Chemplast Sanmar rallies smartly post tepid IPO

Chemplast Sanmar IPO, part of the Sanmar group of Tamil Nadu, had recently closed its mega Rs.3,850 crore IPO in the month of August. The response had been tepid at just about 2.17 times subscription and the stock had dipped to a discount to the issue price post listing. 

However, in the last two weeks since listing, the stock has recouped 21% from the lows and is currently 13.7% above the issue price of Rs.541. On 02 September, the stock had closed at Rs.615, after touching a high of Rs.621. From the recent lows of Rs.510, this represents a 20.6% bounce in the stock price. What exactly has triggered this sharp rally in Chemplast?

There were two key reasons for the rally. Firstly, as committed in the IPO filing, the company has used up the proceeds of the fresh issue to repay non-convertible debentures of Rs.1,238 crore. The fresh issue proceeds of Rs.1,300 crore was almost entirely used up as committed as on 31-Aug. This largely benefits the company’s solvency ratios.

Secondly, this NCD was backed by the promoter holdings in the shares of Chemplast Sanmar and the shares of Chemplast Cuddalore Vinyls. With the NCD being fully repaid, these shares have been released from pledge on 31 August and currently there is not a single share of the promoters that is under pledge. Pledged shares tend to make traders jittery and the combination of pledge release and loan repayment boosted the stock price.

There is also a more fundamental pitch favouring the company. It is India’s largest manufacturer of specialty paste PVC resin, which finds extensive applications in the Agro-chemical and pharmaceutical sectors. 

In addition, Chemplast has a diversified product portfolio including chlor-alkali, caustic soda and chlorine, making it a de-risked chemical play. The loan repayment and pledge release has allowed markets to focus on the core strengths in the product portfolio of Chemplast Sanmar.

Also Read: 

Upcoming IPOs in 2021

IPOs in September