CHEMPLASTS - Chemplast Sanmar Limited Share Price

Management Outlook and Key Points:

1. Demand & Anti-Dumping Measures:

• Suspension PVC: Domestic demand remains strong (11% YoY growth), driven by housing, construction, and government initiatives like the Jal Jeevan Mission. However, global dumping (China, U.S.) pressures prices. Provisional anti-dumping duties are awaited from the Ministry of Finance, expected to stabilize pricing and margins.
• Paste PVC: Dumping from the EU has offset earlier anti-dumping relief against China/Thailand. A fresh investigation against the EU/Japan is underway. The new Cuddalore plant (ramped to ~85% utilization) is expected to reach full capacity soon.

2. Growth Drivers (Custom Manufactured Chemicals - CMC):

• CMC is a key growth driver, with Phase 2 of MPB 3 commissioned in Dec 2024. Sales volumes grew 51% YoY in Q3. A strong product pipeline targets revenue of ~INR 1,100 crores by FY27. Margins (20-25% EBITDA long-term) will improve as new projects stabilize.

3. Financial Performance:

• 9M FY25: Revenue up 11% YoY (INR 3,195 crores), EBITDA improved sharply (INR 182 crores vs. INR 5 crores YoY). Losses narrowed to INR 56 crores (vs. INR 127 crores).
• Q3 FY25: Revenue up 19% (INR 1,058 crores), EBITDA positive (INR 32 crores), but net loss of INR 49 crores.

4. Challenges & Mitigation:

• Value-Added Chemicals: Mixed demand (stable caustic soda, weak refrigerant gas due to imports). Chloromethanes face price pressure.
• Debt: Net debt at INR 1,000 crores (project financing). Focus on CMC/Specialty Chemicals to diversify from commodity-led risks.

5. Forward View:

• Anti-dumping measures, ramp-up in CMC, and stabilization of PVC prices are expected to drive recovery. Management remains optimistic about FY25/26 performance, citing strong domestic demand and CMC's resilience to global agrochemical/pharma cyclicality.

Question 1: First, on this value-added chemical division, this quarter, there was a sharp drop quarter-on-quarter, almost 9% drop in the volume. While market generally has remained very healthy in this space, why haven't been able to place the volume?
Answer: The drop was due to a 10-day maintenance shutdown in the caustic soda plant and timing issues in sales (delayed rakes shifting to Q4). Volumes are expected to recover next quarter with no structural demand concerns.

Question 2: So that means next quarter should have that kind of a bump up, right?
Answer: Yes, the delayed sales (4,000 tons) will reflect in Q4, restoring volumes to ~48,000 MT, aligning with normal run rates.

Question 3: The second is on the conversion margin in SPVC. So, we have been seeing there is a steady rise in the conversion cost... Why there is 20% rise in the other operating expenses in the Suspension PVC?
Answer: Higher employee costs due to annual increments, senior-level hires, and technical team expansion drove the increase. Benefits from improved efficiency are expected over time.

Question 4: The next on the PVC business... It is fair to assume that the March quarter will have even lower spreads or lower contribution margin?
Answer: Margins face near-term pressure from high-cost inventory, but raw material margins remain strong. Anti-dumping duty implementation (pending Ministry of Finance approval) is expected to stabilize prices and boost margins post-inventory liquidation.

Question 5: One last question on Custom Manufacturing business... Is it also showing up in our order book? And what is the expectation for FY '26?
Answer: CMC demand is growing steadily, unaffected by agrochemical headwinds due to focus on new/innovator molecules. Revenue targets (INR 1,100 crore by FY27) are on track, with FY26 growth mirroring current trends.

Question 6: And how has been the profitability? Are we tracking the EBITDA margin [23-25%]?
Answer: Margins are slightly lower during ramp-up phases but align with expectations as projects stabilize. Learning curves for new products are factored into forecasts.

Question 7: Why should we depend on anti-dumping duty? Can't we make the company viable independently?
Answer: Anti-dumping is a legitimate response to unfair pricing (e.g., subsidized imports). Diversification into CMC is underway, but addressing dumping ensures a level playing field, a global practice (WTO data cited).

Question 8: SPVC volumes are declining... What's driving this despite strong demand?
Answer: Inventory buildup due to dumped imports (China, U.S.) distorted sales. Anti-dumping duties will correct this, enabling volume recovery once implemented.

Question 9: On EBITDA level, you are gross positive... Why hold volumes?
Answer: Aggressive pricing risks industry-wide price declines. Focus is on gradual inventory reduction without triggering a downward spiral.

Question 10: The SPVC duty is pending with the Ministry of Finance... And Paste PVC filings?
Answer: SPVC provisional anti-dumping duty (China, U.S.) awaits Ministry notification. Paste PVC faces new dumping from the EU; fresh investigations against EU/Japan are ongoing.

Question 11: What would be your net debt level as of Q3?
Answer: Net debt stands at ~INR 1,000 crores.

Question 12: How do entry barriers in pharma vs agro CMC compare?
Answer: Pharma CMC requires stringent regulatory compliance (e.g., FDA) and longer gestation. Chemplast's focus on innovators (not generics) and IP-safe partnerships supports growth in both, but pharma scaling is slower.

Question 13: Have you seen serious engagement from pharma innovators?
Answer: Pharma projects are progressing but face longer timelines. Agro CMC growth outpaced pharma recently, but the pipeline remains balanced with steady pharma interest.

Question 14: When did CMC planning start, and how long to first LOIs?
Answer: Strategic focus began in 2018-19 with capacity/R&D investments. LOIs followed customer demand for IP-safe, reliable manufacturing, leveraging existing partnerships.

Question 15: How many scientists do we have, and what defines a CMC "blockbuster"?
Answer: ~75 chemists/engineers currently, expandable to 150 in 1-2 years. No strict "blockbuster" threshold; projects aim for long-term growth, with Phase 1/2 capacity targeting INR 1,000 crore revenue by FY27.

Question 16: Are Suspension PVC imports from Japan/EU attracting duties?
Answer: SPVC duties (China, U.S.) are pending notification. Paste PVC duties now target EU/Japan via new investigations. Prior provisional duties lapsed but final approvals are imminent.

Question 17: Paste PVC utilization and breakeven?
Answer: New Paste PVC plant at 80-85% utilization (full by March/April). Breakeven hinges on anti-dumping duty implementation to counter low import prices.

Question 18: CMC EBITDA margins at optimal utilization?
Answer: Industry-standard 20-25% EBITDA margins expected as operations stabilize.

Question 19: Status of anti-dumping duties on Paste/SPVC?
Answer: SPVC provisional duties (awaiting Ministry approval). Paste PVC final duty (China/Thailand) delayed post-budget but expected soon. New EU/Japan investigations ongoing.

Question 20: Why delay in Paste PVC duty approval post-DGTR recommendation?
Answer: Procedural delays (e.g., budget priorities) postponed Ministry notification. Surge in EU imports followed the lapse, necessitating fresh investigations.

Question 21: Post-duty expiry, any import rise from China/Korea?
Answer: Paste PVC dumping shifted to EU (40% of imports). SPVC addressed via pending duties on China/U.S.