Buy Chemplast Sanmar; target of Rs 535: YES Securities

YES Securities' research report on Chemplast Sanmar

Chemplast Sanmar’s (CHEMPLAS) consolidated reported operating profit at Rs 974mn (-72% YoY; +25% QoQ), though marginally ahead of our expectation (YES : Rs 727mn), but was well below consensus estimates (Rs 1404mn). The Indian PVC market experienced a flood of inexpensive Chinese imports throughout most of FY23, resulting in a threefold YoY increase in imports, except for a brief respite from December 2022 to February 2023. This situation exerted pressure on prices and margins. Additionally, the commissioning of expanded capacities affected prices and margins for other products such as Caustic soda, Hydrogen peroxide, and Chloromethanes. However, the CSM business stood out positively, achieving a 26% YoY revenue growth in FY23. Furthermore, in the second half of FY23, Chemplast Sanmar secured letters of intent (LOIs) for two new products, in addition to the nine products already in production. The company also has a pipeline of 10-14 molecules, which is expected to contribute to revenue in the upcoming quarter. Moreover, the planned capacity expansion in PastePVC in the second half of FY24 will provide incremental revenue contributions throughout FY24 and FY25.

Outlook

We maintain our BUY rating on CHEMPLAS with a Mar’24 TP of Rs 530/sh. At CMP the stocks is trading at a P/E of 10.2x FY25, as against 12.2x implied by our TP.

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