Detailed Rationale

Crisil Ratings has downgraded its rating on the long-term bank facilities of Chemplast Cuddalore Vinyls Limited (CCVL) to ‘Crisil A+/Stable’ from ‘Crisil AA-/Negative’. The rating on short-term bank facilities has been reaffirmed at ‘Crisil A1+’.

 

The rating action follows similar action on the long term ratings of CCVL’s parent, Chemplast Sanmar Ltd (CSL), whose long term ratings have been downgraded to ‘Crisil A+/Stable’ while the short term ratings have been reaffirmed at ‘Crisil A1+’. Ratings on long-term debt facilities of CSL have been downgraded following slower than expected recovery in the company’s performance in fiscal 2025 due to continuing modest but stable realizations, and lower than expected spreads on suspension polyvinyl chloride (S-PVC, 60% of CSL’s revenues) and paste PVC.

 

CCVL’s revenues are expected to marginally declined in fiscal 2025 owing to lower SPVC volumes, following pressure from imports, leading to build up of finished goods inventory, even though prices began to stabilize. This is on the back of steep moderation of S-PVC prices in fiscal 2023 and 2024 where the prices declined by 29% and 19% respectively owing to dumping of SPVC from China and other countries due to excess inventory amid subdued local Chinese demand which impacted domestic S-PVC prices. Despite over 50% of the domestic demand of PVC being imported due to limited domestic capacity, lower PVC realizations (compared to levels seen in fiscal 2022) impacted revenues growth. However, operating profitability is estimated to have improved to 5-6% in fiscal 2025 (3.5% in fiscal 2024) as prices of feedstock - Vinyl Chloride Monomer (VCM) also moderated. This translated to better PVC-VCM spreads and improvement in operating profitability with earnings before interest, tax, depreciation and amortization (EBITDA) estimated at  ~Rs 4000-4200/MT compared to Rs 2674/MT registered in fiscal 2024. While the operating profitability has improved year-on-year, bulk of the improvement was in the first quarter of fiscal 2025 owing to higher container freight rates contributing to better domestic realizations of SPVC. However, normalization of freight rates led to moderation in SPVC prices, and this  subsequently led to lower than expected recovery in profitability.

 

Crisil Ratings expects CCVL’s revenues will register moderate growth in fiscal 2026 driven by steady demand, dilution of finished goods inventory and stable prices, and generate operating profitability of 6-7%. Operating profitability may, however, benefit materially, if the anti-dumping duty (ADD) on SPVC is implemented in the near term. 

 

CCVL’s financial risk profile remains modest, with limited improvement seen estimated  fiscal 2025; interest cover is estimated at above 1 time (0.83 times in fiscal 2024) while net debt/EBITDA is estimated to have improved to ~4 times in fiscal 2025 (4.34 times in fiscal 2024) due to better operating profits. Crisil Ratings expects CCVL’s financial profile to improve gradually over the near to medium term with better profitability, and progressive debt reduction with capex spend expected to be modest. Net debt/EBITDA is expected to be below 2 times over the medium term; improvement in key debt metrics will remain monitorable. Annual cash generation in fiscal 2026 may not suffice to entirely meet long term debt obligations of Rs 110 crore, necessitating dipping into the cash surpluses, Healthy cash reserves (estimated at around ~Rs.400 crores on March 31, 2025) continue to support CCVL’s financial risk profile.

 

The ratings continue to reflect CCVL’s established market presence in the SPVC segment by virtue of being the second largest domestic player, long standing relationship with customers and suppliers, strong brand recall and healthy demand prospects for its products. The rating also factors in the long vintage and experience of the promoters in the PVC and chemicals sector, and the strong support from and interlinkages with its parent, CSL. These strengths are partially offset by moderate financial risk profile, vulnerability of profitability to fluctuations in PVC prices and high dependence on raw material imports thereby exposing to risk of forex fluctuations.

Analytical Approach

For arriving at the ratings, Crisil Ratings applied its parent notch up framework and factored support from its parent, CSL. This is because CCVL is an integral part of CSL and contributes to ~60% of the consolidated revenues. Besides, there are strong operational and financial linkages. 

