CHEMPLASTSNSEQ4 FY2022May 17, 2022

Chemplast Sanmar Limited

9,706words
108turns
15analyst exchanges
3executives
Management on call
Ramkumar Shankar
MANAGING DIRECTOR – CHEMPLAST SANMAR LIMITED
N. Muralidharan
CHIEF FINANCIAL OFFICER
Krishna Kumar Rangachari
DEPUTY
Key numbers — 40 extracted
Rs.5892 Crore
passing quarter in this year. For the year as a whole, we registered our highest ever revenue of Rs.5892 Crores, which was a 55% growth on a year-on-year basis with a healthy EBITDA margin of 20.3%. We also a
55%
r. For the year as a whole, we registered our highest ever revenue of Rs.5892 Crores, which was a 55% growth on a year-on-year basis with a healthy EBITDA margin of 20.3%. We also achieved the highes
20.3%
of Rs.5892 Crores, which was a 55% growth on a year-on-year basis with a healthy EBITDA margin of 20.3%. We also achieved the highest ever net profit of Rs.649 Crores a year-on-year increase of 109% an
Rs.649 Crore
ar basis with a healthy EBITDA margin of 20.3%. We also achieved the highest ever net profit of Rs.649 Crores a year-on-year increase of 109% and the record EPS of Rs.43.66 per share. The quarter gone by wi
109%
f 20.3%. We also achieved the highest ever net profit of Rs.649 Crores a year-on-year increase of 109% and the record EPS of Rs.43.66 per share. The quarter gone by witnessed the third-wave of COVID w
Rs.43.66
he highest ever net profit of Rs.649 Crores a year-on-year increase of 109% and the record EPS of Rs.43.66 per share. The quarter gone by witnessed the third-wave of COVID with the Omicron variant. Thank
35%
mpact from that crisis directly. Q4 has been a good quarter financially with revenues recording a 35% growth year-on- year. Our EBITDA however registered only a marginal increase of 1% in Q4 on a year
1%
es recording a 35% growth year-on- year. Our EBITDA however registered only a marginal increase of 1% in Q4 on a year- on-year basis largely because of the very strong Q4 that we had in FY2021 especia
28%
te the excess inventory, which we had built up in Q3. This also led to a year-on-year increase of 28% in our sales volume in Q4 FY2022. Also, our custom manufactured chemicals saw a significant inc
13%
quidation of the inventory built up in the last quarter our suspension PVC paste volume surged by 13% to 87,523 metric tons leading to an excellent growth of 25% in the revenues on a year- on-year b
25%
suspension PVC paste volume surged by 13% to 87,523 metric tons leading to an excellent growth of 25% in the revenues on a year- on-year basis. There are some immediate short-term challenges though ar
rs,
paste PVC as well as in caustic soda will support the prices and demand. Over the next five years, the operating rates of specialty paste PVC resin producers are expected to remain high on an accou
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Guidance — 20 items
Ramkumar Shankar
opening
“Russia is net balanced in PVC trade with Ukraine exporting 140,000 tons per year of PVC but India does not import any significant quantity of PVC either from Russia or Ukraine, so we do not expect any significant impact from that crisis directly.”
Ramkumar Shankar
opening
“While this is accompanied by a similar decrease on the feedstock prices as well, the benefit of the drop in feedstock prices will be seen only after a lag of 30 to 45 days.”
N. Muralidharan
opening
“Going forward, the drop in interest cost will be even sharper driven by high EBITDA and lower interest cost.”
Ahmed
qa
“We do understand the disappointment right now, but you would have to grant us that we have just been post listing it has just been two or three quarters and we are still young, we are working on this entire growth of the company and we will get back to you once we have the clarity - we do not expect that will take too long.”
Ahmed
qa
“For now I accept your answer Sir and I will come back to you next quarter.”
Ahmed
qa
“Got it, one question to understand the margin of suspension PVC business, so we sold about 18000 tons this quarter and close to 20000 to 25000 tons will be from the high cost inventory, so if I want to bifurcate the spreads we earned on the old inventory and the new production we did in this quarter can you just throw some light, how the difference will be in the spread?”
