IPO Note - Chemplast Sanmar Ltd By Choice Broking
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Salient features of the IPO:
* South India based specialty chemical firm Chemplast Sanmar Ltd. (CSL), is coming up with an IPO to raise Rs. 3,850cr, which opens on 10th Aug. and closes on 12th Aug. 2021. The price band is Rs. 530 - 541 per share.
* The issue is a combination of fresh and OFS. The company will not receive any proceeds from the OFS portion. Of the net proceeds from the fresh issue, around Rs. 1,240cr will be used for the early redemption of non-convertible debentures issued by the company. Rest proceeds will be used for general corporate purposes.
* The company in the past was listed, but got de-listed in Jun. 2012.
Key competitive strengths:
* Well-positioned to capture favorable industry dynamics
* Leadership position in an industry with high barriers to entry
* Vertically integrated operations
* Quality manufacturing facilities with a strong focus on sustainability
* Operational excellence
* Strong parentage and experienced management team
Risk and concerns:
* Subdued economic activities during pandemic times
* Unfavorable government regulations
* Inability to renew the lease of salt field
* Unfavorable movements in the raw material prices
* Delay or difficulty in capacity expansion
* Unfavorable forex movements
* Competition
Below are a few key observations of the issue:
* The specialty paste PVC resin market has grown by 3% CAGR over FY15-20 to a size of 143 kilo tons per annum (KTPA). Specialty paste PVC finds application to make flexible products (such as artificial leather, gloves, tarpaulins, conveyor belts, coated fabrics etc). The key demand driver is the leather cloth segment, which contributed 78% of the demand.
* Total domestic production of specialty paste PVC resin in FY20 was 78KTPA, against a demand of 143KTPA. Thus the demand gap of 45% was met through imports. There are only two producers of specialty paste PVC resin in India, namely CSL with 66KTPA and Finolex Industries Ltd. (with a capacity of 22KTPA). The per capita consumption of specialty paste PVC resin in India is 0.1kg as compared to China’s 0.6kg and Western Europe’s 2.4kg. Thus, the Indian market is fairly underpenetrated and demonstrates significant growth potential in the coming years. Over FY20-25, the demand is expected to grow by 5-7% CAGR to 182KT.
* Suspension PVC is used in both rigid and flexible applications like pipes, profiles, roofing sheets, flexible hoses, tubings, wires & cables, footwear, films etc. Domestic demand of suspension PVC has increased by 5.5% CAGR over FY15-25 to 3.3mn tonnes in FY20. Imports met around 55% of the domestic demand. According to Crisil Research, the demand of suspension PVC is likely to increase by 7.5- 8.5% CAGR over FY20-25.
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