Chemplast Sanmar Limited - IPO Note


Chemplast Sanmar Limited - IPO Note


Price range
Rs. 530 – 541
Issue Period:
Aug 10, 2021
Aug 12, 2021
August 10, 2021

Stock Info

CNX Nifty
Face value (Rs.)
Market lot
Issue size
Rs. 3,850 cr.
Public Issue
7.11 cr. shares
Market cap post IPO
Rs. 8,406 – 8,554 cr.
Equity Pre - IPO
13.41 cr.
Equity Post - IPO
15.81 cr.
Issue type
Fresh Issue and Offer for Sale

Shareholding (Pre IPO)

Source: Ace equity, StockAxis Research

Shareholding (Post IPO)

Source: Ace equity, StockAxis Research

Key Strengths and Strategies

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. 


  • As of March, 2021, the company had total outstanding borrowings of ~Rs. 2,017 crores and lenders have imposed restrictive covenants on the company. In the past, the company and CCVL had not complied with financial covenants under certain financing agreements.
  • Statutory auditor of the company has included certain emphasis of matters and other matters paragraph, in its examination report on restated consolidated summary statements, and the statutory auditor of CCVL, has included certain emphasis of matter, in its audit reports.
  • 100% of the share capital of CCVL is pledged in favour of Housing Development Finance Corporation Limited for the purpose of securing certain financing facilities availed by Sanmar Engineering Services Limited (SESL).
  • As the company’s business rely on imports, it faces foreign exchange fluctuation risk. For FY21, it imported ~94% of raw material, up from 64% in FY20.
  • The significant portion of the revenue is derived from the sale of speciality paste PVC resins and suspension PVC, the realization of which is dependent on demand and supply. Due to Covid-19 pandemic and the resultant supply side disruptions, we believe the prices of commodities have increased and as the situation improves, prices of these commodities could match pervious levels and that could impact the top line of the company if the volumes fail to grow.
  • The company do not have firm commitment in the form of long-term supply agreements with key customers and rely on purchase orders to govern the volume.
  • Suspension PVC resin sales in India are subject to seasonal variations linked to monsoon. Therefore, CCVL’s business is subject to seasonal and cyclical variations.
  • The company’s net worth is Rs. -349.77 as of March 2021, as the company invested ~Rs. 300 crores in CCVL for 100% stake purchase.
  • Major part of issue proceeds will be used to repay high cost NCD (NCD are at 17.5% interest rate while in last several years standard interest rates have been lower in the range of 11%-15%).

Company Description

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.

Key Information

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

Vijay Sankar (Chairman and Non-executive Director), Ramkumar Shankar (Managing Director), and, M Chandrasekar (CFO)

Financial Statement

Profit & Loss Statement:- (Consolidated)

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