N. Muralidharan
qa
“Out of this like we had mentioned in the last call as well the first two months we had indicated that will be impacted by the high cost inventory we carried over from the previous quarter, so the first two months average was somewhere around Rs.18000, the last month average was around Rs.29000, this sort of averaged to 22000 for the quarter as a whole.”
N. Muralidharan
qa
“On the growth number that you talked about we had alluded to a number of 35%, we had talked about last three, four years we have been growing at 35% level and we were saying that our growth will be on similar trajectory going forward, I can only mention that we have exceeded it by a significant margin, I would try to avoid getting into the exact number, but I can only say that we have exceeded it by a significant margin.”
Ramkumar Shankar
qa
“We are quite comfortable in the supply chain that we have built up, we also partner with a leading Japanese trading company, which has the world’s largest position in VCM and therefore we are very confident about meeting the existing requirements and also for the already announced paste PVC project.”
Ramkumar Shankar
qa
“As far as the significant expansion is concerned, that is where we are dotting the i’s and crossing the t’s and we will take that up when we are absolutely sure -it has always been our practice to ensure a very high level of comfort and confidence before we announce a project, but once we announce it we go ahead with it and execute it as well.”
Risks & concerns — 3 flagged
The impact of the ongoing Russia-Ukraine crisis is felt more on the energy prices with rising coal and power prices rather than on demand and supply.
— Ramkumar Shankar
This is putting some pressure on the PVC prices in the region.
— Ramkumar Shankar
Sir, secondly just a small breakup in the finance cost I believe you have this trade financing and one is the pure loan on which you pay the interest is it possible to in some sense split the number because I believe the trade financing will not decline, but the core finance cost which is that you pay on your loans that will decline?
— Dhruv Muchhal
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Q&A — 15 exchanges
Q
Good morning, good afternoon. I was just wishing the management for a good year and thanking them for a good year and I am addressing myself to the management and through the management to the Board with a question not so much of an operational nature but a bit more strategic, so could you tell us how you think about capital allocation, you have a strong balance sheet now and you do not seem to have capex plan for the cashflows that you will receive and our understanding was that dividend is an important thing for you as well it certainly is for us not so much because of the absolute value of
Ahmed
For now I accept your answer Sir and I will come back to you next quarter. I have a colleague who has a few operational questions for you. One question is regarding the inventory, so last quarter we closed with 6000 tons of paste PVC inventories and close to 24000 to 25000 tons of suspension PVC inventory, so can you share the number at the end of Q4? Yes, at the end of Q4 we had around 3500 tons of suspension PVC inventory and only around 520 tons of paste PVC. We have significantly decreased the stock and come back to our normal inventory levels. Got it, one question to understand the margin
Q
Good morning, Sir. First on the suspension PVC we said in earlier call that we were in discussion with one of our partners to supply the VCM and possibility to expand the suspension PVC now from close to 300000 to 600000 metric tons and we also have EC clearance land and infrastructure for that, is procuring VCM becoming even more difficult in the scenario where gas prices are very high, how should we see this availability of VCM for us to expand do you think this issue of lower VCM availability is going to go away anytime soon or it is going to take more time than what we have anticipated ear
Ramkumar Shankar
Good morning, Sanjesh. This is Ramkumar here and I will take questions one and three and I will then request Krishna to take your second question. In terms of VCM availability, yes, VCM is as you know a refrigerated gas and it is not that easy to transport as well and it needs to be handled with special care, the availability of VCM also it is there around the world, but you will need to have a very good supply chain to access it, this is something that we have built up very effectively and we have sources of VCM from Middle East, from Europe and from Northeast and Southeast Asia. We are quite
Q
Good morning, Sir and congrats for a good set of numbers. Sir, in the presentation you have shared the revenue numbers across three segments, can you tell us a bit of breakup also between commodity, specialty and those three segments?
