Stock pulse is a format where we explore the most important questions to understand the company's performance.
What are the recent developments?
Sudarshan Chemicals is the largest pigment producer in India (3rd globally) catering to coatings (example- for auto manufacturers), plastics, inks, and cosmetics segments. The company produces specialty pigments (69% of revenues; higher margins) and non-speciality pigments. Revenue is spread across domestic (55% share in FY23) and export markets (45% share in FY23). Major export markets for it are US and Europe followed by China.
How has been the revenue trajectory?
Consolidated revenues (including non-core businesses) have grown 8% CAGR over FY19-23, while the pigment business has grown 11% CAGR over the same period. In H1FY24 revenue has grown to Rs. 1209 Crs (up 12% YoY) driven by volumes.
What is the margin outlook?
In FY23, the margin was impacted by high input costs and high energy and logistics costs. In H1FY24, raw material pressure has eased, leading to margin recovery (11% vs 9% in FY23). Margins are expected to be stable going ahead with operating leverage benefits kicking in as revenues ramp up. Management has guided that new capacity expansion will be towards specialty pigments aiding margins.
What will be the drivers in the future?
The company has expanded capacities over the last few years (~Rs 7.5 bn Capex) and is expected to generate Rs 12 bn+ revenues over the next 3-5 years. Domestic capacities shutting coupled with broadening of product portfolio (~70%+ of top 2 players), will be a positive. However, the near-term outlook remains subdued due to adverse macros- inflation worries in global markets, evolving geo-political uncertainties, and the destocking effect.
Sudarshan Chemicals has some positives such as (a) niche global pigment player with a wide customer base and high stickiness (long product approval cycles), (b) ramping up its product basket, (c) focus on optimizing working capital and driving efficiencies.
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