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Weak sentiment in PVC pricing weighs on earnings

Our View

Chemplast Sanmar’s (CHEMPLAS) consolidated reported operating profit at Rs 974mn (-72% YoY; +25% QoQ), though marginally ahead of our expectation (YES : Rs 727mn), but was well below consensus estimates (Rs 1404mn). The Indian PVC market experienced a flood of inexpensive Chinese imports throughout most of FY23, resulting in a threefold YoY increase in imports, except for a brief respite from December 2022 to February 2023. This situation exerted pressure on prices and margins. Additionally, the commissioning of expanded capacities affected prices and margins for other products such as Caustic soda, Hydrogen peroxide, and Chloromethanes. However, the CSM business stood out positively, achieving a 26% YoY revenue growth in FY23. Furthermore, in the second half of FY23, Chemplast Sanmar secured letters of intent (LOIs) for two new products, in addition to the nine products already in production. The company also has a pipeline of 10-14 molecules, which is expected to contribute to revenue in the upcoming quarter. Moreover, the planned capacity expansion in PastePVC in the second half of FY24 will provide incremental revenue contributions throughout FY24 and FY25

Result Highlights

* Revenue: The revenue for the 4Q& FY23 stood at Rs 11.5bn (-36% YoY; -3.5% QoQ) and Rs 49.4bn (-16.1% YoY), respectively. The revenue for the FY23 period declined YoY despite 6-9%YoY higher volumes on account of weaker PVC prices. PVC prices while initially stable in the 4QFY23, declined sharply towards the end on increased imports from China.

* 4Q Profitability: The Ebidta and PAT during the quarter stood at Rs 974mn (-72% YoY; +25% QoQ) and Rs 461mn (-80% YoY; +70% QoQ), respectively, which though sequentially better on QoQ improved PVC realization but still stood weaker and well below same quarter last year.

* FY23 Profitability: The Ebitda & PAT for the year stood at Rs 4.7bn (-61% YoY) and Rs 1.5bn (-76% YoY). During the period profitability was impacted by weaker PVC prices and margins and higher energy costs

* Specialty Chemicals: The Revenue and Ebit for the segment stood at Rs 4.3bn (- 34% YoY; -32% QoQ) and Rs 96mn (-94% YoY; -84% QoQ)

* Commodities: The Revenue and Ebit for the segment stood at Rs 7.2bn (-38% YoY; +6.6% QoQ) and Rs 469mn vs a loss of Rs 399mn in the previous quarter.

* Sales Volume: a) Specialty: The segment volume for 4QFY23 stood at 16500mt (- 25.4% YoY; -15.1% QoQ); for the FY23 the same stood at 69640 mt (+6% YoY) b)Non Specialty: The segment volume for 4QFY23 stood at 34756mt (-14% YoY; -19% QoQ); for the FY23 the same stood at 157572 mt (+7% YoY) c) S PVC : The segment volume for 4QFY23 stood at 84414mt (-4% YoY; -4% QoQ); for the FY23 the same stood at 325007 mt (+9% YoY)

Valuation

We maintain our BUY rating on CHEMPLAS with a Mar’24 TP of Rs 530/sh. At CMP the stocks is trading at a P/E of 10.2x FY25, as against 12.2x implied by our TP.

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