Sudarshan Chemical Q1 Results Review - Margins Recover, But Revenue Growth Faces Headwinds: ICICI Securities

ICICI Securities Report

Sudarshan Chemical Industries Ltd.’s Q1 FY24 print showed recovery in margins (partly optical with drop in prices) on lower input cost. India demand was impacted from destocking in coating segment while plastics business has started growing.

International business revenue was impacted from macro-headwinds. Company has not witnessed increased competitive intensity from Chinese pigment producers compared to last year.

Sudarshan Chemical now expects Rs 12.5 billion incremental revenue addition over next four years as it ramps-up new capacity. Pigment industry can see further industry consolidation with a Canada based producer (among top six-seven globally) undergoing financial stress.

Gross profit margin improvement, as expected, driven by rise in contribution from the new capacity for high performance pigment will have limited benefits as base products had some margin erosion.

We cut our earnings per share estimates by 8.5% for FY25E, but increase it by 2% for FY24E.

Our target price is raised to Rs 560 (from Rs 550) as we increase the price/earning multiple to 20 times FY25E EPS (earlier: 18 times).

We downgrade the stock to 'Hold' (from 'Buy').

Key risks: Major softness in demand, and slower margin recovery.

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