After Fairfax funding, Sanmar steps up expansion

The $1.5-billion Sanmar group, which is backed by Canadian billionaire Prem Watsa’s Fraifax, is well on its way to becoming one of the top ten global players in poly vinyl chloride (PVC), a light-weight plastic commonly used in construction.

The group has lined up investments of over ~2,500 crore to ramp up its capacity to manufacture PVC at its plants in India and Egypt. The Egypt project is expected to be completed by April 2018, and become operational in the next eight months after that. Once on stream, it will lend significant cost advantage to Sanmar, allowing it to compete on prices in Turkey and other countries neighbouring Egypt.

Set up in 1962 in Chennai, the Sanmar group has expanded through the years into new geographies and categories. Currently, it has manufacturing facilities in India, the US, Mexico and Egypt. Of all the segments it operates in, the chemicals business is the largest.

Unlike elsewhere in the world, India has not seen any new player or capacity addition for PVC in the last 10 years, even though nearly 50 per cent of the country’s demand is met through imports.

The sector is plagued by several challenges, including high cost of power and transportation. In the absence of a network of pipelines to carry finished products, it is difficult for manufacturers to transport chemicals from one point to another. Chemplast Sanmar’s sales Besides, since the industry does not have shared effluent treatment capacity, each manufacturer has to set up its own effluent plant and that deters prospective investors.

Yet Sanmar is drawn by the potential for growth in the segment. The chemical industry is estimated at around $104 billion in India and is the single largest contributor to the country's industrial production.

The demand for chemicals, which booms when the auto, housing and construction sectors are doing well and slumps when economic growth slows, is set to grow 10-12 per cent annually.

“On a per capita basis, chemical is largely an under-served industry in India, whether you look at polymers, speciality chemicals or any other segment,” says Sanmar group’s deputy chairman, Vijay Sankar.

The per capita consumption of PVC in India is 2 kg, compared to 8 kg in Thailand and 13 kg in countries such as the US. “Even to catch up with Thailand, we would require one plant every year for the next 20 years,” says Sankar.

No wonder, Sanmar is on an expansion spree. It is investing ~100 core on a hydrogen peroxide plant and ~325 core on a CPVC, or Chlorinated PVC, plant. The CPVC project will come up at Karaikal, near Chennai, and will be implemented in partnership with Kem One SAS, a European chloro-vinyl company. The plant will have a capacity of 20,000 tonnes and will go on stream in the next two years. Chemplast Sanmar will be the second company to manufacture this product in India for which technology is a closely guarded secret.

The hydrogen peroxide plant will be assembled at Mettur and it will be ready by next year. Both these projects together are expected to boost the group’s revenue by ~400450 crore annually. The group currently has 10 per cent of the PVC market in India.

In addition, the company also plans to triple its suspension PVC capacity to one million tonnes in different stages from 0.3 million tonnes at present. This would cost around ~ 600 crore.

Once the expansion projects are completed, Sanmar expects its revenue to touch ~8,000 crore from ~5,000 crore at present.

While the India projects are funded through internal accruals and borrowings, part of the ~2,000 crore invested by Fairfax is being used for the Egypt plant.