Detailed Rationale

Crisil Ratings has downgraded the rating on the long-term bank facilities of Chemplast Sanmar Ltd (CSL) to ‘Crisil A/Negative’ from ‘Crisil A+/Negative’, while reaffirming the short-term rating at ‘Crisil A1.’

 

The rating action follows more than expected moderation in CSL’s business performance in fiscal 2026 as compared to Crisil Ratings expectations, due to intense pressure from lower priced imports of both paste poly-vinyl chloride (P-PVC) and suspension-PVC (S-PVC – 50% of the consolidated revenues, through wholly-owned subsidiary Chemplast Cuddalore Vinyls Ltd (‘CCVL’, rated Crisil A/Negative/Crisil A1)). The non-implementation of anti-dumping duty (ADD) on S-PVC (~50% of revenues) and exemption from qualitative requirements also added pressure to domestic S-PVC realisations, while cheaper imports from Europe which is exempt from ADD on paste PVC affected domestic realization. Although domestic PVC realizations are expected to significantly improve during the last quarter of current fiscal due to increase in landed prices from China for S-PVC and Europe for P-PVC, it is not expected to materially make up for the weak performance during nine months of fiscal 2026, when the company reported a consolidated operating profit of Rs.4 crores on net sales of Rs.2968 crores. In addition, CSL has invested over Rs 1000 crores over the past 3-4 fiscals in expanding its capacity in custom manufactured chemicals division (‘CMCD’), which is yet to significantly contribute to operating profits. CSL is expected to report operating profitability of 3-3.5% in fiscal 2026, leading to lower than expected operating profits. This, along with high debt levels of around Rs.1850- 1900 crores, resulting in higher interest outgo, is also impacting cash accruals, and debt protection metrics.

 

A gradual improvement is expected in CSL’s performance from fiscal 2027, due to reduction in pricing pressure from Chinese imports on S-PVC (‘CCVL’) and sharp rise in European paste-PVC prices due to higher power costs, will help improve profitability from the chemical business. Additionally, better contribution from CMCD is expected driven by orders in hand deferred to fiscal 2027 and potential commercialization of new products. Crisil Ratings expects that improved business levels across segments, lower pressure on realisations and use of cheaper green power towards second half of fiscal 2027 will aid operating profitability (estimated at ~6%) in fiscal 2027, and further improve from thereon. Albeit, debt levels will continue to remain elevated at just over Rs.2000 crores by end fiscal 2027, due to ongoing capital spend and part refinancing of debt obligations. This will limit material improvement in debt metrics. The ratio of net debt to earnings before interest, tax, depreciation and amortization (net debt/EBITDA), is expected to be above 10 times in fiscal 2026  is expected to remain elevated at ~6 times in fiscal 2027 as well. Interest cover is expected at just over 1.1-1.2 times in fiscal 2027. Besides, the unencumbered liquid surplus which remained above Rs.700 crore in the last 4 fiscals has dropped to Rs.438 crore as of December 31, 2025 and is expected at ~Rs 400 crore by end of this fiscal.

 

The ratings continue to factor CSL’s established market presence in the PVC segment (both paste, and S-PVC through CCVL), diversified revenue stream catering to multiple end user industries, long standing relationship with customers 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 integrated nature of operations. However, these strengths are partially offset by commoditized nature of products (S-PVC) which lends variability to operating margins, and the company’s moderate financial risk profile. Besides there is also high import dependence of key raw material for S-PVC business (Vinyl Chloride Monomer (VCM)), which exposes the company to risk in foreign exchange fluctuations, however pricing of PVC products are generally dollar linked on import parity basis providing full natural hedge.

Analytical Approach

For arriving at the ratings, Crisil Ratings has consolidated the business and financial profiles of CSL and its 100% subsidiary, CCVL. This is due to the strong business and financial linkages between the companies. Both companies (CSL and CCVL) adopted fair value method of accounting in fiscal 2019, in line with Ind AS accounting standards, and accordingly revalued their assets, and created a combined revaluation reserve of ~Rs.1500 crore. The same has been knocked off against the consolidated net worth. Depreciation has also been considered without the impact of revaluation of assets and accordingly profit after tax has been adjusted from fiscal 2019 onwards.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths 

Diverse revenue streams and healthy demand prospects: CSL’s business risk profile benefits from its established market position in India in the PVC (paste and suspension) segment and in the chlor alkali business in South India. The company is the largest player in the domestic specialty paste PVC business (~80% market share basis production capacity and ~45% considering imports) and second largest player in the S-PVC business (~20% market share basis production capacity and ~10% considering imports). The company has also undertaken complex custom manufacturing chemicals of starting materials and intermediates for consumption by agrochemicals, and fine chemical sectors, adding to its business diversity. In addition, CSL also manufactures caustic soda, chloro-methanes, refrigerant gases and hydrogen peroxide.

