Clean Science

Clean Science reported a challenging Q2 FY26 with standalone revenue declining by 5% QoQ to INR 206 crores and 8% YoY, primarily due to lower sales in established products. Standalone EBITDA was INR 90 crores, down 10% QoQ and 5% YoY, though margins remained resilient at 44%, improving 2% YoY due to a favorable product mix. Standalone PAT decreased by 15% QoQ and 4% YoY to INR 65 crores, with the steeper reduction attributed to forex loss. Consolidated revenue remained steady at INR 240 crores QoQ, with EBITDA at INR 87 crores and PAT at INR 55 crores.

The HALS segment demonstrated strong sequential growth, with monthly run rate volumes averaging 260 tons, a 25% increase compared to the previous quarter. Value growth was even higher at 34% QoQ, driven by the introduction of higher grades (HALS 944 and 119). Material margins for the HALS portfolio improved to 35% from 31% due to better raw material costs. The company expects this business to grow quarter-on-quarter and anticipates securing most large global approvals within the next two quarters, aiming to increase its export mix from the current 75-25 domestic-to-export ratio.

Clean Science invested approximately INR 150 crores in its subsidiary CFCL during the first half of the year. Performance Chemical 1, with an installed capacity of 10,000 tons, is undergoing chemical trials and is expected to be commercialized this month (November 2025), with sales anticipated to begin in Q4 FY26. This product is projected to generate around INR 300 crores in revenue at current prices by FY28, with a 50-50 domestic and international market mix. Performance Chemical 2 is slated for water trials in April and commercial production by June, with a ramp-up period of approximately three years.

The company faced challenges from competitive intensity from Chinese suppliers, leading to a sharp decline in end-product prices for some customers and subsequent slowdown in procurement. Demand uncertainty in certain end markets also prompted customers to defer or moderate procurement plans. Specifically, an FMCG product in the China market was impacted, with a risk of permanent volume loss if customers have backward integrated. The BHT product also saw reduced offtake in the US due to a 55% tariff.

The decline in YoY revenue was primarily observed in the U.S. and China. In China, a specific FMCG product was affected, potentially due to customer backward integration, which could lead to a permanent loss of volumes. In the Americas, the decline was attributed to customer-specific volume deferrals and tariff uncertainties. Management indicated that the China market remains 'very tricky' and requires an agile strategy, while the US impact on BHT was due to tariffs.

Despite revenue moderation, standalone EBITDA margins remained resilient at 44%, improving 2% YoY due to a favorable product mix. The subsidiary's gross margin impact was clarified as an 'optics' issue related to inventory changes, with underlying material margins for the portfolio remaining around 35%. Raw material prices, particularly crude oil-linked products, are seen as decreasing, contributing to some price reductions. Management downplayed the impact of recent phenol price increases due to US restrictions, stating it was a temporary spurt.