Chemplast Sanmar plans to do more capex with good scope for large FCF generation and has not announced dividend in FY22 pending assessment of fund requirement. Brokerage ICICI Securities expect big capacity announcement in S-PVC where the company already has environmental clearance to double its capacity to 600 kpta.
This will provide the much-required visibility on volume growth while more capex in custom manufacturing will be welcome, as per the brokerage house. It has maintained Buy rating on the specialty chemical stock with target price of ₹800, implying a potential upside of about 55% from current level.
The newly listed Chemplast Sanmar made its stock market debut in August last year. The company manufactures paste PVC, chloro-chemicals, caustic soda, hydrogen peroxide, and refrigerant gases, and also has a contract manufacturing segment.
“Chemplast Sanmar’s (Chemplast) Q4FY22 spreads were impacted by high-cost inventory carried over from Q3FY22 and sold in its entirety in Q4FY22. This kept EBITDA flattish QoQ. Chemplast has sold most capacity in FY22, and in FY23 it has only 10% more capacity coming in S-PVC segment. Large expansion in paste-PVC and custom manufacturing will commence only in FY24,” ICICI Securities highlighted.
For FY22, the company said custom manufacturing revenues were up >50%, which is very strong, and that enquires from clients have grown, it added. Though, “Chemplast has very little headroom for volume growth in FY23 (only 10% capacity addition in S-PVC is planned), as most of the new capacity (in paste-PVC and custom manufacturing) will be added in FY24.”
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