IGI Logo

Chemplast Sanmar Ltd For Target Rs.700

Strong realizations trump weaker sales volumes

Our View:

CHEMPLAS’ 3QFY22 operating profits at Rs 3.5bn (+25% YoY; +2% QoQ), came in better than our expectations, riding on exceptional strength in PVC prices during the 3QFY22, even as sales volume were comparatively tepid. PVC price peaked at almost USD 1900/ton, in the month of Oct’21, before moderating towards the end of 3QFY22, however as VCM price had a sharper correction, PVC‐VCM delta expanded benefitting CHEMPLAS. Demand‐Supply anomaly stemming from ‘Dual Control of Energy’ in China, was key factor behind price rise. Sales volume for both Paste PVC and S‐PVC suffered on account of extended monsoon and environmental restriction near NCR, leading to buildup of inventories for the company. Faux leather forms ~ 70% of Paste PVC use and ~ 70% of the same is consumed by end user industries around NCR. Environmental restriction and closure of school therefore impacted demand. Going ahead, while PVC margins are expected to moderate over Jan‐Feb’22 as higher price inventory gets liquidated, but Mar’22 onwards margins are expected to get restored and stay firm there on, as indicated by demand ‐supply dynamics.

Result Highlights

* Revenue: The consolidated net‐revenue stood at Rs 14.5bn (+33.4% YoY; ‐13% QoQ), driven by strong price environment in both Paste PVC and SPVC. The 9MFY22 revenue as result clocked in at Rs 41bn (+66% YoY)

* Consolidated Ebitda & PAT: Consolidated Ebitda at Rs 3.5bn stood 25% YoY and 2% QoQ higher as stronger PVC‐VCM deltas helped offset YoY & QoQ decline in sales. PAT stood at Rs 2.4bn (+37% YoY; +57% QoQ), as strength in Ebitda was aided by 67% YoY and 75% QoQ drop in interest cost to Rs 373mn, with repayment of high cost debt post IPO. In addition, CHEMPLAS also re‐negotiated CCVL borrowings from 11.75% to 8.75%, which further moderate interest cost.  

* Specialty Chemicals:  The Revenue and Ebit for the segment stood at Rs 5.1bn (+27% YoY; ‐3.2% QoQ) and Rs 1.7bn (+264% YoY; +129.6% QoQ), respectively, on backs of 48% YoY & 17% QoQ higher realization, even as sales volume stood 37% YoY and 33% QoQ lower.

* Commodities : The Revenue and Ebit for the segment stood at Rs 9.3bn (+37% YoY; ‐18% QoQ) and Rs 1.26bn (+35.5% YoY; +12.1% QoQ), respectively, on backs of 49% YoY & 19% QoQ higher realization, even as sales volume stood  20% QoQ lower and just 7% higher YoY.  

Valuation

We value CHEMPLAS on EV/EBITDA basis, at revised TP of Rs 700/sh (from Rs 650/sh), as we adjust our earnings estimates to factor in for current strength in PVC prices and upgrade the stock to BUY (form ADD). We find the ascribed EV/EBITDA multiple of 7.5x in sync with the nature of CHEMPLAS’ business, which is primarily into commodity chemicals. Our TP implies a target P/E multiple of 14x FY24e, as against 11x FY24e the stock is currently trading at.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer