About the company:
Dates: August 10, 2021 to August 12, 2021
Price Band: Rs. 530 to Rs. 541 per share
Minimum Lot: 27 shares
Minimum Application Amount: Rs. 14,310 to Rs. 14,607
Total Issue Size: Up to Rs. 3,850 Crs (Fresh issue Rs. 1,300 Crs and OFS Rs. 2,550 Crs)
Objects of the Offer:
The fresh issue proceeds are expected to be utilised towards funding of
1) Early redemption of NCDs issued by the company, in full worth Rs. 1,238.25 Crs; and
2) General corporate purposes.
Chemplast Sanmar is a specialty chemicals manufacturer in India with focus on specialty paste PVC resin and custom manufacturing of starting materials and intermediates for pharmaceutical, agro-chemical and fine chemicals sectors. Company claims to be the leading manufacturer of specialty paste PVC resin in India, on the basis of installed production capacity, as of December 31, 2020. Further, it is the 3rd largest manufacturer of caustic soda and the largest manufacturer of hydrogen peroxide, each in South India region, on the basis of installed production capacity as of December 31, 2020.
Samco Research’s Stance:
Getting into the history of Chemplast Sanmar, its promoter and promoter group delisted the company nearly a decade ago from stock exchanges. The reason for the same was to give the company an option to raise equity resources freely from promoters and others towards reorganising the company. In March 2011, company’s networth significantly deteriorated with debt to equity ratio at 6:1 affecting the gearing of the company. At that time, Chemplast Sanmar also had other liquidity problems to overcome, for which the promoters decided to extend unsecured loans. This eventually led to the delisting of the company.
Coming back to its IPO now in 2021, nearly entire proceeds from fresh issue would be utilized to redeem NCDs worth Rs. 1,238.25 Crs giving the company a debt-free profile. So the proceeds would not be used for any expansion or growth/reinvestment purpose. Going ahead, company has committed capital expenditure outlay of Rs. 619.50 Crs to pursue various growth platforms for which again it may have to count on external debt funding along with internal accruals. This funding requirement in future may have a negative effect on its financial profile, given the painful company history. Further, company’s entire shareholding in its subsidiary Chemplast Cuddalore Vinyls is pledged for the purpose of securing certain financing facilities for the promoter group and the management has no coherent plans to release it.
Given that more than half of its entire IPO issue size would be used to divest promoter and promoter group’s stake and the remaining to bring down its debt burden, Chemplast’s growth prospects appear to be slightly blurred. It is due to these reasons that the IPO be ‘AVOIDED.'