 

Out of country’s ~ 4.3 million tonne of annual S-PVC demand, ~ 2.8 million tonne is imported. Reliance Industries Ltd (RIL, rated ‘Crisil AAA/Stable/Crisil A1+’) is planning to set up S-PVC (1.25 million MT) manufacturing facilities at its existing locations in Dahej. These integrated facilities are expected to commence commercial production by fiscal 2027. Besides, the Adani Group is proposing a 1 million MTPA (phase 1) PVC plant in Mundra, Gujarat, through its step-down subsidiary Mundra Petrochem Limited. The plant, expected to be commissioned in fiscal 2028, will produce various PVC grades, including suspension, chlorinated-PVC, mass, and emulsion PVC, as well as other components like VCM and ethylene. Despite these capacities coming up, India will remain dependent on imports for over 40% of requirement, even post these new capacities coming on stream. Revenue visibility for CSL over the medium term will be driven by steady demand for both suspension and specialty paste PVC resin and offtake in CMCD businesses, while contribution from the chlor-alkali segment is expected to remain stable. PVC realizations dipped in fiscal 2023 and fiscal 2024 post highs witnessed in fiscals 2021 and 2022 but largely stabilised in fiscal 2025. Realizations further dropped during third quarter of fiscal 2026 on account of low-cost imports, despite ADD on paste PVC (except Europe and Japan), impacting domestic realizations. In recent months (January– March 2026), both paste PVC and S-PVC prices have witnessed significant increase with paste PVC prices from Europe turning dearer, while S-PVC prices have benefitted on account of removal of export Value Added Tax (VAT) rebate offered by China to its manufacturers making the domestic supply competitive. Also, capex in the CMCD business will ensure further diversification in revenue streams as well as strengthen the overall business risk profile. The CMCD division is aiming to triple revenues in the next 3 years. This will lend further diversity to CSL’s revenue streams and lower concentration on the PVC businesses.

 

Integrated nature of operations: CSL’s plant at Mettur for manufacturing of specialty paste PVC resin and chlor alkalis is highly integrated with captive salt mines (on lease) and captive power plant to meet requirements for its chlor alkali business. Chlorine derived from caustic soda manufacturing is then combined with ethylene to produce ethylene dichloride which is converted to specialty paste PVC resin. Imported methanol and chlorine are used to manufacture chloro-methanes, while hydrogen produced through the salt electrolysis route is used to produce hydrogen peroxide. CSL and CCVL have their own marine terminals at Karaikal and Cuddalore for importing ethylene and VCM (key raw material for suspension PVC) respectively. The company has also entered into a captive power arrangement with a third-party power producer which is expected to reduce power costs by ~ Rs. 50–60 crores annually.

 

Experience of Sanmar Group in the chemicals and PVC business: The Sanmar group has been engaged in the manufacturing of chemicals and PVC sectors 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, 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 also raise funds via an initial public offering at CSL, wherein it raised Rs 3850 crore in August 2021.

Key Rating Drivers - Weaknesses 

Vulnerability to fluctuations in PVC prices and regulatory risk: Profitability of PVC manufacturing companies depends on the prevailing PVC and feedstock prices. Cyclical downturns have resulted in variations in operating profitability for these players including CSL. Import of PVC currently attracts an import duty of 7.5% (earlier at 10%) while duties on import of key raw materials are negligible. PVC prices are also significantly affected due to fluctuations in supply of PVC from China, which is the largest consumer and producer of PVC. The slowdown in their domestic economy has led to huge quantities being dumped in the global markets, especially India, resulting in considerable correction in PVC prices since fiscal 2023. 

 

Operating margin which was below 1% in fiscal 2024 due to lower PVC realizations improved to 5% in fiscal 2025 on account of better product prices in the first quarter of fiscal 2025 and increased contribution from CMCD. However, the same is expected to moderate to ~3-3.5% in the current fiscal. This too is largely on account of strong profits estimated in the last quarter of fiscal 2026, owing to better demand-supply situation, higher priced imports and lower raw material costs, which will help buttress impact of weak performance in the first 9 months of fiscal 2026, when CSL reported operating profits of just Rs.4 crores owing to continued cheaper import prices due to non-implementation of ADD on S-PVC, import pressure from EU on paste PVC resin,  and weaker contribution from caustic soda and other business streams. However, Crisil Ratings expects that operating margins are set to recover significantly next fiscal to 6-7% level driven by improvement in realizations, expected implementation of ADD on paste-PVC from EU & Japan, costlier S-PVC from China, better contribution from CMCD, diversification into new products and lower power cost dynamics. CSL is also rationalizing other fixed costs and expanding its custom chemicals manufacturing business which will partially insulate the margins from fluctuating PVC prices.

 

High dependence on imported raw materials exposes company to risk of forex fluctuations: CSL on a consolidated basis has high import requirements for procuring ethylene, methanol and VCM for paste PVC, chloro-methane and suspension PVC respectively. CSL imports close to 90% of its raw material requirements, which exposes its profitability to forex fluctuations. To mitigate the forex risk, CSL uses plain vanilla forwards to hedge 100% of its imports. Further, pricing of PVC products (paste and suspension resin) are generally dollar linked on import parity basis which provides additional natural hedge.

