ICICI Securities is bullish on stocks of Chemplast Sanmar Ltd., a speciality chemical sector company. The brokerage suggests buy for a target price of Rs 725 apiece. Considering the estimated target price for the stock, if investors buy the stocks of the company at the current market price, they can expect potential gains of 60% in 12 months. The company's speciality volumes rose 54% YoY (fell 38% QoQ) to 14kte, which was lower than normalised levels as volumes were impacted from destocking by customers in anticipation of fall in prices and excess supply from China.

Stock Outlook & Returns The current market price of the stock is Rs 451.60 apiece, trading 0.10% up from the previous close of Rs 451.15. Today's open is Rs 451.95 apiece. Currently, it is trading Rs 68.9 apiece above the 52-week low.  The stock hit the 52-week low recently on 20 June 2022 at Rs 382.70 apiece. The 52 week high of the stock is Rs 826 apiece, recorded on 11 October 2021. The TTM PE ratio is 18.04, and the P/B ratio is 2.70. The TTM EPS is Rs 25.09, and ROE is 14.26%.  The stock has not performed well in terms of returns on investment over the past since its listing. It was listed on the exchange in February this year. Over the past 1 week, the stock has fallen 6.69%. In the past 1 month the stock has fallen 6.04% and in the past 3 months, the stocks have fallen 10.9%, respectively. Since its listing, the stocks have given a negative return of 15.98%.    Volumes hurt from destocking and lower spreads Specialty volumes rose 54% YoY (fell 38% QoQ) to 14kte, which was lower than normalised levels as volumes were impacted from destocking by customers in anticipation of fall in prices and excess supply from China. This compressed spreads and the company had to sacrifice volumes. SPVC volumes increased by 40.5% YoY (declined 14.9% QoQ) to 74kte. Company should see rise in S-PVC volumes with new debottlenecking capacity available from the next quarter. Non-specialty volumes were up 32% YoY (down 6.2% QoQ) to 38kte. Specialty spreads (gross profit per kg) dipped 6.1% YoY to Rs251/kg, and S-PVC spreads were down 6.3% YoY to Rs22/kg. Underlying S-PVC-VCM spreads at US$300 Though Chemplast saw compression in spreads for PVC in Q1FY23 due to excess supply from China, fall in raw-material prices should have accelerated destocking by the Chinese. Company had to take write-down on inventory of Rs0.8bn for finished PVC (S-PVC: 10kte; P-PVC: 4.5kte) and intermediates (S-PVC: 35kte; and P-PVC: 22kte). Chemplast has taken a hit on realisation based on prices of Jul'22 such that closing stock are marked down to current selling prices; and normalised spreads will made only on new VCM purchase. Chemplast said spot PVC spreads are stable at US$300, which means spreads should recover as Chinese supplies normalise and India volumes pick up post monsoon. EBITDA and net profit collapse in Q1FY23 Revenue grew 47% YoY (fell 22%) to Rs14bn. Gross profit rose 40% YoY (down 16% QoQ) to Rs5bn; however, employee and other expenses rose 31% and 52% YoY to Rs363mn and Rs2.8bn, respectively. Other expenses rose on account on higher power cost (coal). EBITDA rose 28% YoY (declined 44% QoQ) to Rs1.9bn. Chemplast has taken one-time hit of Rs0.8bn from inventory write-down, which resulted in 83% QoQ crash in net profit to Rs406mn. ICICI Direct Recommends buy for a target price of Rs 725 Chemplast Sanmar's Q1FY23 spreads were impacted by various factors including: 1) China dumping excess supply into India and other regions; 2) falling PVC / VCM prices pushing buyers to start destocking, which hurt volumes; and 3) sharp fall in prices and slower volume offtake leading to inventory write-downs. "EBITDA dipped 44% QoQ (vs volume decline of 16%), which was exacerbated by higher power cost (coal). Considering that the company will record nil PVC spreads for almost half of Q2FY23, we can infer that full recovery in financials will be visible only in H2FY23. Chemplast has started construction of its custom manufacturing plant while that of the paste-PVC plant is progressing as planned and these plants should go on-stream in FY24. Chemplast is working on fresh capex for existing products and expansion into new products as well. We slash our FY23E EPS by 60% on a tough H1FY23 while we cut FY24E EPS by only 9%. Our revised target price is Rs725 (earlier: Rs800) valuing the stock at 18x FY24E EPS. Maintain BUY," the brokerage firm has said. About - Chemplast Sanmar Limited Chemplast Sanmar is over fifty years old and is a part of the SHL Chemicals Group, which in turn is a constituent of the Sanmar Group, one of the oldest and most prominent corporate groups in South India. Fairfax India Holdings Corporation (Fairfax) a well-known international investor led by Mr Prem Watsa, based in Canada, has invested, through FIH Mauritius Investments Limited, in the SHL Chemicals Group since 2016. It is a major manufacturer of Speciality Chemicals such as Specialty Paste PVC resin and Custom Manufactured Chemicals for the agro-chemical, pharmaceutical and fine chemicals sectors. The company also produces other chemicals such as Caustic Soda, Chlorochemicals, Hydrogen Peroxide, Refrigerant gas and Industrial Salt. The manufacturing facilities are located at Mettur, Berigai and Vedaranyam in Tamil Nadu and Karaikal in the Union Territory of Puducherry. The Chlorochemicals division of Chemplast, a result of backward integration by the Group, manufactures a wide range of products using a highly integrated manufacturing process.

