Chemplast Sanmar Ltd IPO

Competitive Strengths:

Some of the competitive strengths are as follows

Well-positioned to capture favorable industry dynamics:

CSL is the largest manufacturer of specialty paste PVC resin in India, on the basis of installed production capacity as of December 31, 2020, and catered to 45% and44% of the demand for specialty paste PVC resin in India in Financial Years 2020 and 2019, respectively, with 82.0% and 84.0% market share of the specialty paste PVC resin manufactured and sold in India, respectively. CSL’s 100% owned subsidiary CCVL is the second largest manufacturer of suspension PVC resin in India and the largest manufacturer in the South India region, on the basis of installed production capacity as of December 31, 2020. Due to factors such as availability of skilled workers at lower rates compared to developed economies, surge in global demand for food grains, growth in demand for drugs and hygiene products, the revised strategy of major economies to reduce their dependence on a single country and government initiatives to support growth of pharmaceutical sector, the demand for custom manufacturing, chloromethanes, caustic Soda, hydrogen peroxide and suspension PVC resin is likely to increase. CSL is well-positioned to capture these favorable underlying market drivers, both in terms of demand and supply.

Leadership position in an industry with high barriers to entry:

CSL is one of India’s leading manufacturers of specialty paste PVC resin, the third largest manufacturer of caustic soda and the largest manufacturer of hydrogen peroxide, each in the South India region, and its 100% owned subsidiary CCVL is the second largest manufacturer of suspension PVC resin in India, on the basis of installed production capacity as of December 31, 2020. Given CSL’s scale, replicating such an installed base would require substantial capital investments, time and in-depth knowledge from competitors. The custom manufacturing industry has significant entry barriers, including customer validation and approvals, expectation from customers for process innovation and cost reduction, high quality standards and stringent specifications. Further, the end customers are usually required to register the manufacturer with the regulatory bodies as a supplier of intermediate products or active ingredients. As a result, any change in the manufacturer of the intermediate product or active ingredient may require customers to expend significant time and resources, resulting in switching to new suppliers becoming a lengthy and cumbersome process. 

Well-managed network and Operational excellence:

CSL’s network is well-managed with close quality control of their sites, dedicated IT systems and strong reporting tools, which allow information sharing and internal benchmarking. The company also provide their employees with a range of regular internal trainings across all levels and divisions to foster the development of multiple skill sets, resulting in a more efficient utilization of their workforce. The company’s IT systems play a key role in their operations, helping them to efficiently manage their operations and providing them with significant competitive advantage against smaller manufacturers. The company derives operational efficiencies by centralizing and sharing certain key functions across their businesses with other companies in the Sanmar Group such as finance, legal, information technology, strategy, procurement and human resources.

Risk Factors:

Some of the risk factors are as follows

1.    The company has pledged 26% of the total pre-offer share capital of the company. Further, 25% of the total pre-offer share capital of the company is pledged by the promoter on the occurrence of certain trigger events. 

2.    Intellectual property rights may be inadequately protected against third party infringement and any unauthorized use of their intellectual property including their brand on products that are not manufactured by the company and which are of inferior quality may adversely affect their brand value and consequently their business. 

3.    The company will continue to enter in the related party transactions in the future and cannot assure that they could not have achieved more favorable terms if such transactions had not been entered into with related parties.