Please refer to important disclosures at the end of this report
1
Chemplast Sanmar Lld. (CSL) is a specialty chemicals manufacturer in India with
focus on specialty paste PVC resin and custom manufacturing materials for
pharmaceutical, agro-chemical and fine chemicals sectors. CSL is one of India’s
leading manufacturers of specialty paste PVC resin, third largest manufacturer of
caustic soda and the largest manufacturer of hydrogen peroxide in the South India
region on basis on installed capacity as on 31Dec 2020. CSL is a part of the SHL
Chemicals Group, which in turn is a constituent of the Sanmar Group, one among
the most prominent corporate groups in South India region. Fairfax India Holdings
Corporation (“Fairfax”), a well-known international investor led by Prem Watsa,
based in Canada, has invested, through FIH Mauritius Investments Ltd, in the SHL
Chemicals Group since 2016.
Positives: (a) Well-positioned to capture favorable industry dynamics (b) Leadership
Position in an Industry with High Barriers to Entry (c) Vertically integrated
operations (d) Quality Manufacturing Facilities with a strong focus on sustainability.
(e) Quality Manufacturing Facilities with a strong focus on sustainability.
Investment concerns: (a) Pandemic like Covid-19 could affect company’s business,
operations and financial conditions. (b) Company has incurred significant
indebtedness and lenders have imposed certain restrictive conditions. (c) Its
intellectual property rights may not be adequately protected against third party
infringement.
Outlook & Valuation: While we believe that the India specialty chemical industry is
going to be one of the biggest beneficiaries of shifting of supply chains post the
Covid-19 pandemic we have concerns over the company’s high debt and negative
net worth. At the higher end of the price band, the stock will be trading at P/E
multiple of 17.7xFY21 EPS which is at a discount to other chemical players.
However, we have a NEUTRAL recommendation on the IPO given our concerns
due to high debt on books and negative net worth.
Key Financials
FY2019
FY2020
FY2021
1,254.3
1,257.7
3,798.7
-
0.3
202.0
118.5
46.1
410.2
-
-61.1
789.4
25.6
24.8
25.3
4.5
2.1
30.6
119.4
263.9
17.7
5.1
8.6
(3.9)
4.7
2.4
-
8.1
6.0
33.4
27.1
31.2
10.7
6.9
7.7
2.7
Source: Company, Angel Research.
Note: Valuation ratios at upper price band.
NEUTRAL
Issue Open: Aug 10, 2021
Issue Close: Aug 12, 2021
Offer for Sale: `2,550 cr
QIBs 75% of issue
Non-Institutional 15% of issue
Retail 10% of issue
Promoters 55.0%
Others 45.0%
Post Issue Shareholding Pattern
Post Eq. Paid up Capital: `79.1cr
Issue size (amount): `3,850 cr
Price Band: `530-541
Lot Size: 27 shares and in multiple thereafter
Post-issue mkt. cap: * `8,406 cr - ** `8,554 cr
Promoters holding Pre-Issue: 100%
Promoters holding Post-Issue: 55%
*Calculated on lower price band
** Calculated on upper price band
Book Building
Fresh issue: `1,300 cr
Issue Details
Face Value: `5
Present Eq. Paid up Capital: `67 cr
Jyoti Roy
+022 39357600, Extn: 6842
[email protected]
CHEMPLAST SANMAR LIMITED
Chemplast Sanmar Limited |IPO Note
August 09, 2021
Chemplast Sanmar Limited | IPO Note
Aug 09, 2021
2
Company background
Company was originally incorporated on March 13, 1985 as ‘Urethanes India
Limited’ (“UIL”). Chemicals and Plastics India Limited (“CPIL”), was amalgamated
with UIL on October 1, 1991. Thereafter, based on a resolution of Shareholders
name was changed to “Chemicals and Plastics India Limited”. And later changed
to “Chemplast Sanmar Limited”. Company is into specialty chemicals
manufacturer with focus on specialty paste PVC resin and custom manufacturing of
starting materials and intermediates for pharmaceutical, agro-chemical and fine
chemicals sectors. It holds 100% stake in Chemplast Cuddalore Vinyls Limited
(“CCVL”) which is the second largest manufacturer of suspension PVC resin in
India and the largest manufacturer in the South India region on the basis of
installed production capacity as of December 31, 2020. It has four manufacturing
facilities, of which three are located in Tamil Nadu at Mettur (“Mettur Facility”),
Berigai (“Berigai Facility”) and Cuddalore (“Cuddalore Facility”), and one is
located in Puducherry at Karaikal (“Karaikal Facility”).
