Down 65% from 52-week high! Here’s why ICICI Securities sees 56% upside potential in this speciality chemical stock
Shares of Chemplast Sanmar are in focus after the company reported its earnings for the quarter ended December 2022. The stock jumped over 2 per cent to hit a day’s high of Rs 423.55 on BSE on Wednesday.
The company’s net profit declined 89 per cent to Rs 27 crore in the December 2022 quarter as against Rs 237 crore during the same period last year. Revenue from operations was down 18 per cent to Rs 1,189 crore in Q3 FY23 as against Rs 1,452 crore during the same quarter last year.
ICICI Securities believes that the December results have marked the worst for EBITDA, and will likely show a significant jump from Q4FY23. It expects the normalisation of spreads driven by paste-PVC and S-PVC. It said that the fall in commodity revenue would be partly offset by lower power costs and continued growth in custom manufacturing.
The brokerage firm highlighted that Chemplast had maintained its revenue growth guidance for custom manufacturing business at 30% on debottlenecking in FY23. It has secured an LOI from a global innovator to supply an advanced intermediate for a novel active ingredient (AI) in Q2FY23.
The paste PVC demand is also expected to cross the pre-pandemic level of 150kte in FY23. The demand growth in paste-PVC is higher than in S-PVC. Domestic production is 80kte, while the rest is imported. China is not a key supplier of paste-PVC, it comes from six exporting countries and the company will commission 41ktpa capacity by Oct’23 as its phase-1 expansion using imported VCM.
Based on ICICI Securities’ target price of Rs 650, this speciality chemical stock has an upside potential of over 56 per cent (from Tuesday’s closing price of Rs 415.20). Notably, the stock is currently down over 65 per cent from its 52-week high of Rs 684.55, hit on March 31, 2022.
About the company
Chemplast Sanmar Limited is part of the SHL Chemicals Group, which in turn is a constituent of the Sanmar Group, one of the oldest corporate groups in South India. It is a major manufacturer of Specialty Chemicals such as Specialty Paste PVC resin and Custom Manufactured chemicals for the agrochemical, pharmaceutical and fine chemicals sectors.
The company also produces other chemicals such as Caustic Soda, Chloromethane products, Hydrogen Peroxide and Refrigerant gas. It also manufactures Suspension PVC through its wholly owned subsidiary Chemplast Cuddalore Vinyls Limited.
Chemplast Sanmar is the country’s largest manufacturer of Specialty Paste PVC Resin and is the second-largest producer of Suspension PVC in India.
