Should you invest in Chemplast Sanmar Limited IPO?

Chemplast Sanmar Limited incorporated on March 13, 1985, is a  specialty  chemicals manufacturer in India with focus on specialty paste PVC resin and custom manufacturing of starting materials and intermediates for pharmaceutical,  agro-chemical and fine chemicals sectors. CSL is one of India’s leading manufacturers of specialty paste PVC resin on the basis of installed production capacity, as of December 31, 2020.

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CSL is a part of the SHL Chemicals Group, which in turn is a constituent of the Sanmar Group, one among the oldest and most prominent corporate groups in South India region. CSL has 4 manufacturing facilities, of which 3 are located in Tamil Nadu at Mettur, Berigai (“Berigai Facility”) and Cuddalore (“Cuddalore Facility”), and 1 is located in Puducherry at Karaikal (“Karaikal Facility”).

Promoters & Shareholding:

Sanmar Holdings Limited is the company promoter with pre issue holding of 100%.

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Public Issue Details:

Offer for sale: Fresh issue of approx. 24,029,568 equity shares of Rs. 5 aggregating up to Rs. 1300 Cr and OFS of approx. 47,134,935 equity shares aggregating up to Rs. 2,550 Cr.

Total IPO Size: Rs. 3,850 Cr.

Price band: Rs. 530 – Rs. 541.

Objective: for early redemption of NCDs issued by the company in full and for general corporate purposes.

Bid qty: minimum of 27 shares (1 lot) for Rs. 14,607 and maximum of 13 lots.

Offer period: 10th Aug 2021 – 12th Aug 2021.

Date of listing: 24th Aug 2021.

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Pros:

  • One of India’s leading manufacturers of specialty paste PVC resin.
  • A part of the SHL chemicals Group, is one of the most prominent corporate groups in South India
  • It is 3rd largest manufacturer of caustic soda and the largest manufacturer of hydrogen peroxide in South India
  • Professional and experienced management team.
  • The company operates in an industry with high barriers to entry.
  • CSL has vertically-integrated operations for manufacturing of its products.

Cons:

  • The company faces foreign exchange fluctuation risks that could adversely affect its business.
  • The manufacturing facilities are concentrated in Tamil Nadu & Puducherry, any shut downs due to covid / natural calamities will have adverse business impact
  • 100% of the share capital of CCVL, which is held by its company, is pledged in favor of HDFC
  • Non-compliance with and changes in any laws relating to environment, health and sustainability will impact its business.

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Subscribe or avoid?

The specialty paste PVC resin market size in India was at 143 kilo tons per annum in financial year 2020; Demand is expected to grow 5-7% CAGR between financial years 2020 and 2025 to 182 KT. Specialty chemicals segment expects to clock 5-6% CAGR during financial years 2020 to 2025 driven by rising domestic consumption and exports. Exports accounts for 35-40% of revenue for key speciality chemicals players in India. This along with the government of India’s several initiatives to boost export will have positive impact on the company and its business.

On the financial side, the company has had strong financial performance for the past 3 year; they have reported revenue of Rs. 3815.11 Cr, Rs. 1265.51 Cr and Rs. 1266.77 Cr in the FY21, FY20 and FY19 respectively and net profit of Rs. 410.24 Cr, Rs. 46.13 Cr and Rs. 118.46 Cr in the FY21, FY20 and FY19 respectively.

Analysing from the valuation perspective, for the last 3 years average EPS of Rs 16.7, the P/E ratio is around 32x. On the upper price band of Rs 541 and EPS of Rs 30.6 for FY21, the P/E ratio works out to be 17.6x. The Company is asking issue price in the P/E range of 17.6x to 32x.Their listed peers are Navin Fluorine trading at P/E 74x, Finolex Industries trading at P/E 15x and industry average P/E of 43x. Hence, the IPO is reasonably priced. Considering all the above factors the listing, we recommend “SUBSCRIBE” to this IPO.

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Disclaimer:

This article should not be construed as an investment advise, please consult your Investment Adviser before making any investment decision.

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