N. Muralidharan
The way that we look at is Chemplast Sanmar is an one entity and the CCVL is another entity, the non specialty products as well as a specialty chemicals come under Chemplast Sanmar, so they share a lot of common integrated facilities manpower all of that, so we track only at a contribution level for both of those product groups, so we do not track product group wise for specialty products and nonspecialty chemicals whereas for suspension PVC, of course, we do track the EBITDA at suspension PVC level, so we will be able to provide you the data for Chemplast Sanmar and for Chemplast Cuddalore Vi
Q
Sure, thank you.
Management
Q
Raj Here. Sir, I have just one or two clarification, by when does the CSM capex come on stream, you mentioned, sorry I missed the timelines, you mentioned two-third of CSM capex is already committed and it will come on stream by when?
N. Muralidharan
First quarter of FY2024, towards the first quarter June-July of FY2024 is when it will come on stream. You mentioned about the breakup in the margin for the first two months it was around Rs.18000 per ton you mentioned? That is right. Third month you mentioned gross margin was 29000 that was the number? Yes. So, current margin you mentioned there is some inventory loss kind of situation right now also because raw material prices and all are sliding down, so where would the current margin be, could you give any idea because it is quite desperate right first two months 18 and then 29, any ballpa
Q
Thank you so much. Sir, can you probably give us the breakup of power and fuel cost and then the quantum of power and fuel cost in Q4 and last year Q4?
Ramkumar Shankar
If you are looking at how much of the power is actually coming from which kind of source is that the question? That you had shared earlier, I just wanted the ballpark sense of what is the quantum just to understand this probably will be run rate given how the power prices are, how the global competitive prices are? For instance, 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 na
Q
Sure, thanks.
Management
Q
Good morning, Sir and congrats for great set of numbers for the full year. My first question is related to the custom manufacturing business, so before this phase 1 of capex in June-July comes up do we have sufficient capacity to maintain this 35% to 40% kind of growth rate?
N. Muralidharan
Like Krishna explained earlier, actually we are more or less out of capacity in the custom manufacturing business, so we are debottlenecking to some extent to address the new products this year, but that will be a limited debottlenecking that we will be able to do, we will be able to achieve a significant growth once the phase 1 of the expansion gets completed in the early part of next year, so this year it will be a bit of limited growth constrained by capacity that is available, from next year you will start seeing the strong growth. Also based on the orders in hand for FY2023 what is the gr
Q
Yes, I will get back in the queue. Thank you.
Management
Q
Sir, thanks for the opportunity. First question on the working capital side there has been a sort of increase in year-on-year basis both in 2021 there was an increase and in 2022 things have increased further, so if you can just highlight is there any business specific impact here?
N Muralidharan
There is no business specific impact, actually it is all due to timing difference, if you look at the working capital the increase has come from inventory and debtors, which has been partly offset by increase in trade payables, so on the inventory we had, it depends on the timing of shipments of VCM, we had significant amount of VCM as goods in transit at the end of the year, we had almost 20,000 tons of VCM as goods in transits towards the end of the year, which contributed to the increase in inventory towards year end, it is only a timing difference as well as on the debtors, as you know in
Q
Thank you for the opportunity. A couple of questions, one is that on the specialty chemicals business and other businesses that you gave segment revenues, you tracked the businesses more on contribution, now if I look at the contribution this year it is closer to 30% to 35% gross contribution compared to 40% plus a year back, as you look at the next two years where what would be the range would it be closer to 30% or would you think it will be closer to 40% or some guidance or some colour here would be helpful?
N. Muralidharan
On overall basis you are talking about gross margin numbers? That is right. 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 slightl
Q
Congratulations, Mr. Ramkumar, Murali and Krishna Kumar on wonderful result. Sir, my question is can you give some colour of insight in the space previously gross margin, which was around 65,000 to 67,000, so how it is trending up that is one, second for full year FY2023 we are already operating in large part as a full capacity except some Brownfield expansion, which is coming in suspension PVC and this hydrogen peroxide, so how do we see the growth for the FY2023 volume growth, can we expect from which business?
