The Sanmar Group founded in the 1960s is a US$1 billion global conglomerate with an asset base in excess of US$1.5 billion headquartered in Chennai and manufacturing operations in India, Mexico and Egypt. It has a strong presence in the chemical, engineering, technology and the shipping sector. The company is well known for its high ethical standards, long standing joint ventures, management strengths and impeccable reputation. The Sanmar Group is steadfast in its fair and consistent dealings with its foreign joint venture partners with a successful history of sustained equity joint venture relationships for niche products with world leaders for over four decades. Chemplast Sanmar is a part of the SHL Chemicals Group, which in turn is a constituent of the Sanmar Group. The Fairfax India Holdings Corporation owned by Prem Watsa has invested through FIH Mauritius Investments Limited in the SHL Chemicals Group since 2016. Chemplast Sanmar Ltd is the flagship company of Sanmar Group and is a major manufacturer of Speciality Chemicals such as Specialty Paste PVC resin and Custom Manufactured Chemicals for agro-chemical, pharmaceutical and the fine chemicals sector. It produces other chemicals such as Caustic Soda, Chlorochemicals, Hydrogen Peroxide, Refrigerant gas and Industrial Salt. The manufacturing facilities are located in Tamil Nadu and the Union Territory of Puducherry. The company closed the first half of the fiscal of 2023 with a flat top line and a double digit EBITDA margin of 11% at the consolidated level. Though the top line has been flat, the encouraging thing is that sale volumes have registered a good increase across various products. A sharp fall in PVC prices has had a significant impact on the EBITDA margin dropping to around 11% in HY2023 compared to 19% in the corresponding period of last year.
High energy costs also had a major impact on the margins dropping significantly. On the other hand, the custom manufacturing business did well and is expected to grow at around 30% in FY 2023 and the additional capacity expansion is also expected to achieve significant growth over the next few years. Financial results for the HY 2023 were somewhat muted with revenue at a flattish Rs 2,606 crore, EBITDA at Rs 293 crore and margins at 11.2%. The net profit stood at Rs 79 crore. Chemplast Sanmar has a healthy current cash balance of around Rs 1,400 crore, thereby continuing to be cash positive on a consolidated level. While the custom manufacturing is doing well, the company expects PVC prices to bottom out in Q3 and see an upturn from Q4 onwards. Brokers and analysts are bullish on the Chemplast Sanmar scrip from a slightly medium term point of view and advising portfolio investors to accumulate the stock at the current market price of Rs 435 for excellent price appreciation.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.