CHEMPLASTSNSEQ3 FY2022February 9, 2022

Chemplast Sanmar Limited

9,284words
124turns
13analyst exchanges
3executives
Management on call
Abhijit Akella
IIFL SECURITIES LIMITED
N. Muralidharan
EXECUTIVE DIRECTOR FINANCE - CHEMPLAST SANMAR LIMITED
Krishna Kumar Rangachari
EXECUTIVE DIRECTOR
Key numbers — 40 extracted
rs,
nt industrial groups in South India and Fairfax, a well known international investor. Over the years, Chemplast has carved out a niche in the Indian specialty chemicals sector. We are the largest manu
33%
the quarter just ended. Q3 has been a very strong quarter financially with revenues registering a 33% growth year-on-year and net profit growing 48% year-on-year. Our CFO, Muralidharan, will talk abo
48%
ng quarter financially with revenues registering a 33% growth year-on-year and net profit growing 48% year-on-year. Our CFO, Muralidharan, will talk about this in detail a bit later. Our specialty ch
10%
her aspect of growth which is very imminent is a de-bottlenecking of a suspension PVC capacity by 10%. This is expected to come fully online by the first quarter of FY23. This is a phased de-bottlene
Rs. 1,452 Crore
mpared to the same period of the previous financial year. Revenue from operations for Q3 stood at Rs. 1,452 Crores registering a growth of 33% on a year-on-year basis. This was on account of high realizations pe
Rs. 353 Crore
pply tightness we expect the prices to be reasonably range bound. EBITDA for the quarter was at Rs. 353 Crores registering a growth of 25% on year-on-year and the EBITDA margin for the quarter was at the hea
25%
o be reasonably range bound. EBITDA for the quarter was at Rs. 353 Crores registering a growth of 25% on year-on-year and the EBITDA margin for the quarter was at the healthy level of 24%. Chemplas
24%
a growth of 25% on year-on-year and the EBITDA margin for the quarter was at the healthy level of 24%. Chemplast Sanmar prepaid its NCDs in the month of August using IPO proceeds and our subsidiary,
11.75%
th of August using IPO proceeds and our subsidiary, CCVL, had renegotiated its term interest from 11.75% to 8.75% in Q2 FY22. Thus, our finance cost for the quarter came down significantly to Rs. 37 Cro
8.75%
st using IPO proceeds and our subsidiary, CCVL, had renegotiated its term interest from 11.75% to 8.75% in Q2 FY22. Thus, our finance cost for the quarter came down significantly to Rs. 37 Crores from
Rs. 37 Crore
rom 11.75% to 8.75% in Q2 FY22. Thus, our finance cost for the quarter came down significantly to Rs. 37 Crores from Rs. 113 Crores on year-on-year basis. Driven by higher operating profits and lower interest
Rs. 113 Crore
in Q2 FY22. Thus, our finance cost for the quarter came down significantly to Rs. 37 Crores from Rs. 113 Crores on year-on-year basis. Driven by higher operating profits and lower interest and finance cost, t
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Guidance — 20 items
Ramkumar Shankar
opening
“After reaching all time highs in October, paste PVC prices corrected a bit and are now trading close to US $1700 to $1750 per tonne, and in the near to medium term horizon, we expect prices to be range-bound.”
Ramkumar Shankar
opening
“Once the market absorbs the incremental volume, we expect the prices to move up again.”
Ramkumar Shankar
opening
“We expect prices to continue to remain strong as no significant capacity additions are on the anvil in the near term.”
Ramkumar Shankar
opening
“Therefore, we expect margins on suspension PVC to improve in a couple of months as the benefit of the VCM price drops start to register.”
Ramkumar Shankar
opening
“This project is well on track and it is expected to come up by FY24 near the existing facility of our wholly-owned subsidiary, Chemplast Cuddalore Vinyls Limited, at Cuddalore.”
N. Muralidharan
opening
“Going forward, with the strong pick-up in demand and continuing supply tightness we expect the prices to be reasonably range bound.”
N. Muralidharan
qa
“I am sure when the annual results are published at that point in time; the board will consider and take an appropriate decision on the dividend in terms of what is the policy for dividend going forward and what would be the distribution, all of those.”
N. Muralidharan
qa
“As far as, the project funding is concerned, I think Chemplast Sanmar has enough cash to take care of the equity portion of the project that needs to be funded.”
N. Muralidharan
qa
“As you know the total project that is currently being committed is around Rs.”
N. Muralidharan
qa
“650 to 700 Crores and Chemplast will have enough cash to take care of its commitment towards the project.”
