Chemplast Sanmar IPO – Reasons to invest and Risk Factors (Review)
Chemplast Sanmar IPO (Chemplast IPO) Details
Chennai based Chemplast Sanmar is coming up with IPO that would open for subscription on 10th August 2021. Chemplast Sanmar Limited is a leading specialty chemical manufacturer in India. Company posted strong revenue growth in FY21 compared to FY19 and FY20. Should you invest in Chemplast Sanmar IPO? What are the risk factors in this IPO?
About Chemplast Sanmar Limited
Chemplast Sanmar Limited (CSL) is a specialty chemicals manufacturer in India.
Its focus is on specialty paste PVC resin and custom manufacturing of starting materials and intermediates for pharmaceutical, agro-chemical and fine chemicals sectors.
CSL is one of India’s leading manufacturers of specialty paste PVC resin based on installed production capacity. In addition, CSL is also the third largest manufacturer of caustic soda and the largest manufacturer of hydrogen peroxide in the South India region, based on installed production capacity as of December 31, 2020, and one of the oldest manufacturers in the chloromethanes market in India.
Pursuant to the CCVL Acquisition, they acquired 100.0% equity interest in CCVL that is the second largest manufacturer of suspension PVC resin in India and the largest manufacturer in the South India region, based on installed production capacity.
Chemplast Sanmar IPO details
|IPO Opening Date||10-Aug-21|
|IPO Closing Date||12-Aug-21|
|Issue Type||Book Built Issue IPO|
|Face Value||Rs 5 per equity share|
|IPO Price band||Rs 530 to Rs 541 per equity share|
|Lot Size||27 Shares|
|Min Order Quantity||27 Shares|
|Listing at||BSE and NSE|
|Issue Size||Total Size: Rs 3,850 Crores
i) OFS: Rs 2,550 Crores
ii) Fresh Issue: Rs 1,300 Crores
What are Chemplast Sanmar Limited competitive strengths?
1) Company is the largest manufacturer of specialty paste PVC resins in India in terms of installed production capacity.
2) It is 3rd largest manufacturer of caustic soda and the largest manufacturer of hydrogen peroxide in South India.
3) A part of the SHL chemicals Group, is one of the most prominent corporate groups in South India.
4) Company with vertically integrated business model with a focus on quality manufacturing.
5) It has highly experienced managerial team.
What are the Objects of the Offer?
It has two objects of the offer for the IPO size of Rs 3,850 Crores.
1) Offer for Sale (OFS) Rs 2,550 Crores: Under OFS selling shareholders would sell the shares and company would not get any proceeds from the issue.
2) Fresh issue for Rs 1,300 Crores: Fresh issue would be utilized for the following:
- i) Early redemption of NCDs issued by the company in full.
- ii) Meet general corporate purposes.
Who is the promoter of Chemplast Sanmar Limited?
Sanmar Holdings Limited is the promoter of the company.
How is the company financial track record?
Here are the total assets, revenues and profits of the company in the last 3 years.
|Financial Year ending / Period ending (Amt in Mns)|
|Profit After Tax||1,184.6||461.2||4,102.4|
Why to invest in Chemplast Sanmar IPO?
Here are the positive factors in this company.
1) Chemplast Sanmar Limited is a leading specialty chemical manufacturer in India. It is largest manufacturer of specialty paste PVC in India, 3rd largest manufacture of caustic soda and largest manufacture of hydrogen peroxide in South India. Company is vertically integrated business model with focus on quality manufacturing.
2) Company consolidated revenues show strong revenue growth in FY21 compared to FY20 and FY19.
3) Company margins for FY19, FY20 and FY21 are at Rs 118.4 Crores, 46.1 Crores and 410.2 Crores. Its margins show improvement in FY21, however there are one timer to the tune of Rs 148 Crores (net off) which are due to stake sale and profit/loss from joint venture/associate companies. If we normalize, its FY21 margins are still higher than FY20 (while FY20 there is dip).
Risk Factors in Chemplast Sanmar IPO
1) To the extent to which covid-19 affects it business, results of operation and financial condition will depend on future development which is uncertain and cannot be predicted.
2) Company do not own premises for registered office. Further its manufacturing facility on parcels that are held on leasehold as well as free hold basis. Even its Vedaranyam Salt Field lease has expired.
3) Company has incurred significant indebtedness and its lenders have imposed certain restrictive conditions on them under financing arrangements. This may limit company ability to pursue its business and limit its flexibility for planning.
4) Company statutory auditor has included certain emphasis of matters in its examination report on its restated consolidated summary statements.
5) Company intellectual property rights may not be adequately protected against third party infringement.
6) 100% of the share capital of CCVL, which is held by its company, is pledged in favor of HDFC.
7) Its ability to access capital at attractive costs depends on its credit ratings. Non-availability of credit ratings or a poor rating may restrict its access to capital and thereby adversely affect its business and results of operations.
8) Investors should read complete risk factors indicated in the RHP of the IPO document before investing in this IPO.
Chemplast Sanmar IPO dates for subscription, Allotment and Listing
|Finalization of Allotment||18-Aug-21|
|Initiation of Refunds||20-Aug-21|
|Credit to Demat Account||23-Aug-21|
|IPO Shares Listing Date||24-Aug-21|
Is Chemplast Sanmar IPO Price is underpriced or overpriced?
Its IPO price band is Rs 530 to Rs 541.
1) On the upper price band of Rs 541 and last 3 years average EPS of Rs 16.74, the P/E ratio works out 32x.
2) If we take FY21 EPS of Rs 30.6, the P/E ratio works out 17.6x.
3) Means company is asking issue price in the P/E range of 17.6x to 32x.
3) There are listed peers in this segment like Navin Fluorine trading at P/E 74x (Highest) and Finolex Industries trading at P/E 15x (Lowest) and industry average P/E of 43x. Hence the Chemplast IPO Share Price of Rs 541 (upper price band) at P/E of 17.6x to 32x is reasonably priced.
What is Chemplast Sanmar IPO GMP?
Chemplast Sanmar IPO GMP is not yet known as we could not see any trades happening. GMP is nothing but the premium at which the shares are trading in offline market. This is just an indication about IPO price as it is unorganized market.
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Chemplast Sanmar IPO – Review and Conclusion
Chemplast Sanmar Limited is a leading specialty chemical manufacturer in India.
While company revenues are stable in FY19 and FY20, it generated significant revenue growth in FY21.
Company margins have dropped in FY20, however improved in FY21.
The IPO share price is reasonably priced.
Considering the growth prospects of the company and various positive factors, investors can invest in this IPO for medium to long term.
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