two facilities ....... 60
Table 3: Capacity details from environment clearance filing .............................................. 60
Table 4: Category-wise capacity and utilisation in FY21 .................................................... 60
Table 5: Guaiacol major application in certain large drugs such as ranolazine and
guaifenesin .................................................................................................................... 68
Table 6: Profit and Loss Statement .................................................................................... 85
Table 7: Balance Sheet ....................................................................................................... 86
Table 8: Cashflow Statement .............................................................................................. 87
Table 9: Key ratios .............................................................................................................. 88
Charts
Chart 1: Management organisational chart ......................................................................... 58
Chart 2: Product-wise revenue mix (estimated, %) ............................................................ 59
Chart 3: China was the largest market for Clean Science in FY21 .................................... 59
Chart 4: Global MEHQ demand is expected to grow at 5.8% CAGR over 2019-25........... 61
Chart 5: SAP and surface coating (paints) are largest uses of acrylic acid ........................ 62
Chart 6: Clean Science process chart for MEHQ ............................................................... 62
Chart 7: Diphenol route for manufacture of MEHQ............................................................. 63
Chart 8: Globally, antioxidants have largest application in F&B industry ........................... 63
Chart 9: BHA and BHT global market wherein BHA is expected to grow at 3.3% CAGR
over 2019-25E ............................................................................................................... 64
Chart 10: Performance chemicals revenue grew at CAGR of 34.3% over FY18-FY21… . 67
Chart 11: …of which 57% of incremental revenues came from MEHQ on significant market
share gain...................................................................................................................... 67
Chart 12: We expect performance chemicals revenue to continue growing at 25.7% CAGR
over FY21-FY24E… ...................................................................................................... 67
Chart 13: …though incremental revenue gain will come from BHA (on market share gain)
and HALS (new category launch) ................................................................................. 67
Chart 14: Pharmaceutical intermediates grew at 18.7% CAGR over FY18-FY21… .......... 70
Chart 15: …and we expect it grow at a CAGR of 17.2% over FY21-FY24E with large
opportunity in import substitution .................................................................................. 70
Chart 16: Anisole is used predominantly as an intermediate, or for cosmetics .................. 71
Chart 17: FMCG chemicals revenue grew at 24% CAGR over FY18-FY21… ................... 72
Chart 18: …and we expect it to grow at a CAGR of 10.7% over FY21-FY24E .................. 72
Chart 19: Margins are strong and have exponentially improved ........................................ 74
Chart 20: Phenol prices have been favourable in past few years ...................................... 74
Chart 21: Performance chemicals will be a strong show with launch of HALS series. The
segment is estimated to grow at a CAGR of 25.7% over FY21-FY24E… .................... 78
Chart 22: …and its contribution will jump to 75.1% in FY24E (vs 69.2% in FY21) ............ 78
Chart 23: Revenues are expected to grow at 22.3% CAGR over FY21-FY24E ................ 79
Chart 24: Though gross profit margin dips to 70% in FY22E, it is likely to normalise with
decline in raw material prices and implementation of planned price increases of 3-10%
...................................................................................................................................... 79
Chart 25: EBITDA margin estimated to remain strong at >53% in FY23E onwards .......... 79
Chart 26: Net profit CAGR restricted at 22.3% on two likely greenfield expansions over
FY21-FY24E.................................................................................................................. 80
Chart 27: Operating cashflows after WC to remain strong at >90% of net profit................ 80
Chart 28: Capex guidance at Rs1bn in FY22 and higher in FY23 and FY24 with expansion
planned in unit-4 ............................................................................................................ 80
Chart 29: Working capital days to remain steady at 50-52 days ........................................ 81
89
Chart 30: Clean Science is a net cash company; plans to maintain one-year net profit as
cash ............................................................................................................................... 81
Chart 31: Return ratios among the best in chemical industry ............................................. 81
Chart 32: Lower gross block turnover is due to lower utilisation in units 3 & 4, which will
ramp up over the next 2-3 years ................................................................................... 82
90
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Equity Research INDIA

December 16, 2021

‘Smart’ chemistry – is it really smart? ........................................................................... 4

Tatva Chintan Pharma Chem ........................................................................................... 19

‘Smart’ chemistry – is it really smart?

Case study: Manufacturing of anisole (part 1)

Chart 1: Manufacturing process for anisole (at Atul Ltd)

Source: Company data

Table 1: Manufacturing of 1kg of anisole takes inputs of 4.034kg, which means

Source: Company data

Smart chemistry impresses on multiple counts

1. This process significantly increases efficiency of manufacturing, and improves

Source: Company data

Source: Company data

Green chemistry – regulation, customer preference

In 2015, China implemented an updated Environmental Protection Law, the first

Government regulations are becoming stringent across major chemical manufacturing

Government and customers shift to green and pledge to cut carbon

Many large corporates have pledged to go carbon-neutral in the foreseeable future,

Case study-1: Unilever plans to achieve net zero emissions by 2039

Unilever is allocated EUR1bn for Clean Future programme to finance biotechnology

Unilever is partnering with biotechnology company Evonik Industries to develop the

Case study-2: Emission control from automotive industry

Are conventional manufacturers at risk?

Parameters relatively easier to evaluate

o Rising opportunities as buyers shift from conventional products or processes to

Small base, but robust business model

Chart 4: Listed green chemistry manufacturers revenues

Agility in capturing adjacent businesses

Chart 5: Clean Science product value chain

Source: I-Sec research, Company

Niche presence – chemistry and product categories

Clean Science – Initiate with REDUCE (TP: Rs2,110)

Table 3: Peer snapshot

PE (x) EV/EBITDA (x) ROCE (pre-tax) GB turnover (x) Capex

Index of Tables and Charts

This page has been intentionally left blank

About Tatva Chintan ...................................................................................................... 22

About Tatva Chintan

Considering the wide application of products, it serves customers across various

Chart 1: Revenue mix (%) FY21

PTC, 816 , 27%

SDA, 1,202 , 41%

PASC, 912 , 31%

Source: Company data, I-Sec research

As a manufacturer of specialty chemicals, Tatva Chintan focuses on application of

Chart 2: Geographical mix (%) FY21

India, 841 , 28%

Source: Company data, I-Sec research

Chart 3: Organisational structure

Currently, the company operates through two manufacturing facilities situated at

As part of its eco-friendly and environmentally sustainable initiatives, Tatva Chintan

Table 1: Manufacturing capacity and utilisation

SDAs: Growth has just begun

Global production of tetramethyl ammonium hydroxide was US$1.2bn in 2019. It has

Chart 4: Manufacturing process for tetramethyl ammonium hydroxide

Source: Company data

Tightening regulation of auto-emission driving growth

Chart 5: Selective catalyst reduction (SCR) technology for NOx reduction

In Dec’16, China’s ministry of environmental protection (MEP) issued China-6