HomeMarket NewsStocks NewsDelisted Chemplast Sanmar comes back with an IPO; Should you be cautious?

Delisted Chemplast Sanmar comes back with an IPO; Should you be cautious?

Chemplast Sanmar was delisted from BSE, NSE and MSE with effect from June 25, 2012, June 18, 2012, and June 25, 2012, respectively.

By Ankit Gohel  August 10, 2021, 5:33:42 PM IST (Published)

Chemplast Sanmar, a specialty PVC paste resin manufacturer, has launched its initial public offering (IPO) worth Rs 3,850 crore for subscription on August 10. The issue opened at a price band of Rs 530-541 per equity share.

The issue comes nearly a decade after delisting from bourses. Chemplast Sanmar was delisted from BSE, NSE and MSE with effect from June 25, 2012, June 18, 2012, and June 25, 2012, respectively.

The company’s market capitalization at the time of delisting was Rs 1,189 crore and now it is seeking a valuation of Rs 8,553.72 crore at the higher price band of Rs 541.

The rationale for delisting, as per the company, was that it was going through one of the most difficult times with its operations severely affected by wide fluctuations in petrochemical prices compounded by delay in accruing revenues from its large projects due to delays in their commissioning.

After a consecutive four years of losses, Chemplast Sanmar reported a profit of Rs 11.95 crore in FY13 on a revenue of Rs 2,523.59 crore.

The company’s net worth was eroded significantly and the debt to equity ratio stood high at 6:1.

The promoters decided to delist the shares saying they “believe that the delisting option is in the best interests of the public shareholders as it comes with an opportunity to exit at a fair price”.

The floor price of Rs 4.51 was based on valuation in line with the regulations.

The face value of equity shares in 2012 at the time of delisting was Re 1 per share versus Rs 5 per share today.

Also Read: Should investors subscribe to Chemplast Sanmar IPO? Here's what analysts say

Experts have maintained caution on the company’s IPO due to its share pledges and high debt level which is seen as an overhang.

Concerns are raised as its lenders have imposed certain restrictive conditions, and its intellectual property rights may not be adequately protected against third party infringement

Jyoti Roy, DVP- Equity Strategist, Angel Broking said India’s specialty chemical industry is going to be one of the biggest beneficiaries of shifting of supply chains post the Covid-19 pandemic, but had "concerns over the company’s high debt and negative net worth.”

“At the higher end of the price band, the stock will be trading at P/E multiple of 17.7xFY21 EPS which is at a discount to other chemical players. However we have a Neutral recommendation on the IPO given our concerns due to high debt on books and negative net worth,” Roy said.

Read here: Chemplast Sanmar IPO to open today: Key things to know

As of FY21, the net worth of the company was negative, however, post-IPO it is likely to turn positive.

The company is looking to raise Rs 1,300 from the fresh issue. Of these, around Rs 1,240 crore will be used for the early redemption of non-convertible debentures issued by the company. Consequently, post redemption the debt to equity ratio is likely to be around 1.1-1.2x.

Despite anticipating robust growth in the future, the promoter group is diluting a massive 45 percent of the stake, which may be a concern for the investors.

Moreover, 100 percent of the share capital of CCVL is pledged with the financial institution for the purpose of securing financing facilities for a promoter group company, which was loss-making over FY18-21.
Chemplast Sanmar (CSL) is a part of the Sanmar Holdings group, one of the oldest and most prominent corporate groups in the southern part of the country. The company is one of the leading manufacturers of specialty paste PVC resin in India. It has four manufacturing facilities: three in Tamil Nadu and one in Puducherry.