ICICI Direct's research report on Sudarshan Chemical Industries
Sudarshan Chemical Industries’ (SCIL) Q1FY24 print showed recovery in margins (partly optical with drop in prices) on lower input cost. India demand was impacted from destocking in coating segment while plastics business has started growing. International business revenue was impacted from macro-headwinds. Company has not witnessed increased competitive intensity from Chinese pigment producers compared to last year. SCIL now expects INR 12.5bn incremental revenue addition over next four years as it ramps-up new capacity. Pigment industry can see further industry consolidation with a Canadabased producer (among top 6-7 globally) undergoing financial stress. Gross profit margin improvement, as expected, driven by rise in contribution from the new capacity for HPP will have limited benefits as base products had some margin erosion.
Outlook
We cut our EPS estimates by 8.5% for FY25E, but increase it by 2% for FY24E. Our target price is raised to INR 560 (from INR 550) as we increase the P/E multiple to 20x FY25E EPS (earlier: 18x). We downgrade the stock to HOLD (from BUY).
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