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Chemplast Sanmar Ltd, which is backed by Canadian billionaire Prem Watsa, has started working on an IPO that could see the company raise as much as 3,500 crore, said two people aware of the development.

The company is a part of the Chennai-based industrial conglomerate Sanmar Group, which has interests in chemicals, shipping and engineering.

It manufactures paste PVC, chloro-chemicals, caustic soda, hydrogen peroxide, and refrigerant gases, and also has a contract manufacturing segment.

The company is the largest domestic paste PVC manufacturer. The group has revenues of more than $1 billion.

“The proceeds of the IPO will be used largely to reduce the company and group level debt. They started work on the IPO last month. Domestic investment banks SBI Capital, Kotak, ICICI Securities, and Axis Capital have been appointed to work on the IPO," said one of the persons mentioned above.

E-mails sent to the Sanmar Group did not get a response.

For FY20, the latest numbers available, the company reported a revenue of 1,259.31 crore, marginally higher than the revenue of 1,252.69 crore reported in the previous fiscal, according to a 31 July note by Brickworks Ratings. Profit fell to 98.74 crore in fiscal 2019-20, from 187.21 crore, the report shows.

Brickworks noted that “Until 6MFY20(audited), the gearing and debt metrics were comfortable in view of the low level of debt.

However, FY20 onwards, these were being impacted because of the additional debt by way of NCDs raised in December 2019 and higher coupon payments. The debt-equity ratio increased to 1.42 times for FY20 (0.18 times as on 31 March 2019).

The interest service coverage ratio (ISCR) and debt service coverage ratio (DSCR) declined to 3.35 times and 1.76 times, respectively, for FY20, against 6.88 times and 2.58 times, respectively, for FY19."

The rating agency said that the company is expected to benefit from sectoral tailwinds.

“Demand for paste PVC in the country is robust and growing between 10% and 13% per annum, on account of growth in its diverse end-use segments, more particularly the artificial leather industry.

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