Clean Science & Technology Ltd

Managing Director

The year 2022–23 saw us achieve the highest-ever revenue and profitability — a testament to our efforts in creating value for our stakeholders. Despite all the challenges in the macro environment, this performance was possible due to our efforts in making the business resilient through innovation, R&D, product diversification and prudent capital allocation.

Dear Shareholders,

In the year gone by, global economies faced almost as many disruptions as caused by the Covid-19 pandemic. Continued geopolitical tensions, increase in commodity prices, signs of recession in developed countries, stubbornly high inflation, and banking sector vulnerabilities severely impacted global economies.

On the other hand, India marked its ‘Azadi Ka Amrit Mahotsav' or 75th anniversary of independence by continuing its transformation journey from being a developing to a developed economy. The country has now become the fifth-largest economy in the world and continues to be the fastest-growing major economy. This could be largely attributed to the series of structural reforms undertaken in the last decade. These are further supported by a favourable demographic dividend, huge consumer base, focus on improving agricultural productivity, growing rural economy, development of infrastructure, and improvement in the ease of doing business.

There have also been various reforms undertaken for the manufacturing sector. Some of these include the ‘Make in India' or ‘Aatmanirbhar Bharat Abhiyaan', competitive corporate tax rates for new manufacturing companies, and various labour reforms. The Production Linked Incentive (PLI) Scheme has been the most transformative one, covering various industries. Given that the chemical manufacturing sector caters to a wide range of end-user industries, all these initiatives have propelled the growth of this sector too. With evolving consumer preferences and the development of newer technologies, the usage of chemicals will find added applications in newer end-user industries which will further increase its per capita consumption.

In addition to the above factors, the Indian chemical sector has been witnessing strong tailwinds in the export markets as the country is viewed favourably as a reliable alternative supplier to global corporations driven by a ‘China+1' strategy to de-risk their operations and diversify their supplier base. India's cost-competitive manufacturing capabilities, strong process engineering skills, abundant availability of skilled workforce, global quality standards, and strong adherence to environmental compliance has made it a preferred manufacturing destination across the globe. The above can be validated by the major capex plans announced by all major chemical players, and in the last 2–3 years the sector has recorded the highest-ever capex expenditure incurred by companies.

Another important factor is the strong impetus provided by chemical companies to integrate R&D and sustainability. This is enabling companies to become globally competitive and gain market share by adding new revenue streams and innovative products. The emphasis is on the long-term viability of the product portfolio in terms of environmental sustainability. Robust demand across end-user industries led by rising domestic consumption, strong export growth, and rising import substitutions are expected to be primary growth drivers for the chemical sector. The Indian chemical industry is on a growth trajectory and is one of the most important components of our economy, contributing ~ 7% of the nation's GDP. The increasing demand for specialty chemicals and petrochemicals among end-users is anticipated to drive the industry's growth, to a projected US$ 304 billion by 2025.

Since inception, our Company has committed to the principles of green chemistry, making us one of the few businesses focussed on the concept of ‘atom economy'. CSTL's sustainability culture is deeply ingrained across all levels and functions.

As we continue working towards a sustainable future, we have invested in renewable energy, primarily solar power, over the past few years. As a result, renewable energy now contributes 50% of our power requirements which is one of the highest in the industry. All our manufacturing facilities are zero liquid discharge facilities enabled by our innovative and environment-friendly catalytic processes. We prioritise the 3R of reduce, recycle and reuse to manage energy and freshwater consumption.

Additionally, as a responsible organisation, we actively engage in community development as an opportunity to serve the society and embrace inclusive growth. Promoting healthcare, education, and environment sustainability are our key focus areas aimed at empowering and transforming society. We have supported various Government-led programmes through our ‘Clean Care' initiative. We have also undertaken an initiative to plant more than 11,000 trees over the next three years under our afforestation programme.

I would like to express my gratitude to our Board and our Company's talented and committed employees for their diligent efforts in driving our business forward. We remain committed to bringing innovative and distinctive technology to the market with a focus on sustainability. By leveraging our expertise in R&D and in setting up fully integrated manufacturing facilities, we are committed to sustainable growth for all our shareholders and stakeholders.

Dear Shareholders,

We have traversed yet another milestone year, continuing our growth trajectory by recording the highest-ever revenues and profitability in a financial year. We have crossed a revenue milestone of US$100 million in 2022-23. During the year, we abided by our strategic roadmap and core focus on sustainability. We also focussed on upgrading R&D, enhancing capacities, launching new products, increasing cost efficiencies, and building a diversified value-added portfolio with an expanding global footprint. Our performance has been nothing short of outstanding this year against global headwinds like the crisis in Europe and lockdown in China – it is pertinent to note that 72% of our revenues come from the export market. This underscores the functionally critical nature of our products. Further, the strong rebound in gross margin during H2 2022–23 manifests ‘specialty chemical' profile of our product portfolio. I would also like to highlight that we successfully delivered on all our commitments and promises made over the past two years within the timelines and cost considerations. (For more information please refer to page 19). After having commercialised our first plant in Unit 3, CSTL has now become the first and only company to develop and manufacture HALS series in India. We are initially looking at domestic markets as we try to address import substitution for this series of products with an aim to support the vision of ‘Aatmanirbhar Bharat.' The HALS series has an estimated global market size of approximately US$ 1 billion,registering a CAGR of 10%. We are optimistic about establishing ourselves as a major player in this space and address the opportunity through our 100% owned subsidiary Clean Fino-Chem Limited (CFCL). Additional plants for manufacturing more margin accretive products under HALS series and other new products will be commercialised in due course. Plant construction at CFCL is on schedule and we have also received Environmental Clearance for this location. We aim to commercialise this facility in phases over the next two years starting from December 2023 onwards.