Issue details
The issue comprises of OFS of upto `2,550 crore and Fresh issue of `1,300 Cr.
Pre and post IPO shareholding pattern
No of shares
(Pre-issue)
%
(Post-issue)
%
Promoter & Promoter Gp.
134,080,000
100.0%
86,945,065
55.0%
Public
0
0.0%
71,164,510
45.0%
Total
134,080,000
100%
158,109,575
100.0%
Source: Company, Angel Research & RHP.
Objectives of the Offer
Early redemption of NCDs issued by the company in full.
General corporate purposes.
Key Management Personnel
Vijay Sankar is the Chairman and Non – executive Director of the Company. He
holds a bachelors’ degree in commerce from the University of Madras and a
masters’ degree in management from J. L. Kellogg Graduate School of
Management, Northwestern University. He is an industrialist and has several years
of experience in managing several businesses.
Ramkumar Shankar is the Managing Director of the Company. He holds a
bachelors’ degree in commerce from the University of Madras and has
completed an accelerated management programme from the Indian School of
Business. He is also a qualified chartered accountant and a cost accountant.
He has several years of experience in the chloro-vinyls business.
Chandran Ratnaswami is a Non – executive Director of the Company. He
holds a bachelors’ degree in technology (civil engineering) from the Indian
Institute of Technology, Madras and a masters’ degree in business
administration from University of Toronto. He is the chief executive officer of
Chemplast Sanmar Limited | IPO Note
Aug 09, 2021
3
Fairfax India Holdings Corporation, a company listed on the Toronto Stock
Exchange, and a managing director of Hamblin Watsa Investment Counsel
Limited.
Amarnath Ananthanarayanan is a Non – Executive Director of the Company.
He holds a bachelors’ degree in economics from St. Stephen’s College, Delhi
and a masters’ degree in arts (economics) from the University of Delhi. He has
several years of experience across various sectors such as financial services,
manufacturing, and academics. He is a recipient of Udyog Rattan Award
conferred by The Institute of Economic Studies.
Exhibit 1: Consolidated Profit & Loss Statement
Y/E March (` cr)
FY2019
FY2020
FY2021
Total operating income
1,254.3
1,257.7
3,798.7
% chg
-
0.3
202.0
Total Expenditure
933.3
945.3
2,837.3
Cost of materials consumed
408.15
436.52
2,065.76
Purchase of traded goods
-
-
31.08
Changes in inventories
-8.01
-15.15
26.28
Employees' benefit expense
77.80
82.81
113.58
Other expenses
455.36
441.15
600.56
EBITDA
321.0
312.3
961.5
% chg
-
-2.7
207.8
(% of Net Sales)
25.6
24.8
25.3
Depreciation& Amortisation
56.4
87.4
131.0
EBIT
264.7
225.0
830.5
% chg
-
-15.0
269.2
(% of Net Sales)
21.1
17.9
21.9
Finance costs
48.3
95.5
433.4
Other income
12.4
7.9
16.4
(% of Sales)
1.0
0.6
0.4
Recurring PBT
228.8
137.4
413.5
% chg
-
-40.0
201.0
Share of reinstated
-35.4
-65.7
149.4
Exceptional item
-
-
-15.7
Tax
-74.9
-25.6
-136.9
PAT (reported)
118.5
46.1
410.2
% chg
-
-61.1
789.4
(% of Net Sales)
9.4
3.7
10.8
Basic & Fully Diluted EPS (Rs)
4.5
2.1
30.6
Source: Company, Angel Research
Chemplast Sanmar Limited | IPO Note
