‍Company Overview

• Established in 1967, Chemplast Sanmar Limited is a significant player in the Indian chemical industry, part of the larger Sanmar Group.
• The company manufactures PVC resins, chlorochemicals, and piping systems, with manufacturing facilities spread across Tamil Nadu, Maharashtra, and Puducherry.
• Chemplast Sanmar has achieved zero liquid discharge across all its plants, demonstrating its commitment to environmental sustainability.
• The company's Chlorochemicals division, a result of strategic backward integration, ensures a steady supply of raw materials for its diverse product range.
• Chemplast Sanmar sources salt from its own pans at Vedaranyam and utilizes power from an in-house plant, crucial for the energy-intensive electrolysis process in chlorine production.

Industry Outlook

• The domestic demand for paste PVC in India is estimated at 1.6 lakh tonnes per year.
• Chemplast Sanmar accounts for 83% of the domestic paste PVC production capacity and holds a 66% market share.
• India has initiated an anti-dumping investigation into imports of suspension polyvinyl chloride (s-PVC), which could positively impact domestic PVC manufacturers.
• According to 6Wresearch, the Indian PVC pipes market is projected to grow at a CAGR of 5% during 2023–2029, driven by increasing demand from the construction industry.

Key Drivers and Investment Thesis

• FY2024 saw unusual market conditions impacting Chemplast Sanmar's paste-PVC segment margins due to fluctuating caustic soda and EDC prices. However, the company expects a return to normalcy soon.
• To counter increased import pressures, particularly from China, Chemplast Sanmar plans to expand its paste-PVC capacity, enhancing volume growth by end-FY2025.
• The company is leveraging policy mechanisms like BIS standards to safeguard its competitive edge against imports.
• Chemplast Sanmar anticipates a strong recovery in the S-PVC market by FY2025, supported by market dynamics in China and limited global capacity additions.
• The company's strategic focus includes maximizing the utilization of recently completed projects, maintaining stable net debt levels, and exploring strategic expansion in S-PVC capacity based on VCM supply agreements.

Financial Outlook and Valuation‍

Chemplast Sanmar's financials indicate a projected EPS of INR 34.8 for FY2026, up from an estimated net loss of INR 9.58 per share in FY2024. Based on an exit multiple of ~18x, the company's target price is set at INR 625, implying a 40% upside potential over the next 12-18 months.

Chemplast Sanmar Limited's strong market presence, strategic initiatives, and commitment to sustainability position the company for long-term growth and value creation. With a favorable industry outlook and a compelling valuation, Chemplast Sanmar presents an attractive investment opportunity for investors seeking exposure to the Indian chemical industry.

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Disclaimer:

Mool Capital Limited is a SEBI Registered Research Analyst having registration no. INH000012449. This report has been prepared by Mool Capital Pvt. Ltd. and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with Mool Capital. Mool Capital and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.