Financials

CSTL posted robust growth in 2022–23 and sustained its market leadership. This has been possible due to a robust growth in both the domestic and export markets, new customer additions, increased wallet share and gradual ramp-up of newly launched products.

Our revenues grew by 34% in 2021–22 and in 2022–23, they further advanced by 37% reaching _ 936 Crores, the highest as recorded by our Company in a fiscal year. Our revenue mix comprised 72% exports and 28% domestic. With the commercialisation of the HALS series and new products in the R&D pipeline, revenue from the domestic market is expected to contribute more going ahead. Our other new products are seeing increased acceptance from our global customers and they contributed to 9% of the revenue in 2022–23 as compared to 4% in 2021–22. Our EBITDA showed a growth of 34% to reach _ 403 Crores, compared to last year. EBITDA margins were 43.5%. Despite the continued volatility of key input prices, we managed to keep the EBITDA margins stable. This has been possible due to effective cost management strategies, improved operational efficiencies and yield improvements and a fully integrated business.

Our PAT for the year stood at _ 304 Cores, growing by 33% as compared to last year.

Through our prudent capital allocation strategy, we continue to successfully manage our working capital with a debt free balance sheet and strong return ratios. During the year, our Company incurred capex of _ 191 Crores, the highest since inception, primarily towards Unit 3 and investment in subsidiary CFCL, all funded from internal accruals.

It is also heartening to note that CRISIL Ratings has upgraded its rating on the long-term bank facilities of our Company to ‘CRISIL AA-/Stable' from ‘CRISIL A+/Positive'. On the other hand, the rating for the short-term bank facilities has been reaffirmed at ‘CRISIL A1+'.

Sustainability

The name CSTL epitomises ‘sustainability' and ‘clean chemistry.' These have also been two of the prime considerations for our Company since its inception. As a socially responsible corporate, we are completely dedicated to sustainability and are proud to be a part of the globally growing fraternity of environmentally-conscious industries.

Against this backdrop, we consistently undertake many initiatives to improve safe manufacturing of chemicals. Our focus has always been on green chemistry with an aim to develop atom efficient technologies. This approach has helped in preventing waste formation and effluent generation, instead of devising methods of cleaning it up. Our unique and innovative route of synthesis supported by strong plant engineering capabilities have enabled us to derive minimal byproducts and effluents and avoid usage of hazardous raw materials. This has helped us increase efficiency and yields in our processes. Additionally, all our facilities are zero liquid discharge facilities.

For our efforts towards ensuring sustainability in our operations, we have been awarded the GreenCo, Ecovadis and TFS (Together for Sustainability) certifications. Currently, we are working on the global chemical industry's voluntary initiative called ‘Responsible Care' to drive continuous improvement and achieve excellence in environmental, health and safety performance.

We rely on renewable sources for approximately 50% of our power consumption. In March, 2023 we successfully commissioned a new solar power plant with an installed capacity of 5 MW. This takes our total operational renewable (solar) capacity to 17.4 MW. All these initiatives further reinforce our commitment to sustainability.

Innovation and Engineering

Our organic growth strategy is underpinned by our relentless commitment to innovation and a strong in-house R&D infrastructure. R&D has helped us anticipate, pursue, and develop sustainable solutions; expand our portfolio; improve product mix; and optimise conversion costs.

At CSTL, we have a dynamic R&D team of 90+ scientists (including seven doctorates) and four R&D labs, supported by state of-the-art equipment and infrastructure. This has helped us create our intellectual property for unique chemical processes and increase our competency across 10+ different chemistries. Our foray into HALS is one such example where we are working on newer chemistries. While our existing products are mostly derived from Phenol, the HALS series uses Acetone as the key raw material and involves the process of hydrogenation, something that we are using for the first time.

At CSTL, we have a strong R&D pipeline and are working on 8–10 new molecules across different chemistries at any given point of time. This is being done to further expand our product offerings across diverse applications like pharma, food, paints, antioxidants, and stabilisers, among others. In terms of R&D, our focus is on three core areas: enhancing our existing catalytic processes to further optimise yield, productivity, and cost efficiencies; developing new products to expand our portfolio in the performance chemical segment; and developing products with high demand which are produced by limited manufacturers globally.

Our R&D efforts are fructified by our strong engineering and project teams, which that have helped us create global-scale and automated state-of-the-art manufacturing facilities at a very competitive cost, increasing our return on assets. As a result of the active collaboration among the R&D, engineering, design, and operations teams; our scaling from lab to pilot to plant stage is efficient and time-effective. This reduces our time to market. We continually monitor our facilities and invest in different technologies across our manufacturing units to maintain energy efficiency. We are continuously working to optimise plant processes to reduce water consumption and emissions. We also give high priority to safety and quality while setting up an environmentally sustainable plant.

Outlook

At CSTL, we are currently focussing on enhancing our leadership team by further strengthening our organogram with experienced professionals across key functions like business development, projects, finance and HR, among others. The idea is to further strengthen our governance by implementing best-in-industry practices and processes.

We have further diversified our product portfolio and believe that innovation and strategic product entry with a focus on sustainability are essential for de-risking the business. Our goal is to create a comprehensive product portfolio of specialty chemicals in the stabilisers/antioxidants space so that we can be a one-stop shop for our customers and cater to several downstream industries. Our high-quality products, superior customer service, and value-creation approach have enabled us to gain credibility in global markets. This has further propelled us to a position of market leadership in a span of 17 years. We will make all efforts to maintain our leadership position.

I would like to take this opportunity to thank our Board and the entire workforce for their unwavering support and commitment amid all challenges. Further, I would like to express my sincere gratitude to all our shareholders and stakeholders who have been a part of our growth journey. Through all our initiatives, we strive to foster growth and prepare for the future while maintaining a strong commitment to sustainability.