Published on 29/06/2022 11:31:17 AM | Source: Motilal Oswal Financial Services Ltd

Update On Chemplast Sanmar Ltd By Motilal Oswal

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Integration at the forefront

Key highlights from the plant visit

Chemplast Sanmar, the largest manufacturer of Specialty Paste PVC resin India, via its wholly owned subsidiary - Chemplast Cuddalore Vinyls Ltd (CCVL) is the second largest manufacturer of Suspension PVC (S-PVC) in India. It has four manufacturing facilities (all in South India) with a high degree of backward integration.

We visited the company’s Mettur facility, wherein it manufactures Refrigerant gases, Specialty Paste PVC Resin, Caustic Soda, Chlorinated Solvents, and Hydrogen Peroxide. Below are the key takeaways:


Physical proximity to key customers

* The Mettur plant of the company is located close to the Mettur Dam or the Stanley Reservoir, which is one of the largest dams in India. The plant has a capacity of 93.5TMC ft. The dam power house and the tunnel power house have a capacity of 40MW and 200MW, respectively.

* CHEMPLAST has four facilities in Mettur with each plant being managed by a separate plant manager. The four facilities are spread over 330 acres, with Plant 1 being 70-80 acres, Plants 2 & 3 being 80-90 acres each, and Plant 4 makes up for the remaining.

* Plant 3 is the oldest plant (commissioned in 1965) of the company wherein Caustic Soda, Chlorine, and Chlorinated Solvents are manufactured, followed by Plant 2 (1967) where Specialty Paste PVC Resin is manufactured, Plant 1 (1988) in which Refrigerant Gases are manufactured, and Plant 4 (2019) which manufactures Hydrogen Peroxide.

* The company also has a coal power plant with a capacity of 48.5MW, sufficient to supply power to all its plants in its Mettur location. CHEMPLAST uses 700-800tn/day of coal. The company imports a total of ~2.5L tonnes of coal from Indonesia. It imports a specific kind of coal having low ash and low sulphur content.

* While majority of the salt requirements are met through captive salt fields (~60%), the remaining is procured from Gujarat or from Southern India. The company also has a Zero Liquid Discharge facility that was commissioned in CY08 with a capacity of 2039KLPD with Aquatech technology. This capacity is more than adequate to meet the existing scale of operations and also for further expansions


Ambitious future prospects

* The current capacity of all the plants in the Mettur location stands at 204ktpa with another 52ktpa of Caustic Soda capacity in its Karaikal location. Suspension PVC resin capacity stands at 300ktpa with another 1068mtpa capacity for its custom manufacturing division.

* Expansion plans are in place for the company in Suspension PVC, Paste PVC, and Custom Manufacturing. The company added 31ktpa capacity of S-PVC through debottlenecking in FY23.

* Specialty Paste PVC Resin plant was commissioned in 1967 with BF Goodrich Inc, USA. The current capacity of the plant stands at 66ktpa. CHEMPLAST produces VCM, a raw material for manufacturing Paste PVC, in-house through EDC. The company is planning to add 41ktpa capacity at Cuddalore with an estimated capex of INR3.6b. CHEMPLAST has already received environmental clearance for it.

* In the Customer Manufacturing segment of the business, CHEMPLAST has already commercialized 8 products with more in the pipeline that is likely to come online over the next 12 to 15 months. Pharma and Agrochem are its main end-user industries.

* This is a China +1 play for CHEMPLAST as customers are telling the company to be the supplier of choice.

* The company is setting up a multipurpose facility (block 1&2) in phases with the phase 1 expected to come online in 1HFY24 (capex of INR2.5b). The management expects the plant to be ready for full utilization by FY25.


Other key highlights

* Except for Caustic Soda, all the products of the company are currently sold at the spot rate and the management is working out a way to sell that on spot too

* As compared to the other plants, the Caustic Soda plant is power intensive in nature.

* Typically, 1.6tn of EDC produces 1tn of VCM, which in turn produces close to 1tn of Specialty Paste PVC resin.

* Mitsubishi in Japan is the largest trader of VCM in the world and CCVL sources all its VCM requirements from them. CHEMPLAST also plans to source the required VCM for the expanded capacity of 41kt from Mitsubishi.

* While CHEMPLAST produces Paste PVC by using the micro suspension technology, Finolex uses the emulsion technology. As per the management, demand for the micro suspension produced Paste PVC is more than the emulsion-based Paste PVC.

* India is a Paste PVC deficit market with annual demand at 145kt and the market growing by over 9% per annum.


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