 

CCVL revalued its assets in fiscal 2019 and created a revaluation reserve of Rs. 500 crores. The same has been adjusted against the net worth and fixed assets. Depreciation has also been considered without the impact of revaluation of assets and accordingly profit after tax has been adjusted from fiscal 2019 onwards.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy domestic market share and demand prospects: CCVL is the second largest producer of suspension PVC in the domestic market, only behind Reliance Industries Limited. It increased its total capacity from 300,000 MT per annum to 331,000 MT per annum in fiscal 2023 through internal process improvement. Even though the revenues declined in fiscal 2024, volumes remained stable. With steady demand, utilization is expected to remain high at above 90% in the medium term. Total Indian consumption of PVC is estimated at over 4.0 MMT in 2025 out of which only 1.5 MMT capacity is available domestically. More than 50% of the domestic requirement is imported. As the construction activity continues to grow, the demand for PVC is expected to remain strong in the medium term, especially from the pipes sector.

 

Imports are expected to continue to serve over ~50% of the domestic demand for SPVC market due to lower capacity addition by the PVC players which is due to high capex requirements and the need to import the key inputs. SPVC realizations dipped in fiscal 2023 and fiscal 2024 post highs witnessed in fiscals 2021 and 2022 but stabilized in fiscal 2025 and is expected to remain steady in the near term.  However, the prices will improve materially if ADD on SPVC is levied. Demand will continue to benefit from the large demand supply mismatch in India and market leadership position in the domestic markets.

 

• Experience of Sanmar Group in the chemicals and PVC business: The Sanmar group has been engaged in the manufacturing of chemicals and PVC for over five decades. The group also has presence in shipping and engineering sectors through other entities. The promoters have scaled up the domestic PVC/chemicals business to over USD 500 million and is an established player in the domestic markets for its products. The Sanmar group also ventured in the international markets through an acquisition in Egypt (TCI Sanmar Chemicals S.A.E (TCI Sanmar), TCIS, rated ‘Crisil BB+/Stable/Crisil A4+) in 2007 and has expanded the entity to being a major PVC and chlor alkali player in the MENA region. The group’s PVC/chemicals business has consolidated revenues of over USD 1.2 billion, making the group a major player in this space. This has also enabled the Group to attract investments from marquee investors like Fairfax Group and successful IPO of CSL wherein it raised Rs 3850 crore in August 2021.

 

• Parent support expected to be forthcoming: CCVL is an integral part of CSL, and accounts for sizeable portion of consolidated revenues and profits. CSL and CCVL share common management, treasury and financial teams, reflecting CSL’s continuing support. Crisil Ratings expects timely financial support from CSL will be forthcoming in the event of any financial distress.

 

Weaknesses:

• Moderate financial risk profile: Financial risk profile of the company remains moderate due to moderate cash generation, and modest profitability. Debt metrics such as interest cover and net debt/EBITDA are estimated at ~1 time and 4.3 times respectively in fiscal 2025. Expansion of SPV capacity happened in fiscal 2023, and no major expansion is anticipated in the near term. With only routine capex for modernization expected to be spent, further reliance on debt is not expected to be material. Debt metrics are expected to progressively improve in line with debt repayment and better profits; for instance net Debt/EBITDA is expected to improve to under 2 times over the medium term.

 

• Vulnerability of profitability to fluctuations in PVC prices, and long credit period: Profitability of PVC manufacturing companies depends on the prevailing PVC prices and PVC-VCM spreads. PVC-VCM spreads have been impacted since fiscal 2023 due to excess supply of cheaper Chinese PVC in the domestic market. Cyclical downturns have resulted in variations in operating profitability in the past for these players. Import of PVC currently attracts an import duty of 7.5% (earlier 10%) while duties on import of key raw materials is negligible. Any adverse change in duty structure will impact operating margins.

 

CCVL is highly dependent on imports of VCM as raw material for its products. Due to long vintage and established relationship with suppliers, company receives a long credit period. On the sales side however, collection is quick as sales are almost on a cash and carry model. Inventory period is also low at 30-35 days due to high demand for end products. This results in a negative working capital cycle and no dependence on short term debt for meeting working capital requirements. However, since most of the imports are backed by Letter of Credit (LCs) on a hedged basis, company has to incur higher costs for the long credit period, which too impacts profitability.

