Chemplast Sanmar IPO Opens Tomorrow. Should You Bid?

Specialty chemicals manufacturer Chemplast Sanmar has decided to launch its initial public offering (IPO) for subscription on 10 August 2021. The offer will close on 12 August 2021.

Chemplast Sanmar has fixed a price band of Rs 530-541 a share for its Rs 38.5 bn IPO.

Chennai-based Chemplast Sanmar is a leading specialty chemicals manufacturer with focus on specialty paste PVC (polyvinyl chloride) resin and custom manufacturing of starting materials and intermediates for pharmaceutical, agro-chemical, and fine chemicals sectors.

This would be the seventh company to open IPO in the current month, after Devyani International, Windlas Biotech, Exxaro Tiles, Krsnaa Diagnostics, CarTrade Tech, and Nuvoco Vistas Corporation.

ICICI Securities, Axis Capital, Credit Suisse Securities (India), IIFL Securities, Ambit, BOB Capital Markets, HDFC Bank, IndusInd Bank, and YES Securities (India) are the book running lead managers to the offer.

Chemplast Sanmar IPO Details

Issue Type	Book Built Issue IPO
Face Value	Rs 5 per equity share
IPO Price	Rs 530 to Rs 541 per equity share
Market Lot	1 lot - 27 shares
Issue Size	Rs 38.5 bn
Fresh Issue	Rs 13 bn
Offer for Sale	Rs 25.5 bn
Basis of Allotment Date	Wednesday, August 18, 2021
IPO Listing Date	Tuesday, August 24, 2021

Data Source: Company's Red Herring Prospectus

The issue consists of issuance of fresh equity shares worth Rs 13 bn and offer for sale (OFS) of Rs 25.5 bn by promoters of the company.

After the successful listing of company shares, promoters holding in the company will come down from existing 100% to 55%.

Category-wise reserved portion

A total of 75% of the issue size has been reserved for qualified institutional buyers (QIBs), 15% for non-institutional investors and 10% for retail investors.

Bids for the offer by investors can be made for a minimum of 27 equity shares and in multiples of 27 equity shares thereafter.

Fund usage

The net proceeds from fresh issue will be utilised for early redemption of non-convertible debentures (Rs 12.4 bn).

It will also use the funds for general corporate purposes.

About Chemplast Sanmar

Incorporated in 1985, Chemplast Sanmar is a leading specialty chemical manufacturer in India.

The company is engaged in the manufacturing of specialty paste PVC resin, starting materials, and intermediates for agro-chemical, pharmaceuticals, agro-chemical, and fine chemical sectors.

It also produces other types of chemicals such as Caustic Soda, Chlorochemicals, Hydrogen Peroxide, Refrigerant gas, and Industrial Salt.

It has four manufacturing facilities, among which, 3 are situated at Mettur, Berigai, and Cuddalore in Tamil Nadu, and one is located in Puducherry at Karaikal.

Competitive strengths

• The largest manufacturer of specialty paste PVC resins in India in terms of installed production capacity.
• Third largest manufacturer of caustic soda and the largest manufacturer of hydrogen peroxide in South India.
• A part of the SHL Chemicals Group, one of the most prominent corporate groups in South India.
• A vertically integrated business model with a focus on quality manufacturing.
• Highly experienced managerial team.

Financial snapshot of the company

The net worth of Chemplast Sanmar turned negative in the fiscal 2021, not based on operational or cash losses, but due to restructuring, primarily in Chemplast Cuddalore Vinyls Limited (CCVL).

The outstanding non-convertible debentures (NCDs) of Rs 12.4 bn were raised in December 2019 at 17.5% interest per annum directed towards investing in Sanmar Group International-SGIL (Rs 4.8 bn) and repayment of advances received from its promoter Sanmar Holdings limited (SHL) (Rs 6.7 bn), with the remaining amount directed towards servicing its debt.

The company has redeemed its investments from SGIL in the year 2021 and another Rs 9.8 bn investment in a joint venture (JV) with a group entity.

On the financial performance front, for the last three financial years, the company has posted net profits of Rs 1.2 bn, Rs 461.3 m, and Rs 4.1 bn in the financial year 2019, 2020 and 2021, respectively.

The company has done a revaluation of assets to show better valuations.

Key Parameters

(Rs m)	FY18	FY19	FY20	Dec-20
Revenues	31,254.0	12,543.4	12,576.6	8,751.5
Revenue Growth (%)		-59.9%	0.3%
Expenses	27,546.3	10,379.5	11,281.5	8,863.6
Profit Before Tax (PBT)	4,077.1	1,934.0	717.0	259.9
Net Profit	2,485.4	1,184.6	461.3	161.4

Data Source: Company's Red Herring Prospectus (RHP)

The company has not declared any dividend so far. It will follow a prudent dividend policy post listings based on its financial performance and future prospects.

For more details, check out Chemplast Sanmar's Red Herring Prospectus.

Comparison with listed peers

As per offer documents, Chemplast Sanmar has shown PI Industries, SRF, Finolex Industries, and Navin Fluorine as its listed peers.

Company	Revenues	Net Profit	Return on Net Worth (%)
PI Industries	72.9	11.2	25%
SRF	72.1	9.2	20.7%
Finolex Industries	29.9	3.1	16.7%
Navin Fluorine	10.6	4.0	28.9%
Chemplast Sanmar	12.5	1.2	5.5%

Data Source: RHP, Equitymaster
Figures in Rs bn and as on 31 March 2020

Important details to note

Chemplast Sanmar belongs to the Sanmar group, one of India's oldest business houses.

It holds the domestic chemicals operations of the group which has interests in engineering, shipping and chemicals.

This will be Chemplast Sanmar second tryst with the capital markets after it delisted a decade back.

Chemplast, facing volatile commodity prices post the financial crisis of 2008, delisted in 2012 as the management wanted to restructure the group in a private set-up.

The company also merged with it Chemplast Cuddalore Vinyls in the financial year 2021, a group entity which manufactures suspension grade PVC.

An overview on company's business

Chemplast is among the leading manufacturers for most of its products.

In speciality paste PVC resin, the company's installed capacity of 66,000 tonnes per annum and Finolex, the only other producer with 22,000 tonne capacity, addresses close to half of the domestic demand.

Supported by plant closures internationally and higher import duties, domestic market is expected to grow faster at 5-7% compound annual growth rate (CAGR) in the financial year 20-25.

It also plans on additional capacity of 35,000 tonnes in this segment at a cost of Rs 2.6 bn, operational by 2024.

The company generates revenue from PVC allied products such as caustic soda, hydrogen peroxide, and chloromethanes.

What's the ideal IPO strategy to follow?

In the past few months, a large number of corporate houses have submitted proposals for floating IPO. A number of IPOs are also expected to hit the market soon.

As companies line up to raise funds from the market amid high valuations, investors need to consider numerous factors before investing their money in an IPO.

If you are investing in an IPO, weigh in all the positive and negative factors affecting the company.

Take a close look at the company's financials and valuations. It would give you a clear picture of what's brewing.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more here...