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HDFC Securities
Sudarshan Chemicals (Buy)
Target: ₹800
CMP:₹666
We expect Sudarshan Chemical Industries’ PAT to grow at a 32 per cent CAGR over FY21-23, led by a 20 per cent CAGR in revenue. Two major global players shifting away from the pigment business could act as a tailwind for Indian pigment manufacturers.
We believe SCIL is in a sweet spot to seize this opportunity by offering products similar to those of global players. Q4-EBITDA/APAT were 36/31 per cent above our estimates, mainly due to a 27 per cent higher revenue, lower-than-expected employee cost, offset by higher-than-expected tax outgo.
Concall takeaways: Exports accounted for 49 per cent of revenues for the pigment segment; Specialty pigments constituted 68 per cent of the revenues for pigment segment in Q4; The company’s Capex is planned to build and concentrate on increasing specialty pigments in its mix; It is about to finish its Capex plan of ₹600 crore in FY22; Sales from the total Capex will ramp up gradually over 3-4 years. This Capex has a revenue potential ₹1,000-1,200 crore at full capacity. Additional Capex for FY22 is ₹135 crore, which will be used to build infrastructure; and raw material price inflation is about 2-2.5 per cent.
We raise our FY22/23 EPS estimate by 52.2/40.9 per cent to ₹30.2/35.6 to account for the overall performance in FY21.
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