Q4FY23 Review: Chemplast Sanmar: Weak PVC trend

18 May 2023 , 11:59 AM

FY23 was a highly challenging year for CSL, due to pricing disruption across the PVC value-chain arising from Chinese imports. While there was some recovery in pricing during the initial part of Q4, sharp surge in imports from China in Mar’23 reversed the hikes taken till date. During FY24, CSM will witness commissioning of new MPPs and gradual ramp-up. However, visibility from CSM is very strong for FY25, backed by execution of LOIs. For now, analysts of IIFL Capital Services cut FY24-25 EPS by 15-40% to reflect extension of PVC weakness in H1FY24, along with a very gradual recovery.

Surge in China PVC imports spoils Q4: 

S-PVC imports from China for Q4FY23 stood at 332Kt (significantly higher than 220Kt during FY22). Due to sharp increase in imports, prices came under pressure during Mar’23 and reversed the price hikes taken since Dec’22. Chlor Alkali business has also been impacted due to commissioning of new capacities in India. However, there were positive signs visible as Ebitda rose ~25% QoQ on easing energy costs. Custom Manufacturing business continues to shine amidst the sluggishness witnessed by other businesses.

CSM scale-up to play out in FY25: 

Ramp-up of new chemical blocks within CSM business is going be very gradual than our earlier expectation (revenue growth guidance of merely 15% for FY24). Management is confident of generating Rs10bn revenues from Rs6.8bn investments. LOIs for 2 molecules signed in the last 9 months (with ~Rs8bn revenue potential over next 4 years) will be supplied from the first phase of MPP, to be commissioned in H1FY24.

Safeguard measures against PVC imports may ignite upside: 

DGTR’s safeguard recommendations to curb imports from select countries such as China, Taiwan, Russia and the US are likely to provide support to domestic PVC producers and comes as a positive surprise. While analysts of IIFL Capital Services estimates do not imply any significant earnings pickup during FY24, approval of DGTR recommendation by Government of India to curtail PVC imports from China is an upside risk.