Chemplast Sanmar has set great store by ‘custom manufacturing’ – producing what the customer demands – and plans to spend ₹680 crore in developing its Custom Manufactured Chemicals (CMC) division. The capex program is spread over the next 15 months with a cash balance of ₹1,160 crore.
This was the central message of the company delivered through an investor presentation along with the financial results for the October-December 2022 quarter.
Chemplast Sanmar’s primary product is PVC resin, which accounts for 60 percent of its sales, but it also manufactures a range of chemicals such as caustic soda, chloromethane and hydrogen peroxide.
custom build
But Chemplast is pushing for ‘custom manufacturing’, expanding its 1,068 tonne per annum plant at Berigai near Krishnagiri in Tamil Nadu. The plant produces whatever chemical the customer demands in the field of agrochemicals, pharmaceuticals and fine chemicals. Its capabilities include “a range of chemistry” such as cyanation, hydrogenation and liquid purification.
The company believes that there are “significant entry barriers” to custom manufacturing, such as approval by customers and expectations from customers of process innovation and cost reduction.
In a press release issued on Saturday, Ramkumar Shankar, managing director of Chemplast Sanmar, said the company “received confirmation from one of our customers” that it has been selected to supply the ‘advanced intermediate’.
“Based on this development, along with the announcement of the signing of an LOI for another intermediate last quarter, and a healthy pipeline of products, we plan to begin the next phase of expansion of the multi-purpose facility immediately,” Release said.
Rising energy costs hit third quarter profits
Chemplast Sanmar reports an 89 per cent drop in its net profit for the October-December quarter of 2022, compared to the corresponding quarter of 2021 – from ₹237 crore to ₹27 crore – even as turnover fell only 18 per cent to ₹1,189 ₹ 1,452 crore to crore.
The company attributes this to “unfavorable conditions for the majority of the quarter”. Falling prices of finished goods as well as increase in energy cost, which increased by ₹37 crore during the quarter, impacted profit. The correction in PVC prices came in late December, the release said.
PVC prices rising
It said conditions are turning favorable for the PVC segment again on the back of strong domestic demand and the reopening of China.
PVC prices have started moving upwards after nine months of falling prices, channel inventory has dried up and volume off-take has normalised.
We expect the demand for suspension PVC in India to touch pre-pandemic levels of 3.3 million tonnes in FY23, a growth of 16-17 per cent over FY22. Overall, with the improvement in PVC prices and healthy demand trends, we expect our Q4 FY23 performance to return to the growth path,” Shankar said in the press release.
On Friday, Chemplast Sanmar share of face value of ₹5 ended at ₹432.25 on the NSE, lower by ₹1.55 (0.36 per cent) over its previous close.