Buy Sudarshan Chemical Industries: target of Rs 815: Sharekhan

Sharekhan's research report on Sudarshan Chemical Industries

Recent anti-dumping duty on natural mica-based pearl industrial pigments would drive up FY22-FY23 earnings estimates by 9% on existing volumes of 1500 mt and 23% in case of market share gains (assuming mica pigment volume of 4000 mt). The Indian dyes, pigment and coating industry is expected to grow at 10% CAGR over CY19-25E and consolidation in global pigment industry would help SCIL beat industry growth rates. Capex of Rs. 600 crore is nearing completion and thus we expect SCIL to clock industry-beating revenue CAGR of 18% and margin expansion of 154 bps over FY21-24E. This would drive strong 24% PAT CAGR over FY21-24E along with high RoE of 24% in FY24E.

Outlook

We maintain a Buy on the stock with a revised PT of Rs. 815 as we expect sustained high earnings growth led by ramp-up of capacities and potential market share gain. At CMP, the stock is trading at 22x its FY23E EPS and 17x FY24E EPS.

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