The current market price of the stock is Rs 451.60 apiece, trading 0.10% up from the previous close of Rs 451.15. Today's open is Rs 451.95 apiece. Currently, it is trading Rs 68.9 apiece above the 52-week low. 

The stock hit the 52-week low recently on 20 June 2022 at Rs 382.70 apiece. The 52 week high of the stock is Rs 826 apiece, recorded on 11 October 2021. The TTM PE ratio is 18.04, and the P/B ratio is 2.70. The TTM EPS is Rs 25.09, and ROE is 14.26%. 

The stock has not performed well in terms of returns on investment over the past since its listing. It was listed on the exchange in February this year. Over the past 1 week, the stock has fallen 6.69%. In the past 1 month the stock has fallen 6.04% and in the past 3 months, the stocks have fallen 10.9%, respectively. Since its listing, the stocks have given a negative return of 15.98%. 

Specialty volumes rose 54% YoY (fell 38% QoQ) to 14kte, which was lower than normalised levels as volumes were impacted from destocking by customers in anticipation of fall in prices and excess supply from China. This compressed spreads and the company had to sacrifice volumes. SPVC volumes increased by 40.5% YoY (declined 14.9% QoQ) to 74kte. Company should see rise in S-PVC volumes with new debottlenecking capacity available from the next quarter. Non-specialty volumes were up 32% YoY (down 6.2% QoQ) to 38kte. Specialty spreads (gross profit per kg) dipped 6.1% YoY to Rs251/kg, and S-PVC spreads were down 6.3% YoY to Rs22/kg.

Though Chemplast saw compression in spreads for PVC in Q1FY23 due to excess supply from China, fall in raw-material prices should have accelerated destocking by the Chinese. Company had to take write-down on inventory of Rs0.8bn for finished PVC (S-PVC: 10kte; P-PVC: 4.5kte) and intermediates (S-PVC: 35kte; and P-PVC: 22kte). Chemplast has taken a hit on realisation based on prices of Jul'22 such that closing stock are marked down to current selling prices; and normalised spreads will made only on new VCM purchase. Chemplast said spot PVC spreads are stable at US$300, which means spreads should recover as Chinese supplies normalise and India volumes pick up post monsoon.

Revenue grew 47% YoY (fell 22%) to Rs14bn. Gross profit rose 40% YoY (down 16% QoQ) to Rs5bn; however, employee and other expenses rose 31% and 52% YoY to Rs363mn and Rs2.8bn, respectively. Other expenses rose on account on higher power cost (coal). EBITDA rose 28% YoY (declined 44% QoQ) to Rs1.9bn. Chemplast has taken one-time hit of Rs0.8bn from inventory write-down, which resulted in 83% QoQ crash in net profit to Rs406mn.

Chemplast Sanmar's Q1FY23 spreads were impacted by various factors including: 1) China dumping excess supply into India and other regions; 2) falling PVC / VCM prices pushing buyers to start destocking, which hurt volumes; and 3) sharp fall in prices and slower volume offtake leading to inventory write-downs. "EBITDA dipped 44% QoQ (vs volume decline of 16%), which was exacerbated by higher power cost (coal). Considering that the company will record nil PVC spreads for almost half of Q2FY23, we can infer that full recovery in financials will be visible only in H2FY23. Chemplast has started construction of its custom manufacturing plant while that of the paste-PVC plant is progressing as planned and these plants should go on-stream in FY24. Chemplast is working on fresh capex for existing products and expansion into new products as well. We slash our FY23E EPS by 60% on a tough H1FY23 while we cut FY24E EPS by only 9%. Our revised target price is Rs725 (earlier: Rs800) valuing the stock at 18x FY24E EPS. Maintain BUY," the brokerage firm has said.

Chemplast Sanmar is over fifty years old and is a part of the SHL Chemicals Group, which in turn is a constituent of the Sanmar Group, one of the oldest and most prominent corporate groups in South India. Fairfax India Holdings Corporation (Fairfax) a well-known international investor led by Mr Prem Watsa, based in Canada, has invested, through FIH Mauritius Investments Limited, in the SHL Chemicals Group since 2016. It is a major manufacturer of Speciality Chemicals such as Specialty Paste PVC resin and Custom Manufactured Chemicals for the agro-chemical, pharmaceutical and fine chemicals sectors. The company also produces other chemicals such as Caustic Soda, Chlorochemicals, Hydrogen Peroxide, Refrigerant gas and Industrial Salt. The manufacturing facilities are located at Mettur, Berigai and Vedaranyam in Tamil Nadu and Karaikal in the Union Territory of Puducherry. The Chlorochemicals division of Chemplast, a result of backward integration by the Group, manufactures a wide range of products using a highly integrated manufacturing process.

The stock has been picked from the brokerage report of ICICI Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.