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ICICI Securities Report
Sudarshan Chemical Industries' (SCIL) Q4FY23 print showed early signs of demand revival across categories. SCIL sees tailwinds from recovery in demand; it is receiving good response for its new products, which are niche chemistries; ramp up in new capacity to provide pigment segment revenue visibility of Rs30-33bn and softening raw material prices will help normalise margins. SCIL has already started its margin-recovery journey, and expects further improvement in next few quarters as inflation in other expenses drop.
We believe the company has remarkably worked on improving its balance sheet which will benefit from proceeds of land sales (Rs3.6bn) and stable net working capital at 20% of sales (down from 24-25%). We expect net debt / EBITDA to dip to ~1x by FY24. We have raised our adjusted EPS estimates by 4- 14% over FY24-25, and accordingly, increased target price to Rs550 (from Rs405), valuing the company at 18x FY25E EPS (prior: 15x). We upgrade the stock to BUY (from Add). Key risks: Major softness in demand, and slower margin recovery.
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