Detailed Rationale

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

 

The rating action follows slower than expected recovery in CSL’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, even though paste PVC volumes registered a strong growth. Further, while final anti-dumping duty (ADD) for 5 years was announced on paste PVC in March 2025 (provisional ADD imposed between July-December 2024), imports from Europe and Japan continue to be excluded, though imports from these nations are at much higher rate than Chinese imports.Ergo, CSL did not benefit entirely from the  provisional and final ADD, which impacted its operating profits in fiscal 2025. Further, the ADD on suspension PVC has also not yet been announced, resulting in continuing cheaper imports, impacting product prices, at subsidiary, Chemplast Cuddalore Vinyls Limited (CCVL, rated ‘Crisil A+/Stable/Crisil A1+’). Crisil Ratings expect that the recovery in performance of CSL would be gradual with operating profitability expected to improve in fiscal 2026, due to benefit of ADD on paste PVC for the entire year,  stable SPVC prices, and better contribution from the customs manufacturing chemicals division (CMCD). The operating profits will further benefit in fiscal 2026, if ADD on paste PVC including Europe and Japan and ADD on suspension PVC are implemented in the near term.

 

Due to lower-than-expected operating profits, continuing capex, especially at the CMCD and moderately higher than normal inventory, debt levels are estimated to have risen to ~Rs 1750-1800 crores at March 31, 2025, (~Rs 1400-1500 crores expected earlier) limiting improvement in debt metrics. For instance, the ratio of net debt to earnings before interest, tax, depreciation and amortization (net debt/EBITDA) is estimated at ~4.5-5 times in fiscal 2025 (~2 times expected earlier) and is expected to remain between 2.5-2.7 times in fiscal 2026 as well. Besides, interest cover is estimated at a modest 1.2 times in fiscal 2025 and while improving, still remain modest at ~1.8-2 times in fiscal 2026.

 

CSL’s revenues are expected to grow 12-15% in fiscal 2025 driven by better paste-PVC volumes, including from expanded capacity, healthy revenue improvement at the CMCD with recovery in agrochemical demand, and demand recovery for caustic soda and other chemicals. The revenue growth in fiscal 2025 is achieved despite the moderation in S-PVC revenues owing to sluggish sale volumes, and pressure from imports. While operating profitability is expected to be improved in fiscal 2025 (0.6% in fiscal 2024) due to better volumes and drop in feedstock prices, a bulk of the improvement was in the first quarter of fiscal 2025 owing to higher container freight rates contributing to better domestic realisations of paste PVC and S-PVC and with levy of provisional ADD on paste PVC for 6 months from June 2024. However, increased imports from Europe and Japan offset the benefit of provisional ADD on paste PVC while the normalization of freight rates led to moderation in product prices subsequently. Crisil Ratings expects CSL’s revenues will register a significant growth in fiscal 2026 driven by offtake in CMCD, full benefit of enhanced paste PVC capacity, improvement in realizations of paste PVC as the final ADD has been levied in March 2025 and at higher rates, and with dilution of finished goods inventory at a higher price. Operating profits may benefit by ~Rs 100-150 crores this fiscal if the ADD on suspension PVC is implemented at the earliest.

 

CSL’s financial risk profile remains adequate, despite average debt protection metrics, supported by ~ Rs.550-600 crore of unencumbered cash and cash equivalents estimated as on March 31, 2025, which is expected to be maintained, given volatile product prices. Debt protection metrics such as net debt/EBITDA and interest cover are at average levels, but expected to gradually improve in line with better operating profits, and controlled debt levels, with progressive debt repayment.

 

The ratings continue to factor CSL’s established market presence in the PVC segment (both paste, and suspension 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 average 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. The same is nevertheless being managed through effective hedges.

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 & Detailed Description

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 life sciences and fine chemical sectors, adding to its business diversity. In addition, CSL also manufactures caustic soda , chloro-methanes, refrigerant gases and hydrogen peroxide. .

 

Revenue visibility 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. Demand will continue to benefit from the large demand supply mismatch in India and established market position of CSL in the domestic markets. The expansion in the specialty paste PVC resin segment has further strengthened CSL’s market position in the domestic sector. 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. 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 p.a. from fiscal 2027.