 

• High dependence on imports for key raw materials thereby exposing company to risk of forex fluctuations: CCVL has high import requirements for procuring VCM and imports ~100% if its raw material requirements.  This exposes the company to forex fluctuations as it has low exports. However, pricing of PVC products are generally dollar linked on import parity basis providing full natural hedge. Further, CCVL also uses plain vanilla forwards to hedge its imports to mitigate forex risk

Liquidity: Strong

Liquidity is strong marked by estimated healthy cash reserves of around Rs 400 crore as on March 31,2025. The company has only moderate capex plans of Rs 30-40 crore per annum and annual debt repayment of around Rs 110 crore in fiscal 2026 and around Rs 100 crore in fiscal 2027. However, due to improving though moderate profitability, cash accruals are expected to be modest and annual debt repayment will be partly supported by cash surpluses. The company also does not have any fund based working capital debt utilization in the past 12 months. However, as all of the raw material is purchased through letter of credit (LC), average utilization of non-fund based bank limits especially LC remained at ~70-75% in the past 12 months. CCVL has stable collection of Rs 200-250 crore per month which is sufficient for monthly letter of credit LC repayment of Rs 180-200 crore.  While the inventory levels have gone up due to sluggish sales, the same is expected to normalize in fiscal 2026.

Outlook: Stable

Crisil Ratings expects CCVL will continue to remain an integral part of CSL and will continue to have strong operational and financial linkages with CSL. CCVL is also expected to maintain its strong market position in the domestic PVC segment. Crisil expects the PVC prices to gradually improve over the medium term, with better demand and regulatory support. Stable PVC prices and PVC-VCM spread will lead to better operating profitability and cash generation. CCVL’s financial risk profile is moderate and expected to improve gradually driven by better cash generation and along with progressive debt reduction, benefit its debt metrics. The ratings on debt facilities of CCVL will continue to be linked to that of its parent, CSL.

Rating sensitivity factors

Upward Factors:

• Upgrade in rating of CSL by one notch or more or revision in outlook
• Improvement in operating performance with EBITDA sustaining above Rs. 6,000-7,000 per ton
• Sustained improvement in financial risk profile and debt metrics

 

Downward Factors:

• Downgrade in rating of CSL by 1 notch or more or revision in outlook, could result in a similar rating action on CCVL; change in stance of support to CCVL by CSL
• Significant moderation in business performance impacting cash generation
• High debt levels due to capex or elongation of working capital cycle leading to continued deterioration in key debt metrics ; for instance  net-debt/EBIDTA in excess of 5 times
• Material support, direct or indirect, to CSL, promoter holding company or associate companies, especially TCIS

About the Company

CCVL, part of the South India based Sanmar Group, is among the leading PVC players in India. CCVL is a 100% subsidiary of CSL (acquired in fiscal 2021). CSL transferred its suspension PVC business to CCVL in fiscal 2018 and CCVL currently has an installed capacity of 331,000 MTPA at Cuddalore, Tamil Nadu.

 

For the nine-month period ended December 31,2024, CCVL reported a net loss of Rs 16 crore on net sales of Rs. 1533 crore, compared with net loss of Rs. 53 crores on net sales of Rs. 1733 crore during corresponding period of previous fiscal.

About CSL

CSL, part of the South India based Sanmar Group, is among the leading PVC and chemicals player in India. CSL completed its IPO on August 24, 2021 and post IPO promoter shareholding is ~55% and balance 45% is with the public.

 

CSL started operations in 1967 with manufacturing of PVC. CSL on a standalone basis has installed capacities for manufacturing 107,000 tonne per annum (tpa) of paste PVC resin, 119,000 tpa of caustic soda, 35,000 tpa of Chloromethanes and 34,000 tpa of Hydrogen Peroxide and custom manufactured chemicals across 3 locations in Tamil Nadu. Additionally, CCVL has manufacturing capacity of suspension PVC of 331,000 tpa at Cuddalore.

 

 For the nine month period ended December 31, 2024, CSL (consolidated) reported a net loss of Rs.56.2 crore on net sales of Rs. 3195.2 crore, compared with net loss of Rs. 127.3 crore on net sales of Rs. 2872.3 crore during corresponding period of previous fiscal

Key Financial Indicators*

Particulars	Unit	2024	2023
Revenue	Rs. Crore	2448	3000
Profit After Tax (PAT)	Rs. Crore	(56)	11
PAT Margin	%	(2.3)	0.4
Adjusted Debt/Adjusted networth	Times	(0.88)	NM
Interest Coverage	Times	0.83	1.54

*Crisil Ratings Adjusted

Any other information: Not Applicable