One of the Leading Manufacturers of Specialty Paste PVC Resin, Suspension PVC
Resin, Hydrogen Peroxide, and Caustic Soda
CSL is a specialty chemicals manufacturer with a focus on specialty paste PVC resin
and custom manufacturing of starting materials and intermediates for pharmaceutical,
agro-chemical, and fine chemicals sectors. Based on installed production capacity
as of December 31, 2020, the company is one of the leading manufacturers of specialty
paste PVC resin, the third-largest manufacturer of caustic soda, and the largest
manufacturer of hydrogen peroxide in the South India region. Also, CCVL (Acquired
group entity) is the second-largest manufacturer of suspension PVC resin in India
and the largest manufacturer in the South India region.
Vertically Integrated Operations
CSL has vertically-integrated operations for manufacturing of its products. The
company manufactures EDC, VCM, and chlorine required to manufacture its products
and therefore the reliance on external suppliers is reduced to some extent. For
FY21, raw materials manufactured by CSL constituted 14% (3% on a consolidated) of
total raw materials consumed. The management believes the vertically-integrated
business model brings advantages to the company in the form of stable supply of
raw material, competitive cost structure, and sustainable development.
Expanding Production Capacities
The management expects that the demand for the company’s products to remain
robust and based on that, the management intends to add production capacity. The
management proposes to expand operations by increasing the installed production
capacity of specialty paste PVC resin by 35 kt, setting up a multi-purpose facility
with two blocks for custom manufacturing operations, and increasing the installed
production capacity of suspension PVC resin by 31 kt by de-bottlenecking the suspension
PVC resin plant. It also intends to improve operational efficiencies in Karaikal
facility by de-bottlenecking the caustic soda plant. These expansions will be rolled
out gradually between FY22 and FY25 with the capex outlay of ~Rs. 620 crores. However,
the company has not shared details of funding plans for this expansion.
Incorporated in 1985, Chemplast Sanmar Limited (CSL) is a speciality chemical manufacturer focused on specialty paste PVC resin and custom manufacturing of starting materials and intermediates for pharmaceutical, agro-chemical, and fine chemicals sectors. The company has acquired Chemplast Cuddalore Vinyls Limited (CCVL) in FY21, a group entity which manufactures suspension grade PVC. It has four manufacturing facilities, of which three are in Tamil Nadu and one in Puducherry. The total installed capacity of Mettur, Karaikal, and Cuddalore facilities is 555.7 kt and installed capacity of Berigai Facility is 1,068 MTPA.
Significant part of the company’s revenue is generated from the sale of speciality paste PVC resins and suspension PVC, the realizations of which is dependent on demand and supply. We believe that due to supply side disruptions caused by Covid-19 pandemic, the price realization for the company has increased from two-year average realization of ~Rs. 93,730/MT to ~Rs. 119,290/MT in FY21 and once the supply-side issue is resolved, the price realization could return to normal levels. It is also worth noting that suspension PVC resin sales in India are subject to seasonal variations linked to monsoon.
Furthermore, the company intends to do capex between FY22 and FY25, but there is no clarity from management on how this capex will be funded, and given that the company's net worth is negative as of March 2021 due to the acquisition of CCVL, the likelihood of the capex being funded through debt, increases. At the upper price band of Rs. 541, the issue is priced at 17.7x of FY21 EPS. We wish to highlight the fact that this company got delisted in June 2012 at the price of Rs. 15. In our view, investors will be better of giving this issue a pass.
Use of Proceeds:
The company will utilise the net proceeds from the fresh issue by early redeeming
the non-convertible debentures (NCDs) and for general corporate purpose.
Book running lead managers:
ICICI Securities Limited, Axis Capital Limited, Credit Suisse Securities (India)
Private Limited, IIFL Securities Limited, Ambit Private Limited, BOB Capital Markets
Limited, HDFC Bank Limited, IndusInd Bank Limited, and YES Securities (India) Limited
Management:
Vijay Sankar (Chairman and Non-executive Director), Ramkumar Shankar (Managing Director),
and, M Chandrasekar (CFO)
Particulars (Rs. in Crores) | FY21 | FY20 | FY19 |
---|---|---|---|
Revenue from Operations | 3798.73 | 1257.66 | 1254.34 |
COGS | 2123.12 | 421.38 | 400.15 |
Gross Profit | 1675.60 | 836.28 | 854.19 |
Gross Margin (%) | 44.11% | 66.50% | 68.10% |
Employee Benefit Expenses | 113.58 | 82.81 | 77.80 |
Other Expenses | 600.56 | 441.15 | 455.36 |
EBITDA | 961.46 | 312.32 | 321.04 |
EBITDA Margin (%) | 25.31% | 24.83% | 25.59% |
Depreciation & Amortisation | 130.98 | 87.36 | 56.38 |
EBIT | 830.48 | 224.96 | 264.66 |
EBIT Margin (%) | 21.86% | 17.89% | 21.10% |
Finance Costs | 433.36 | 95.46 | 48.28 |
Other Income | 16.38 | 7.85 | 12.44 |
Profit Before Share of profit/(loss) from Associates/JVs, Exceptional Items and Tax | 413.50 | 137.36 | 228.82 |
Share of Profit / (Loss) from JV & Associate | -331.59 | -65.65 | -35.42 |
Profit on sale/redemption of investments in JV & and Associate | 480.97 | - | - |
Profit Before Exceptional Items | 562.88 | 71.70 | 193.40 |
Exceptional Items | -15.68 | - | - |
profit Before Tax | 547.19 | 71.70 | 193.40 |
Tax Expenses | 136.95 | 25.58 | 74.94 |
Effective Tax Rate (%) | 25.03% | 35.67% | 38.75% |
Profit After Tax | 410.24 | 46.12 | 118.46 |
Earnings Per Share (Rs.) | 30.60 | 2.04 | 4.53 |