ICICI Securities

Chemplast Sanmar (Buy)

Target: ₹910

CMP: ₹772.30

Incorporated in 1962, Chemplast Sanmar (CSL) is a leading manufacturer of PVC resin in India. It plans to accelerate its custom manufacturing business. It is backward-integrated for paste PVC, which gives the company exposure to caustic soda, chloromethane and hydrogen peroxide markets. PVC market is undergoing structural changes with tightening supplies, which favours PVC manufacturers.

CSL is also focused on increasing revenues from custom manufacturing with a planned capex of ₹340 crore over the next 3-4 years. EBITDA is likely jump to ₹1,140 crore in FY23 from ₹960 crore in FY21 and ₹400 crore in FY20; net profit is estimated to surge to ₹720 crore in FY23 from ₹280 crore in FY21.

Post-tax RoCE are likely to be healthy at 31 per cent and 27 per cent respectively in FY23 and FY24, while we see FCF generation of ₹550 crore from FY23 onwards. We agree CSL has a tough history and its venture into Egypt caused huge distress on the company and the group, which had likely limited its ability to invest in the profitable India business. We see the situation has significantly improved with the IPO fund raise helping the company and the group to deleverage. We initiate coverage on CSL with a Buy rating and target price of ₹910, valuing the stock at 20x FY23 P/E.

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