 

Moderate financial risk profile: Financial risk profile of the company is moderate, and is expected to witness gradual improvement, with better profitability, which will aid cash generation in fiscal 2027. Cash surplus of Rs. 438 crores as on December 31, 2025, also supports the financial risk profile and tide any unforeseen challenges in its operations to an extent. Due to expanded paste PVC capacity and continuing investment in expansion of CMCD capacity, total debt has increased to Rs 1915 crore at December 31, 2025 from Rs 1841 crores by end of fiscal 2025 and below Rs.1000 crore in fiscal 2022.

 

Phase-1 & 2 of the CMCD has been already completed. Due to better order visibility, CSL has decided to expand the custom manufacturing capacity further with phase 3 and phase 4. Phase 3 will be completed and commence operations in next fiscal. Civil and infrastructure for phase 4 will also be ready by fiscal 2027. These projects will be funded by mix of debt and accruals/liquid surpluses. Based on the offtake of phase 3, CSL shall decide on purchase of machineries for phase 4 of CMCD which could come up in fiscal 2029. Further, CSL has obtained environmental clearance for setting up facility to manufacture refrigerant gases (R-32). The final project sizing will depend on the quota allocation by the government. Given the debt addition for the capex and adjusting for repayments, debt levels are likely to remain around Rs.1850-1900 crores by end of fiscal 2026 resulting in continued modest debt metrics. Net debt/EBITDA and interest cover is expected to moderate significantly at above ~10 times and less than 1 time in fiscal 2026 compared to 5.11 times and 1.12 times respectively in fiscal 2025. Gradual improvement in these metrics is expected over the medium term, driven by better profitability.

Liquidity Strong

Liquidity is expected to remain strong supported by unencumbered cash and cash equivalents estimated at Rs 438 crores as on December 31, 2025, which Crisil Ratings expects to sustain over the medium term. Cash accruals are expected to be negative for the current fiscal, although expected to improve to around Rs 150 crore over the medium term. The company has annual debt repayment of Rs 186 crores in fiscal 2026 and Rs 240-250 crores in fiscal 2027 which will be funded by cash surpluses and part refinancing, if required. CSL has access mainly to mainly non-fund-based bank lines of Rs 905 crore which were utilised on an average at 66% over 15 month period ending January 2026.

Outlook Negative

Crisil Ratings expects only a gradual improvement in S-PVC realisations, with the Chinese import prices set to rise effective April 2026, and steady paste PVC prices, even as demand remains healthy. This along with better offtake from the customs manufacturing chemical division (CMCD) and contribution from the new refrigerant business, should ensure healthy double digit revenue growth for CSL over the medium term. Operating profitability will benefit from higher realisations, and also initiatives to enhance usage of cheaper green power from fiscal 2027 onwards, benefiting cash flows from operations. Albeit, due to continuing capex and only gradual step up in cash flows, debt metrics will continue to remain sub-par for the rating category over the medium term. No support is expected to be rendered to associate entities or to the holding company over the medium term.

Rating sensitivity factors

Upward factors

• Recovery in revenue growth, supported by better PVC product realisations, revenue diversity including contribution from CMCD, also improving operating margins to over 7-8%
• Sustained improvement in financial risk profile supported by better cash generation, prudent capex spending and better working capital management benefitting debt metrics.

 

Downward factors

• Significant moderation in business performance with operating margins sustaining below 3-4%, also impacting cash generation.
• Significant increase in debt levels due to capex, acquisitions, or elongation of working capital cycle impacting key debt metrics in a sustained manner.
• Material support, direct or indirect, to promoter holding company or associate companies, especially TCIS.
• Moderation in liquidity position including cash surpluses, compared with expectation.

About the Company

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 4,500 tpa of custom manufactured chemicals across 3 locations in Tamil Nadu. Additionally, CCVL has manufacturing capacity of 331,000 tpa of S-PVC at Cuddalore.

 

CSL (standalone) reported a net loss of Rs 120 crores on net sales of Rs 1558 crores in the first nine months of fiscal 2026, compared with net loss of Rs 40 crores on net sales of Rs 1662 crores during corresponding period of previous fiscal.

 

CSL (consolidated) reported a net loss of Rs.234 crores on net sales of Rs 2968 crores in the first nine months of fiscal 2026, compared with net loss of Rs 56 crore on net sales of Rs 3195 crores during corresponding period of previous fiscal.

Key Financial Indicators (Consolidated)*

Particulars	Unit	2025	2024
Revenue	Rs. Crore	4346	3924
Profit After Tax (PAT)	Rs. Crore	(45)	(115)
PAT Margin	%	(1.0)	(2.9)
Adjusted Debt/Adjusted net worth	Times	13.3	22.71
Interest Coverage	Times	1.11	0.57

*Crisil Ratings adjusted numbers

Any other information: Not applicable