Aug 09, 2021
4
Exhibit 2: Consolidated Balance Sheet
Y/E March (` cr)
FY2019
FY2020
FY2021
SOURCES OF FUNDS
Equity Share Capital
67.0
67.0
67.0
Instruments entirely equity in nature
637.5
-
34.3
Other equity (Retained Earning)
1,795.2
1,845.5
-451.1
Shareholders’ Funds
2,499.8
1,912.5
-349.8
Total Loans
192.7
1,254.4
2,024.5
Other liabilities
570.4
560.6
813.1
Total Liabilities
3,262.9
3,727.5
2,487.9
APPLICATION OF FUNDS
Property, plant and equipment
2,087.1
2,156.3
3,132.6
Capital work-in-progress
117.2
8.4
25.1
Right-of-use assets
20.9
17.9
14.9
Investments in Joint Venture and Associate
-
1,457.5
-
Current Assets
1,535.4
442.6
1,274.7
Inventories
200.3
181.8
407.1
Investments in Joint Venture
1,158.7
-
-
Trade Receivables
66.9
48.2
73.9
Cash and cash equivalents
48.8
75.3
303.5
Derivative Assets
-
7.4
-
Other Bank balances
3.4
37.4
347.8
Other Financial Assets
28.9
80.8
89.2
Other current assets
28.3
11.6
33.3
Assets classified as held for sale
-
-
19.9
Current Liability
538.7
380.0
1,998.2
Net Current Assets
996.8
62.6
-723.5
Other Non-Current Asset
40.9
24.8
38.8
Total Assets
3,262.9
3,727.5
2,487.9
Source: Company, Angel Research
Chemplast Sanmar Limited | IPO Note
Aug 09, 2021
5
Exhibit 3: Consolidated Cash flows
Y/E March (`cr)
FY2019
FY2020
FY2021
Operating profit before working capital changes
328.5
316.7
1,089.0
Net changes in working capital
-39.1
-111.9
48.0
Cash generated from operations
289.4
204.7
1,136.9
Direct taxes paid (net of refunds)
-55.2
-38.7
-60.5
Net cash flow (used in)/from operating activities
234.2
166.1
1,076.4
Investments in Joint Venture (net)
-261.1
125.3
1,073.5
Redemption from preference shares
-
-482.2
1,682.2
Others
-49.8
-80.7
-604.1
Cash Flow from Investing
-310.9
-437.7
2,151.6
Proceeds from non-convertible debentures
-
1,270.0
-
Proceeds from Long term borrowings
-
-
200.0
Repayment of long-term borrowings
-58.1
-99.2
-254.4
(Repayment) from short-term borrowings (net)
104.1
-108.6
-112.7
Redemption of instruments
-
-637.5
-2,455.3
Payment of lease liability
-2.2
-4.5
-4.6
Interest and finance charges paid
-47.1
-122.1
-389.6
Cash Flow from Financing
-3.3
298.1
-3,016.7
Inc./(Dec.) in Cash
-80.0
26.5
211.3
Opening Cash balances
153.2
48.8
75.3
Cash and cash equivalents taken over/ (transferred)
-24.4
0.0
16.8
Closing Cash balances
48.8
75.3
303.5
Source: Company, Angel Research
Chemplast Sanmar Limited | IPO Note
Aug 09, 2021
6
Key Ratios
Y/E March
FY2019
FY2020
FY2021
Valuation Ratio (x)
P/E (on FDEPS)
119.4
263.9
17.7
P/BV
5.1
8.6
(3.9)
EV/Sales
6.9
7.7
2.7
EV/EBITDA
27.1
31.2
10.7
Per Share Data (Rs)
EPS (Basic)
4.5
2.1
30.6
EPS (fully diluted)
4.5
2.1
30.6
Book Value
105.3
63.1
(139.2)
Returns (%)
ROE
4.7
2.4
-
ROCE
8.1
6.0
33.4
Turnover ratios (x)
Receivables (days)
19.5
14.0
7.1
Inventory (days)
58.3
52.8
39.1
Payables (days)
63.9
62.7
159.1
Working capital cycle (days)
13.8
4.1
(112.9)
Source: Company, Angel Research
Chemplast Sanmar Limited | IPO Note
Aug 09, 2021
7
Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com
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