Sep 25, 2009, 03.47 PM IST | Source: CNBC-TV18

High commodity prices to impact Chemplast Sanmar's margins

Higher commodity prices would impact Chemplast Sanmar's margins, said its MD PS Jayaraman. Further, he said, PVC was in short supply in India whereas the demand remained robust, adding the interest cost on funds for commissioning of several projects was high.

PS Jayaraman, Managing Director, Chemplast Sanmar

PS Jayaraman, Managing Director of Chemplast Sanmar , said, higher commodity prices would impact the companys margins. Further, he said, PVC was in short supply in India whereas the demand remained robust, adding the interest cost on funds for commissioning of several projects was high.

Here is a verbatim transcript of the exclusive interview with PS Jayaraman on CNBC-TV18. Also watch the accompanying video.

Q: Could you just walk us through what kind of margins youre getting in the PVC and the piping systems business and if you can also comment on the chloro-chemical business because when I look at your final numbers you seem to have a PBIT of around 2% on the revenuescan you just walk us through margins in each of these specific areas?

A: This is a pure commodity play and like any other commodity business what we look at is not exactly the margins but it is the delta between raw material price and end productwhat we are able to realise in the market. For instance if you take PVC, it is the delta between the PVC realisation and the feedstock which go to make the product. So that will be temporary blips in thisthat would be lags and all but at the end of the day this is what establishes your bottomline.

So that is where we are and in terms of margins, yes the drop in oil prices had an impact which was very pronounced last year in our activity. As we move forward what looks like is that the demand for the product in the domestic segment and also the additional capacity creation opportunities which are not there in the Indian situation, that is what is going to keep things going and the thing is that PVC is always going to be a situation in India where the demand is going to exceed supply.

So the country will be continuously importing. Even today with our new capacity which is onstream this week of around 1,70,000 tonne, still there is going to be a shortfall which has to be missed from imports of close to about 2,00,000 tonne. So that is on the plus side but certainly the commodity blips that will certainly have an impact on the margins. As far as the chloro-chemicals is concerned it is purely a caustic soda, chlorine and chlorine derivatives and caustic product is all right but for us what would determine the chlorine cost is what we realise from caustic by selling it in the market place.

So the cost of chlorine is determined thus and that goes as a raw material or a feedstock for making the chlorine derivatives which are essentially used in say the pharma industry chloromethane products and our growth in terms of or the margins in terms of chloromethane products would again depend on the growth in the pharma sector. So with the kind of resurgence of the growth in pharma sector I feel that we will have good market in terms of our chloromethane products.            

Q: Just to focus on your financials as well. You have extremely high interest cost in the first quarter and your debt equity as well is very high. Do you have any plans to scale that down and by how much?

A: As far as the interest cost, it is certainly high because we commissioned several other projects. Last year we did 30 tonne per year poly silicon project we commissioned that and this year we have commissioned the PVC project at Cuddalore. So naturally the interest which was so far capitalised will be a charge on the revenue. The debt equity is highno doubtit is gearing us slightly lopsided but with the cash flow which would come from our new capacity which we have brought is quite substantial of 170,000 tonne on the basic capacity of 65,000 tonne now. Certainly is going to help us to correct the gearing and we dont have immediate plans of injecting equity.

Q: You had revenues of about Rs 156 crore in the first quarter and a net loss as well. For the full year what kind of target do you have in terms of sales and whether or not you can break into the black?

A: As far as sales is concerned it is going to improve because of the new capacity in terms of PVC that is going to find a place in the market and I am not able to comment on the profitability at this point of time because I am advised that I cannot make any forward looking statements but the fundamentals of the company have certainly improved with the volume growth which is very important and we are a company for our existing PVC capacity as well as the chloromethane capacity we are fully integrated backwards to the extent that we start extracting our own salt from the salt fields which we have and we generate power that is needed for this and these two go to make the caustic soda and from caustic soda we make chlorine which is used for making chloromethane products.

Similarly the chlorine is used for making ethylene dichloride. So our existing capacity is fully integrated backwards and on forward integration also we have done in terms of reentering into the PVC pipes business and volume we have addressed by putting up the new capacity now. So from that point of view the fundamentals have certainly improved and we have shore based locations nowtwo of the shore based locations, which gives opportunities for us.

Chemplast Sanma stock price

On June 15, -, Chemplast Sanmar closed at Rs 14.87, up Rs 0.01, or 0.07 percent. The 52-week high of the share was Rs and the 52-week low was Rs .

The latest book value of the company is Rs 1.53 per share. At current value, the price-to-book value of the company was 9.72.

Set email alert for


Buy & sell politicians on Power Play
- the political stock exchange

Price Update

Arvind Kejriwal

1711.96 1.85 0.11%


Bought today


Sold today


User holding

video of the day

Chandra says satisfied with TCS' FY14, FY15 to be better

Explore Moneycontrol

Copyright © Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of is prohibited.