Ian Gilson, CFA
Zacks initiating coverage of Clean Diesel Technologies Inc. [CDTI]
Clean Diesel Technologies [CDTI] is a leading provider of pollution control solutions for gasoline and diesel engines. The company offers both OEM and after-market products on a worldwide basis. The company was formed by a merger in October 2010 between CDTI Merger Sub and CSI.
The company recently completed a 3 million share offering for $10 million.
Over the next three years significant on highway diesel vehicle pollution regulations will be implemented which will have a major impact on the company's revenue and earnings. Off highway markets are also significant and are becoming important to Clean Diesel.
The US imposed automobile gasoline engine exhaust controls starting with the 1975 model year (production starting in mid 1974). The early catalysts used relatively large amounts of platinum group metals and so they were expensive. Over the years the driver has been to reduce the cost by using other platinum group metals as well as non-precious metals. The first catalyst were 2-way catalyst that converted HC and CO into carbon dioxide and water. Later developments resulted in 3-way catalysts and engine modifications that reduced the emission of NOx.
This was followed by diesel engine emission controls. The cylinder temperatures are much higher in diesel engines and this causes more NOx to be formed. Diesel exhaust also contains more oxygen than gasoline engine exhaust. Too much oxygen is a problem for 3-way catalysts so they cannot be used on a diesel engine. However, 2-way catalysts work well and are used to control HC and CO. The energy during combustion also converts some HC to carbon and this soot (PM) has to be removed.
Regulations have been imposed on stationary power sources such as engines used in mining (drag lines for example), construction equipment, railway engines and off-road vehicles and ships.
Over the next five years significant changes in regulatory standards will be introduced on a world-wide basis. These include emission control of both mobile, including marine and rail, and stationary sources of carbon monoxide, hydrocarbons, nitrogen oxides and particulate matter. Over time standards will become more stringent leading to continued growth in the market for emission control systems.
Clean Diesel is organized into two divisions. The Heavy Duty Diesel Systems division is a leader and manufacturer of verified exhaust emissions control systems for the retrofit and OEM markets though a distribution and dealer network that includes PAACAR and International, two of the largest heavy truck manufacturers in the US. The Engine Control Systems (“ECS”) and Clean Diesel Technologies-branded products, such as Purifilter ® , Purifier and ARIS ® and exhaust gas recirculation with selective catalytic reduction are used to reduce exhaust emissions created by on-road, off-road and stationary diesel and alternative fuel engines including propane and natural gas. The company also promotes the Platinum Plus ® range of fuel-borne catalyst solutions into global markets.
The Catalyst division includes the company's proprietary MPC ® technology. This technology enables Clean Diesel to produce catalyst formulations for gasoline, diesel and natural gas induced emissions that offer superior performance, proven durability and cost effectiveness for multiple markets and a wide range of applications. The company has developed a family of unique high performance catalysts — with base-metals or low platinum group metal and zero-platinum group metal content — to provide increased catalytic performance and value for technology-driven automotive industry customers and for the Heavy Duty Diesel Systems division. CDTI provides MPC technology to OEMs in both the light duty vehicle market (including Honda and Renault) and in the heavy duty market (including Cummings and Navistar).
It is estimated that the catalytic materials for emission control will exceed $2.5 billion by 2015 and the size of the heavy duty systems retrofit market could exceed $100 billion over the next ten years.
Clean Diesel is the only pure play on the exhaust control market. There are some opportunities in acquiring divisions of other companies in the industry.
We are forecasting revenue of $71 million in 2012 and $90.0 million in 2013. Earnings (adjusted for the recent stock sale) are estimated at $0.03 in 2012 and $0.43 in 2013.
For a free copy of the full research report, please email scr@zacks.com with CDTI as the subject.
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