Ramkumar Shankar
Good morning, Bharat Bhai, this is Ramkumar here, taking the second question first, the volume growth would effectively come from suspension PVC, the completion of the debottlenecking - this is a phased debottlenecking, part of which is already completed and we are seeing the benefit of that already and by the end of June we should be complete maybe another 25,000 tons would come this year and next year we get the full impact of the 30,000 tons, we will also have another 15,000 tons of hydrogen peroxide, which we will get the benefit of and the small volume increase in caustic soda as we take
Q
Thank you for the opportunity. In terms of PVC outlook for the next two to three years considering the PVC demand supply and also on the VCM side demand supply, how do you see the spread spanning out over the next two to three years?
Ramkumar Shankar
See, as far as PVC is concerned, as I mentioned also I guess in the previous call, the medium term outlook is really very strong largely because the demand growth is expected to fast outpace the supply growth. 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 carbi
Q
Thanks for the opportunity. Sir, I have two questions, on the custom synthesis business still you are saying a lot of opportunities and we have been now one of the preferred supplier so where do we envisage this business say three to four years down the line, just a ballpark number in terms of revenue or probably percentage of our overall scheme of things and also will we plan to kind of get into long-term specific contract with the specific innovator company that we are talking about?
Krishna Kumar R
With respect to your question on long-term contracts with the specific customers, specific projects it depends on the projects itself, the fact that we just announced that one of our customers has upgraded us to a development supplier by that itself is a significant accomplishment or achievement what that is, many of the projects that they would have in their pipeline or new chemistry, new molecules that they are launching they would consider us or they would route many of those enquiries to us as the first supplier and some of those projects if it requires the long-term contract they would pu
Q
Thank you everyone for joining us today on this earnings call and we appreciate your interest in Chemplast. If you have any further queries please do contact SGA, our investor relations advisor. Thank you very much for your time.
Management
Speaking time
N. Muralidharan
25
Moderator
17
Ramkumar Shankar
14
Raj Gandhi
8
Sachin Kasera
6
Dhruv Muchhal
5
Chintan Chedda
5
Jayesh Gandhi
5
Ahmed
4
Sanjesh Jain
4
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Opening remarks
Ramkumar Shankar
Thank you very much and good morning everybody. On behalf of Chemplast Sanmar Limited, I extend a very warm welcome to everyone joining us on the call today. On this call I am joined by our CFO, Mr. N. Muralidharan, Dr. Krishna Kumar Rangachari who leads our Custom Manufactured Chemicals Division and SGA our Investor Relations Advisor. As you are aware, Mr. N. Sankar, Chairman Emeritus of the Company passed away on April 17, 2022. His contribution to Chemplast with which he was associated for 55 years and indeed to Indian industry is invaluable as are his contributions to the fields of sports, music, heritage, education, and healthcare. We would like to pay our respects to him today and I speak on behalf of the management team in saying that we rededicate ourselves to the value systems that he held so dear. I hope everyone had an opportunity to go through the financial results and investor presentation, which has been uploaded on the stock exchange and on our Company’s website. The Com
N. Muralidharan
Thank you Ramkumar and a very good morning to everyone on the call. Looking at the results of the Company for Q4 and the financial year FY2022 there was a significant increase in our revenues during the quarter as well as for the full year FY2022 on Y-o- Y basis. Revenue from operations for Q4 FY2022 went up by 35% on year-on-year basis from 1,342 Crores to 1807 Crores due to pickup in demand coupled with better realization for most of the products. As we mentioned earlier, we ended the last quarter with higher level of inventories of both paste PVC and suspension PVC due to restrictions around operation of downstream units in the NCR region due to poor air quality and extended monsoons during October-December 2021 quarter impacting the demand. The demand picked up strongly in Q4 FY2022 and the inventory levels are now back to normal range of our inventory. EBITDA for the quarter was at 346 Crores registering a marginal growth of 1% on year-on-year basis, volume increase was offset by
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