Risks & concerns — 5 flagged
It is noteworthy that the feedstock VCM prices have dropped even more than PVC had, however, the benefit of the drop of the VCM prices would kick-in after a lag of 30 to 45 days while the impact of the drop in PVC prices would have an immediate impact.
— Ramkumar Shankar
Chemplast Sanmar Limited January 31, 2022 The one unknown in the quarter ahead is the impact of the Omicron variant on operation of end-user industries and the demand.
— Ramkumar Shankar
the second question was the volume decline in the Paste PVC segment of the specialty chemical is about 37% odd Y-o-Y also on a Q-o-Q basis and I believe that is largely for the paste PVC, custom manufacturing is broadly similar, so this seems a significant decline so you mentioned about NCR region, but just to get some context here what would be NCR percentage of total India demand for paste PVC?
— Dhruv
I had two questions, the first question is, if you can please share the pricing scenario for Caustic Soda currently versus Q3 quarter, what would be if they decline what would be the approximate percentage decline and what is the outlook and my last question is recently the government of India has revoked the antidumping duty on Flexi films PVC just wanted to understand if this is part of your product portfolio and what would be the contribution for sale if it is product portfolio?
— Yogesh Tiwari
How is that being seen in the fourth quarter and second do you see any supply influx coming in from China during the current quarter, as we understand one of your competitors said that there could be increase in supply from China, which could have a downward pressure on the prices?
— Rajesh Ravi
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Q&A — 13 exchanges
Q
Thank you for the opportunity, Sir. the first question is that there is some demand impact in Q3 because of erratic monsoon and other reasons, so can you please share the inventory pile up as of December 2021 for both suspension and paste PVC?
Ramkumar Shankar
Yes, sure. As you rightly said because of the extended rains in most parts of the country the demand was affected for pipes and therefore for resin as well, our stock as at end of December was around 24,000 tonnes for Suspension PVC and paste PVC stock was around 6,000 tonnes. The demand for this was actually impacted not because of the rains, but more because of the restrictions in the national capital region on the operations of industrial units because of the air quality and significant proportion of the leather cloth industry is situated in the National Capital Region and that affected end
Q
Good afternoon, thank you so much for taking my question. I have a couple, first one was on the PVC business, so in Q3 despite a significant decline in volumes on a quarter-on-quarter basis because of the challenges that you highlighted, the overall EBITDA is flattish sequentially or even slightly higher, which kind of implied that the margins have expanded quite significantly sequentially and in your commentary Chemplast Sanmar Limited January 31, 2022 you also mentioned that the benefit of the correction in VCM prices will be visible over the next 30 to 45 days, so I just wanted to clarify s
Ramkumar Shankar
Abhijit that was a good question. Let me just take a step back and explain what happened in Q3. We reached record highs of suspension PVC prices in October 2021 and thereafter once this was at the peak of the dual controls and all that coal shortages that were there around the region especially in China and thereafter when the Chinese government stepped in and corrected the situation there because of the coming winter requirements for heating, the availability of PVC has improved and here again the demand in India was impacted because of the extended rains and that together led to prices falli
Q
Congratulations for a good set of numbers. Sir, just following up with the earlier question on the PVC margins overall, while I take your point on probably moderate margins in the month of January and February may be a rebound thereafter, but do you expect March onwards the margins would be elevated going ahead as well given the benefit as you will see on the RM and the pricing side?
Ramkumar Shankar
I did not quite catch the last one, from March onwards? Chemplast Sanmar Limited January 31, 2022 On the margins, while taking your point that the significant improvement in margins may be visible from March onwards wherein the stock liquidation will happen, but do you expect those margins to sustain at those levels or probably they will also drip down and normalize to FY2022 average number? See, margins are likely to improve from March. Okay let me give idea of the extent of price delta between PVC and VCM, in October the peak that were reached of PVC of $1,900 and VCM of around $1,600 so the
Q
Sir, I have a couple of questions, for the two questions, what sort of volume recovery will you see in the fourth quarter for CCVL? Ramkumar Shankar: We believe that whatever inventory that we built up in Q3 will be liquidated over the next few months, so demand is already picking up as you know the rains have stopped now, and obviously with entire chain having been de-stocked there is very little inventory available in the system, so that is the pull that is started, if things go exactly as we expect it could happen over the next 3 months we could see all those inventory go off.
Dhaval Shah
So, in the third quarter, we made roughly 9300 tonnes volume, and you have an inventory of 24,000 thus the carry forward inventory, so can we go anywhere close to the third quarter volumes, sorry the second quarter volume like second quarter will be 9300 tonnes? Yes, we should be doing, we should be touching that possibly. Perfect and Sir, now this 24,000 tonnes firstly at a higher VCM in price and now the VCM prices have fallen so can you tell me what with the cost of this 24,000 tonnes inventory, which we are carrying? I do not have that exact number right now with me, but all I can tell you
Q
Thanks a lot for the opportunity. Sir, if you could just highlight on the anti-dumping duty on PVC, which is expiring mid February, so what is the status of that?
