Chemplast Sanmar Q4FY22 - summary of concall transcript

 Chemplast Sanmar Q4FY22 - summary of concall transcript

https://www.bseindia.com/xml-data/corpfiling/AttachHis/bc4a7486-1894-4bb1-a2f4-ac9983d9c872.pdf

 

China Supply 

Most of the carbide based PVC plants there - out of 20 million tons, 15 million to 16 million tons have their own captive carbide so they would not see the coal costs rise so much, it is only the balance 4 or 5 million tons, which will have that.

PVC Market Outlook – 5 years

As far as PVC is concerned, the medium-term outlook is really very. In fact, IHS Markit which is the leading industry analysts have estimated that in the next five years by 2022-2026 the demand will grow by around 9 million tons whereas the supply will grow only by around 4 million tons and operating rates of plants around the world will go up to over 93%. This is a very high percentage and what they have not even considered is the fact of a lot of carbide PVC plants getting stressed and dropping off the grid in China largely because of the mercury issue and also because of the carbon issue because these are essentially from coal. So this is going to be a very structurally tight scenario in PVC and in India we are already deficit by almost 2 million tons and this is only going to get even more deficit, therefore once the normal laws of supply and demand will tend to  operate then, which would really indicate higher prices all around - we will have to wait and see how much and how soon they play out.

 

Debt

Total loans that we have is 867 Crores at an average cost of around 8.25%, so that will be roughly around 70 Crores per annum, which translates to roughly around 17 Crores to 18 Crores per quarter, rest of it pertains to the trade finance, LC opening charges, all of that combined together.

As far as the debt, what level of debt we will be comfortable with, as you would know that post IPO the rating has consistently moved up and it is at AA- level, so we would like to retain AA rating for this company, AA- around this level of rating for this company, so we would sort of be comfortable taking a debt which does not impact our rating going forward that is broadly how we are seeing the projects and capital allocation.


Delta between PVC and VCM – stable between USD 300-400

PVC – VCM   Oct 2021        1900-1600

                        Jan 2022        1500-1100

                        Apr 2022        1560-1195

                        Now                1500-1100

The deltas are quite stable - the problem, the reason why the month-on-month margins could vary a bit is largely because in the arrival of the feedstock normally there is a lag was around 30 to 45 days, therefore while the finished product price any movement affects the Indian prices immediately, so in a rising market this will tend to help us, in a falling market this will tend to impact us for that one month or 45 days. So that is really what is happening, otherwise the deltas are remaining pretty much stable at between $325 and $400.

 

When we say contribution actually we do not look at only gross margin we look at even after considering the power, fuel, additives all of that, all of that is considered. On the gross margin numbers actually we would only guide you this way, if you look at the last year gross margin or EBITDA, whichever way we look at it, if you look at the last year we made the 344 Crores of EBITDA on a Y-o-Y basis and the gross margin of 545 Crores which translated your 26% EBITDA margin and 41% gross margin whereas even with slightly higher gross margin this year, the absolute number was at 601 Crores, the percentage looks lower that is mainly because the base has changed, so what we track more importantly is the per unit contribution that is what is more important to us

Chemplast Sanmar and Chemplast Cuddalore

                        Q4 Revenue Q4 Ebidta

CS                      640                 191

CC                      1158               156

 

Chemplast Sanmar has paste PVC, CSM business and it also has the nonspecialty product which is caustic soda, chloromethanes and hydrogen peroxide and ref gas. That is mainly because the level of integration that we have in the Chemplast business. There we are fairly integrated till the ethylene level, we import our own ethylene, make EDC and then make inhouse VCM and convert to paste PVC and also on the caustic soda side as well we have our own captive salt fields, we have significant part of our power captively, so we are fairly integrated there which translates into higher margins, in the CCVL business it is sort of a one step process where we import VCM and convert to PVC so there we actually derive the margins of that one step process that is broadly the difference.

Power Consumption

In April, we consumed around 3.76 Crores units is it that is the question again I hope, so if you want to understand, our total power consumption in 2021-2022 was 43 Crore units and that went up from 33 Crore units in 2021 largely because in 2020-2021 because of the national lock down on COVID in April to June ,lot of our plants were not running at that time - so 43 Crores units was the full year consumption of power in 2021-2022 and in April if you are looking at it a little less than 4 Crore units.

In April for instance 55% comes from coal and gas, which is captive plants and the balance, is bought out.

 

  Capex[4]
- Expanding specialty paste PVC resin capacity by 35'000 MTPA in Cuddalore by FY24 at a cost of 256 cr.[5]
- Setting up 2-blocks for a multipurpose facility in custom manufacturing division at a cost of 340 cr. (expected commissioning in 2025)[6] (First phase in June-july 2023)

 

Guidance for FY23 and beyond

 In 2022-2023 with that PVC suspension debottlenecking and the hydrogen peroxide ramping up that will add definitely some amount to the sales of maybe around 400 Crores to 500 Crores
 
The growth that is expected in the custom manufacturing business like we mentioned we are investing around 340 Crores in this business, so considering the asset turn of around 2 that itself should give us around 700 Crores of incremental revenue from this business to the baseline that we have today, so maybe if all adds up closer to 1000 Crores levels level of revenue once we complete all these expansions and ramp it up 

Chemplast is in the process of adding 41,000 tons capacity at Cuddalore, which is expected to come on stream in the financial year 2024. 

When all the projects are coming up fully the increase in sales for the announced projects itself should be to the tune of around 1700 Crores to 1800 Crores and therefore obviously the margins would also be to that extent more, so sustainability of the current EBITDA is something that we are confident of