The Hindu Business Line : Sudarshan Chem gains on growth prospects

THE Sudarshan Chemical stock has overcome a major handicap - physical form, and consequently, very limited liquidity. (The dematerialisation of the stock would be completed by September).

A section of investors is understood to be seeing an accumulation opportunity on strong growth impetus at a relatively lower cost. The stock on Friday pushed up by 5 per cent to finish upper circuit at Rs 180. The counter's 52-week high is Rs 184.25, scaled on April 26.

According to analysts, the organic pigment, dyestuff, inorganic pigment and pesticides manufacturer is enjoying multiple triggers in textile sector boom and expected better monsoon. The company is also gaining greater global market access as a gradual shift in manufacturing capacities from the developed world to the developing countries such as India and China is taking place. In case of pigments for example, export contributes around 50 per cent of the total sales of the company.

Mr Pradip Hotchandani of Anagram Stock Broking pointed out that for the quarter ended December 31, 2004, the company registered a 105 per cent growth in profit compared with the same period in the previous fiscal. Net profit margin improved almost by 110 basis points to 3.05 per cent.

"Looking at growth of the economy, housing and construction boom, domestic demand from the paint industry can be foreseen to improve rapidly. A favourable monsoon can paint this dividend paying (30 per cent for `03-04) stock in multi-colour," he quipped.

According to industry insiders, Sudarshan is likely to see a total sales growth of around 25 per cent this fiscal. The nine-month sales figure of 2004-05 had been favourably comparable to that in the previous fiscal. Taking the cue form the growing demands from the "discerning" customers in the US, UK and Asia, the company has taken up a strategy to introduce new brands and products every year both through own R&D and marketing others' products.

The company receives technical and marketing support from Dainippon Ink & Chemicals Inc of Japan, which also has a minority shareholding in Sudarshan. The company has seven technical grade pesticides and 25 formulations for different applications to its credit. According to the management, a few new product registrations are in the pipeline.

Thrust in agriculture and textiles proposed to be given by the UPA Government during the 10th Plan period is considered to have created a positive outlook for the stock in the long-term, a fund manager observed.

"Going by the EPS trend (first three quarters EPS for 2004-05 is Rs 16.77), it is trading at a P/E of well below 10, much lower than the market P/E. Considering the growth prospects, the stock may witness revaluations along the road ahead," he added.

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