Ramkumar Shankar
The antidumping duty that we have is on two countries, which is basically US and China, this ranges from around 2% to 10% in the case of the US and 4% to 10% in the case of China, actually I have just converted this into a percentage actually denominated in specific dollars per ton and it defers given who the exporter is. This is expiring on February 13, 2022, and we do not expect any great impact because there is no impact really largely because, a) as far as the US is concerned even now the FAS Houston prices for PVC from the US is already higher than the CFR India prices and therefore given
Q
Thank you so much. Sir, just one clarification, the speciality chem. Business that we disclose the presentation does it include just the paste PVC segment or it includes some others too, what I am trying to understand is if I do the revenue and the quantity of specialty chemical to get the realization will it just be for the paste PVC or does it include even others?
N. Muralidharan
Specialty chemicals include paste PVC and customer manufactured chemical products. These two we view as specialty chemicals and we track them together so that is how it is presented Got it, custom manufacturing and these things, correct, perfect, Sir. the second question was the volume decline in the Paste PVC segment of the specialty chemical is about 37% odd Y-o-Y also on a Q-o-Q basis and I believe that is largely for the paste PVC, custom manufacturing is broadly similar, so this seems a significant decline so you mentioned about NCR region, but just to get some context here what would be
Q
Congratulations, Mr. Ramkumar and Mr. Muralidharan and team. Sir, I have just one question while on this suspension PVC we were looking for a feedstock tie-up for which we are waiting for announcing a capacity expansion now if I look at the supply side, I mean VCM area so having a shortage or EDC is having shortage can you give some color on the economics of producing from EDC to suspension PVC and VCM to Suspension and PVC?
Ramkumar Shankar
First of all good afternoon and thank you for your kind words, as far as EDC and VCM are concerned as you know EDC is one step before VCM in terms of value chain. So from EDC you make VCM and then from VCM we make the PVC and if you have to invest in the manufacture of VCM itself it is capital intensive because you will need to setup even if it is based on imported EDC or imported ethylene if we have that you will still need significant capex for investing in the VCM production facility so obviously the value addition would be more, you would be captured a bit more of the value chain, but then
Q
Thank you, Sir for taking my question. I had two questions, the first question is, if you can please share the pricing scenario for Caustic Soda currently versus Q3 quarter, what would be if they decline what would be the approximate percentage decline and what is the outlook and my last question is recently the government of India has revoked the antidumping duty on Flexi films PVC just wanted to understand if this is part of your product portfolio and what would be the contribution for sale if it is product portfolio? Thank you.
Ramkumar Shankar
PVC flex films are not something that we produce that is one of the products that uses the PVC Resin. The large part of the overall PVC industry in the sense that for us more than 78% is comprised of PVC pipes and fittings and then a large part comes to wires and cables and profiles as well so that does not directly affect us. As far as caustic soda is concerned actually caustic soda prices have only been increasing and in fact the benefit of these increased prices we will start in Q4 because the way the industry operates is that roughly around 60% of our sales is based on short-term and 3 to
Q
Good afternoon, I have two questions, first on the SPVC demand in the fourth quarter; we see third quarter volume have dipped significantly. How is that being seen in the fourth quarter and second do you see any supply influx coming in from China during the current quarter, as we understand one of your competitors said that there could be increase in supply from China, which could have a downward pressure on the prices?
Ramkumar Shankar
As far as supply of suspension PVC demand in Q4 is concerned this is we are heading into peak demand season as far as suspension PVC is concerned and right now with all the de-stocking that happened in Q3 very few inventories are being carried right through the channels, so we do expect good demand pull going forward and we do not see any great material flooding in the market from China, we have not seen Chemplast Sanmar Limited January 31, 2022 anything great, yes China is one of the you know they to around 20% of the total imports coming into India comes from China, but it is not as if there
Q
Thanks for the opportunity. Sir, just one question, in Q3 for Suspension PVC what are the operating gains and because of the increased inventory levels in Q4 will the operating rate remain at same levels or are we planning to curb the operating rate, thank you?