 

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 integrated nature of operations enhances its operating efficiencies relative to its peers.  Operating margin which was below 1% in fiscal 2024 due to lower PVC realizations is estimated to have improved to ~5.5-6% in fiscal 2025 and is expected to increase further in fiscal 2026 with better product prices, and higher CMCD revenues which offer healthy margins.

 

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 successful IPO of CSL wherein it raised Rs 3850 crore in August 2021.

 

Weaknesses:

Average financial risk profile: Financial risk profile of the company is average, and is expected to witness gradual improvement, with better profitability, which will aid cash generation. Unencumbered cash surplus of almost Rs. 550-600 crores also supports the financial risk profile.

 

CSL is incurring capex of Rs 160 crore towards for enhancing customs manufacturing capacity due to better order visibility. 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 by fiscal 2026. Civil and infra for phase 4 will also be ready by fiscal 2026. These projects will be funded by mix of debt and accruals/liquid surpluses. Due to expanded paste PVC capacity and continuing investment in expansion of CMCD capacity, total debt has been rising and is estimated at ~Rs 1750-1800 crore at end of fiscal 2025, from below Rs.1000 crore in fiscal 2022. Besides, inventory levels were also moderately higher in fiscal 2025, adding to higher working capital debt. Ergo, net debt/EBITDA and interest cover is expected at ~4.5-5 times and 1.2 times each for fiscal 2025, compared with 33.1 times and 0.57 times in fiscal 2024 respectively. Further gradual improvement in these metrics is expected over the medium term, with better contribution from CMCD and stablisation of PVC realisations.

 

Vulnerability to fluctuations in PVC prices and regulatory risk: Profitability of PVC manufacturing companies depends on the prevailing PVC and VCM 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 is 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. 

 

CSL is rationalizing other fixed costs and expanding its custom chemicals manufacturing business which will partially insulate the margins from fluctuating PVC prices. The PVC segment, supported by better product prices, will continue to contribute significant portion of the operating profits, with ADD being imposed on paste PVC (excluding Europe and Japan), and with ADD expected on suspension PVC.

 

High dependence on imports for key raw materials thereby exposing 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.

Liquidity: Strong

Liquidity is expected to remain strong supported by unencumbered cash and cash equivalents estimated at ~Rs 550-600 crores as on March 31, 2025, which Crisil Ratings expects will be sustained over the medium term. Cash accruals are expected to be improve to around Rs 250-350 crores (~Rs 90-100 crores estimated for fiscal 2025) over the medium term against annual debt repayment of Rs 190-210 crore. Any shortfall will be funded through cash surpluses. CSL has access to bank lines of Rs 725 crore which have some cushion, further supporting liquidity.

Outlook: Stable

Crisil Ratings expects that over the near to medium term, CSL’s performance will witness a gradual recovery supported by steady sale volume across its businesses, anticipation of stabilisation in PVC prices and increased contribution from CMCD. This will also lead to better operating profitability and cash generation, which along with prudent capex spend, gradually improve financial risk profile and key debt protection metrics, from current average levels. No support is expected to be rendered to associate entities or to the holding company over the medium term.

Rating sensitivity factors

Upward Factors:

• Strong revenue growth, supported by better revenue diversity including contribution from CMCD, and sustenance of operating margins at ~8-10%, leading to higher cash generation
• Sustained improvement in financial risk profile supported by better cash generation, prudent capex spending, and better working capital management reflecting in healthy debt metrics; for instance net debt/EBITDA sustaining below 2.5 times

 

Downward Factors:

• Significant moderation in business performance with operating margins sustaining below 6%, also impacting cash generation
• Significant increase in debt levels due to capex, acquisitions, or elongation of working capital cycle impacting key debt metrics; for instance, net debt/EBIDTA in excess of 5 times
• Material support, direct or indirect, to promoter holding company or associate companies, especially TCIS
• Moderation in liquidity position including cash surpluses, compared with expectations

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 custom manufactured chemicals across 3 locations in Tamil Nadu. Additionally, CCVL has manufacturing capacity of 331,000 tpa of S-PVC 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	3924	4942
Profit After Tax (PAT)	Rs. Crore	(115)	184
PAT Margin	%	(2.9)	3.7
Adjusted Debt/Adjusted net worth	Times	22.71	3.33
Interest Coverage	Times	0.57	3.48

*Crisil Ratings Adjusted

Any other information: Not Applicable