We want to accelerate growth and IPO is the best way: Chemplast Sanmar Chairman

We want to accelerate our growth and we found IPO was the best way to do it in a prudent manner. When we delisted a decade ago, Chemplast Sanmar was a different company. It has changed quite a bit during these years. We brought in a specialty business that was in a different company. Now, in all our businesses — be it specialty PVC, suspension PVC or custom manufacturing — we have got a lot of opportunities for growth and the best way to achieve this faster is the IPO route. Strengthening the balance sheet will be our first key step and with that we will ramp up capacity and grow faster.

We were coming out of a strong capex programme then. We had converted a mercury-based caustic soda plant into a membrane-based process. We had set up a new captive power plant at Mettur. For suspension PVC, we commissioned our Cuddalore plant. There were a lot of things we had completed. As we were looking to enjoy the benefits of the expansion, we ran into the Global Financial Crisis in 2008 followed by fluctuations in crude prices in 2011. All of that was hurting in terms of cash flow at that point of time and we were incurring losses. We realised that we needed to take hard decisions in terms of restructuring the business and we felt it would be easier done in the private domain.

After delisting, suspension PVC business was made a separate company. Specialty paste PVC and custom manufacturing were brought into the main company. Essentially, we created two platforms — one being the specialty chemicals and other being the high-volume commodity chemical platform in the suspension PVC business. At that point of time, there were no real synergies between the two in terms of shared resources or facilities. But, as we are looking to grow further through expansion of capacities, synergies are emerging now. We also thought we would consolidate our complete Indian chemical business under one company. That was the reason for the structure we are now presenting to the market.

We see custom manufacturing as a key growth area. We are investing a lot of resources in it. Sanmar group carries a strong history of running joint ventures successfully. This is an important strength for custom manufacturing business where we need to build long-term relationships with key innovating companies. We are confident that this business will grow well given our strengths in chemical manufacturing and building long-term relationships with global firms.

We had a lot of restructuring in the recent decade, particularly in the past 3-4 years. As we were in private domain, we had to borrow the money to support the restructuring. Our NCD is about ₹1,230 crore and on a consolidated basis our net debt will be close to zero post the IPO. This doesn’t mean that we don’t want debt. We will borrow at much better terms. With a strong balance sheet, we will be able to expand much faster.

The total demand for specialty paste PVC in India is estimated at 143,000 tonnes a year, which is expected to grow to 183,000 tonnes by FY25. At present the available capacity in India is about 80,000 tonnes, which includes 66,000 tonnes of our capacity and about 45 per cent through imports. At the current available capacity, the gap will be more than 100,000 tonnes till FY25. This gap is what we are partially looking to fill by an ₹256-crore brownfield expansion project of 35,000 tonnes a year, which will come on stream by October 2023 at Cuddalore. We are also looking at ₹360-crore investment in a multi-purpose facility for custom manufacturing business. The company will also undertake de-bottlenecking of suspension PVC capacity at an investment of ₹235 crore and this will give us 10 per cent more capacity, which will come on stream by the end of this fiscal. Total investment envisaged is ₹620 crore over the next three years. We will have zero net debt after the IPO. We will choose the optimal structure for funding the expansion.