Sudarshan Chemicals Ltd, third large largest pigment produer globally.
Sudarshan’s Capabilities:
2 Manufacturing facilities in India
3 R&D labs, two in India and one in Germany.
Total employees: 1280+
Cons FY23 Sales: Rs 2306 Crores, out of which Rs 227 Crores come from unrelated engineering business.
Pigment Business Cons. Financials: (depressed year due to subdued demand)
Sales: Rs 2079 Cr (FY23) against Rs 2020 (FY22)
EBITDA: Rs 194 Cr (FY23) against Rs 269 Cr (FY22)
Export Sales: Rs 1024 Cr and Domestic Sales: Rs 1055 Cr
Speciality Pigment Sales: Rs 1435 Cr (69% of rev) and Non speciality Sales: Rs 644 Cr (31% of rev)
Global Market Size Available: $8.6 Billion
Expected Market Growth: 6% annually
Application Industries
Coatings: Automotive and Decorative sectors
Plastics
Inks
Cosmetics
Competition:
Top 2 players (captures more than $3 Billion of the pie and then there are smaller players)
DIC Corporation (acquired BASF’s pigment business)
Heubach Group (acquired Clariant’s pigment business)
Shareholding Pattern (June 2023)
Promoters: 35.82%
FIIs and FPIs: 3.12%
Mutual Funds: 12.29%
Others: 48.77%
Ace investors Aakash Bhansali holds 8.1% stake and Vijay Kedia holds 1.44% stake.
Investment thesis:
Rs 750 crores of Capex commissioned in the last three years. Mgmt. is guiding for Rs 1500 crores of additional revenue from this Capex
Transforming from non-specialty pigments to specialty pigments, by engaging with customers, spending on R&D, and spending on Capex
FY23 was a stressful year for the pigment industry as a whole due to macro factors leading slowdown in Europe and other major economies. However, demand has been gradually recovering since Q4 FY23 (last two quarters).
Current utilization is low as the volume degrowth was seen in FY23 plus new capex is commissioned, thus a lot of headroom for growth
China+1 and Europe+1 playing out.
With growth in India’s domestic economy, domestic pigment sales are expected to grow.
Risks:
Currently, margins and return ratios are depressed and very low
Demand recovery does not take place
New product approvals and commercialisation gets delayed
Increase in Coal costs or freight costs can hurt Sudharshan’s competitiveness in global markets
Pigment business is cyclical in nature and depends on the demand of the end-users industries.
Agressive competition by China in exports becuase there is a slowdown in domestic Chinese demand.
Promoter holding decreased in last few years
If demand recovery continues for the next couple of quarters, Sudarshan is ready to fire on all fronts.
According to the mgmt. guidance and my analysis, Sudharshan’s expected Pigment Business financials in FY26 could be:
Sales: Rs 3500 crores
EBIT: Rs 344 crores
PAT: Rs 250 crores
If the above bull case plays out, Investment in Sudarshan Chemcials can reap 20+% CAGR returns for the next 3-5 years.
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