Ramkumar Shankar
So we never curb operating rates for demand purposes because we know that this whatever inventory build-up is happening or the weakness in demand that we see is very temporary, so the curbing of operating rate would mean a permanent loss of volume which is something that we never do, so we do not see that happening, we will be producing and we are quite confident that this is just a temporary inventory build-up and even now if you look at it - inventory buildup is still a one month’s inventory build-up, a little less than one month, because we are used to having inventory of only around 4 days
Q
Congratulations for the great numbers. It was just one question. Given what we are saying is the pricing trend for almost all the product categories, which we are into going to stay firm. What kind of EBITDA margins should we kind of run with in short to medium term for our company?
N. Muralidharan
We have achieved an EBITDA margin of 24% for the quarter and year as a whole it is around 21%, I think last year also was close to that. We would refrain from giving any specific guidance going forward, I think somewhere between these two levels would be a reasonable level going forwards, but we would like to refrain giving any specific number. Sure, no issues. Thank you, Sir and all the best.
Q
My first question is, you know I would like to learn about the current size of the custom manufacturing, gross block or if you could just tell us a little bit more about what is that specific asset block on the asset block?
N Muralidharan
On the asset block, current gross block is around Rs. 80 Crores. Rs. 80 Crores, okay and how will it progress does that increase the debottlenecking? Yes, debottlenecking is marginal capex that we will incur, but the large CAPEX is in terms of the projects that we are incurring like we have committed in the IPO. We have already started progressing on that, looking at an investment of around Rs. 340 Crores to 350 Crores over the next three years period. I just wanted to understand also that in terms of total number of products commercialized till date could you give us some more color on that a
Q
Thank you very much. In closing, I would like to mention that the demand outlook for both Paste PVC and Suspension PVC continues to be strong due to the significant deficit worldwide and especially in the region and the high import dependence in the domestic market and global tightness auger well for the domestic manufacturers like us. With our dominant position in the Indian market and the expansion plans to cater to the growing demand, we believe that we are well placed to benefit from the uptick in chloro- vinyl sectors including PVC both Suspension and Specialty Paste and Caustic Soda. The
Management
Speaking time
Ramkumar Shankar
31
Moderator
15
N. Muralidharan
12
Dhaval Shah
9
Ahmed
7
Dhruv
7
Ankur Periwal
6
Aejas Lakhani
6
Raj Kiran Gandhi
5
Abhijit Akella
4
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Opening remarks
Abhijit Akella
Thank you, Rutuja. Ladies and gentlemen, good afternoon and thank you for joining us on the Q3 FY2022 earnings conference call of Chemplast Sanmar Limited. It is my pleasure to introduce the company senior management team who are here with us to discuss the results. We have with us Mr. Ramkumar Shankar, Managing Director, Mr. N. Muralidharan, Executive Director of Finance and Dr. Krishna Kumar Rangachari, Executive Director, Custom Manufactured Chemicals Division. We will begin the call with opening remarks by the management team and thereafter we will open up the call for a Q&A session. I would now like to hand call over to Mr. Ramkumar Shankar to take proceedings forward. Thank you and over to you, Mr. Ramkumar!
Ramkumar Shankar
Thank you very much. Good afternoon everybody and I hope that I am audible. On behalf of Chemplast Sanmar Limited and the management team, I extend a very warm welcome to everyone for joining us on a call today. I hope everyone is safe and healthy. Let me start with a quick snapshot of our company and then we will walk you through the operational and financial performance in the quarter under review. Chemplast Sanmar is a 55 year old company tracing its heritage back to the 1960s. Our sponsors include two very well respected names, The Sanmar Group, one of the oldest and most prominent industrial groups in South India and Fairfax, a well known international investor. Over the years, Chemplast has carved out a niche in the Indian specialty chemicals sector. We are the largest manufacturer of specialty Paste PVC resin in India and through our wholly-owned subsidiary Chemplast Cuddalore Vinyls Limited; we are the second-largest manufacturer of suspension PVC in India. The company is also
N. Muralidharan
Thanks, Ramkumar. Good afternoon, everyone. I hope I am clearly audible. Looking at the key highlights of Chemplast’s performance in Q3 and 9 months FY22, Chemplast Sanmar on a consolidated basis registered a significant increase in its revenue and operating profits for Q3 FY22 as compared to the same period of the previous financial year. Revenue from operations for Q3 stood at Rs. 1,452 Crores registering a growth of 33% on a year-on-year basis. This was on account of high realizations per tonne for most of our products - specialty paste PVC, suspension PVC, chloromethane and caustic soda. On the volume front, while the non-specialty products volume for the quarter was higher, sales volume for Paste PVC and Suspension PVC for the quarter are slightly lower on year-on-year basis, primarily due to restrictions around operations of downstream units in the NCR due to poor air quality and the extended monsoons during October to December 2021 quarter. This resulted in some build-up of past
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