Chemplast Sanmar Limited IPO- Fundamental Analysis

Last updated on August 12th, 2021 at 03:42 pm

Chemplast Sanmar Limited IPO- Fundamental Analysis

Chemplast Sanmar Limited (CSL) is a leading specialty chemicals manufacturer. The company’s IPO is slated to launch on 10th Aug 2021.

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Objects of Chemplast Sanmar Limited IPO

1. Redemption of NCDs ( Rs 12,38.25 crore)
2. Other corporate purposes

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Business Review of Chemplast Sanmar Limited

CSL is primarily engaged in the manufacturing and sales of specialty chemicals such as specialty paste PVC resin as well as starting materials and intermediates for pharmaceutical, agro-chemical, and fine chemical sectors as part of its custom manufacturing operations. CSL also manufactures intermediate products such as EDC, VCM, chlorine, and hydrogen that are used as raw materials for our products. CCV, which became the wholly-owned subsidiary pursuant to the CCVL Acquisition, manufactures, distributes, and sells suspension PVC resin.

The Issuer has four manufacturing facilities, of which three are located in Tamil Nadu at Mettur  Berigai and Cuddalore and one is located in Puducherry at Karaikal.

Product Portfolio of Chemplast Sanmar

• Specialty chemicals

1. Specialty paste PVC resin is primarily used by end-user industries to produce artificial leather, tarpaulin, gloves, conveyor belts, and coated fabrics.
2. Custom Manufacturing operations  – custom manufacture starting materials and intermediates for multinational innovator companies in the agrochemical, pharmaceutical, and fine chemicals industry. In custom manufacturing operations, the processes and technical specifications are developed in consultation with a customer, and the product is made for a specific customer.

• Other chemicals

1. Caustic soda is generated as a joint product in the process of manufacture of chlorine. Caustic soda is used by various industries such as textiles, paper and pulp, water treatment, alumina, organic chemicals, inorganic chemicals, pharmaceuticals, soaps and detergents, and chlorinated paraffin wax.
2. Chloromethanes refer to a group of products namely, methyl chloride, methylene chloride chloroform, and carbon tetrachloride. MDC is primarily used as a solvent in pharmaceuticals, as raw material in refrigerants and agrochemicals, and as a foam blowing agent. Chloroform is primarily used as a solvent in pharmaceuticals and as raw material in manufacturing fluoropolymers. CTC is primarily used as raw material in cypermethrin, an insecticide, and as raw material in new generation refrigerants, namely hydro fluoro olefins.
3. Refrigerant Gas; primarily used as a cooling agent in air-conditioning systems.
4. Hydrogen peroxide; primarily used for textile bleaching, paper, and pulp bleaching, and water treatment.
5. Suspension PVC resin; grade of PVC that is primarily used by end-user industries to produce pipes and fittings, films and sheets, window and door profiles, wires, and cables.

Promoter

The Promoter of CSL is Sanmar Holdings Limited (“SHL”). SHL holds 132,480,000 Equity Shares  ( 98.81% of the issued, subscribed and paid-up equity share capital of the Company).

Offer for Sale includes

Rs 2463 crore by SHL

Rs 86.5 crore by SESL

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Key Financial Highlights

• The financial performance for the FY21 is not comparable to other two fiscals due to the acquisition of CCVL. Total revenues have increased substantially to Rs 3815 crore from Rs 1265 crore in FY20. This has been due to the impact of the CCVL acquisition.
• The topline for FY20 has reduced slightly to Rs 1265.51 crore from Rs 1266 crore for FY19.
• The profitability margins for the company were reasonable for FY20 and FY19 being 25.3% for FY20 and 26.3% for FY19.
• Debt to equity is 76% of equity being at high levels. Return on net worth is negative for FY21.
• Considering the earnings of FY20 (2.04 per share), the issue is exorbitantly priced at 265.20. The peer average P/E is 43.1x indicating overpricing of the Issue. With EPS of 30.6, the Issue is priced at 17.68x at calculated at upper price band of Rs 541 per share.
• PI Ind., SRF Limited, Finolex  Ind. and Navin Fluorine are the peers of the company as per RHP.

Investment Strategy

CSL is a specialty chemicals manufacturer in India with a focus on specialty paste PVC resin and custom manufacturing of starting materials and intermediates for pharmaceutical, agro-chemical and fine chemicals sectors. It also manufactures and sells other chemicals, namely, caustic soda, chloromethanes, refrigerant gas, and hydrogen peroxide.

The financial performance of the Issuer is not ascertainable for FY21 and further, the sales are hit by the pandemic in FY21 and FY20. Caustic soda and hydrogen peroxide are largely used in the textile and paper sectors, where demand continues to be weak and improvement in these sectors is slow. Demand from the stationary sector continues to be affected due to the closure of schools and colleges. Looking at all the above factors, an investor may avoid this IPO.

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CA Priyanka Choudhary Jain

Chartered Accountant & an experienced credit analyst. She has worked with CRISIL as a Senior Credit Analyst on rating assignments including business & financial analysis in Corporates as well as the Public Finance Sector. Please mail your queries, feedback, and any suggestions to her on info.financepost@gmail.com

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