Fundamental AnalysisIndia

Chemplast Fundamental Analysis

Overall Rating: 🐂

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High 🟢]
    • Overall Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.

What is the industry outlook?

  • What is the current industry category for the company?
    • Speciality Chemicals
  • What are the growth prospects? [High 🟢]
    • Industry demand with accelerated growth in COVID times posed a strong growth in the sector. Indian Speciality Chemicals Industry has grown about 11% from 2014-2019 and is expected to continue the trajectory with ~12% CAGR in the next 5 years.
Chemplast Industries
  • While Asia promises to be an attractive market for speciality chemicals globally, India presents a growing opportunity for local players. Indian companies need to ramp up readiness to realize maximum advantage from the speciality chemical sector’s growth potential,” says a report from McKinsey.
  • What is the competitor landscape? [Medium 🟠]
  • Though Chemplast has relative dominance in PVC resin manufacturing, the overall speciality chemical industry is relatively fragmented with medium competition and a relatively high barrier to entry.
  • Chemplast Sanmar has a Leadership Position in PVC Resin Industry in India and Hydrogen Peroxide in South India.
Chemplast Sanmar Factory

What is the company profile?

  • Business Overview
    • Chemplast Sanmar Ltd. is a Speciality Chemicals manufacturer in India with a focus on Speciality Paste PVC resin and Custom Manufacturing of starting materials & intermediates for Pharmaceutical, agrochemical & Fine Chemical Sectors.
  • Financials
  • How are company financials changing?  [ Low 🔴]
  • Chemplast reported profit at Rs 410.24 crore on revenue of Rs 3,798.73 crore in the financial year FY21(post-acquisition of CCVL), and profit of Rs 46.12 crore on revenue of Rs 1,257.65 crore in FY20. The profit in FY19 was at Rs 118.46 crore on revenue of Rs 1,254.34 crore in FY19.  The majority of change in profits is attributed to post-acquisition value-added from CCVL.
  • Due to the acquisition of Chemplast Cuddalore Vinyls Limited (CCVL), Chemplast Sanmar’s Net Worth turned negative i.e. Rs. -1865.6 crore.
  • Additionally, the company raised non-convertible debentures (NCDs) of ₹12.4 billion in December 2019 at 17.5% interest per annum and utilised towards investing ₹4.8 billion in Sanmar Group International-SGIL and repayment of ₹6.7 billion advances received from its promoter Sanmar Holdings Limited (SHL), with the remaining amount directed towards servicing its debt. The cycle of fund issues for repayment is always alarming.
Peer Comparison
  • What are the stand-alone future financial prospects? [ Medium 🟠]
  • The future of the company relies heavily on how well it manages the debt. Debt aside, the company has a very good prospect to capitalize on increasing market growth and the international trend of shifting focus away from China(the world’s leader in speciality chemical)
  • The company’s intention to invest ~250Cr by FY24 poses the potential to expand on the facility and ride on expected market growth.
  • Pipeline deals and possible future risk and gains [High 🟢]
    • Risk of Losing Pledged Shares of Promoters – Company has a very risk of losing promoter shares as 100 % CCVL share capital, a key subsidiary, is pledged in favour of Housing Development Finance Corporation (HDFC).
    • The company has invested ₹256 crores for a brownfield project to increase the annual production capacity of speciality paste PVC resin by 50%.

Beyond the numbers – ProCapitas Think Tank 🧠

  • Owing to poor cash flows driven by fluctuating crude prices, Chemplast Sanmar was delisted at Rs 15.
  • With the new IPO issue of 3850Cr, the company plans to redeem non-convertible debentures of 1238Cr.
  • On top of this, the company poses a strong location and revenue concentration risk with ~30% of the revenue derived from a limited number of customers.
  • With a wider lens on profits, though it seems number improving Y-O-Y the majority of it is attributed to recently acquired CCVL. Given not so good industry, it would be interesting to watch it Chemplast would be able to sustain their earnings.
Chemplast Sanmar Years

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