About the Company

Sudarshan Chemical Industries manufactures and sells a wide range of Organic and Inorganic Pigments, Effect Pigments, and Agro Chemicals. The Company also manufactures Vessels and Agitators for industrial applications.

Q3FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 464 389 19.28% 396 17.17% 1192 1156 3.11%
PBT 64 39 64.10% 39 64.10% 135 146 -7.53%
PAT 45 27 66.67% 28 60.71% 97 115 -15.65%

 

Consolidated Financials (In Crs)
  Q3FY21 Q3FY20 YoY % Q2FY21 QoQ % 9MFY21 9MFY20 YoY%
Sales 509 425 19.76% 431 18.10% 1292 1263 2.30%
PBT 56 41 37% 42 33.33% 126 150 -16.00%
PAT 39 28 39% 30 30.00% 88 118 -25.42%

 

Detailed Results

  1. Consolidated revenues were up 20% YoY. Profit was up 39% YoY.
  2. EBITDA margin for Q3 was up 80 bps YoY to 15.7%.
  3. 9M sales were up 2.3% YoY mainly due to plant shutdown during the lockdown in Q1. EBITDA margins in 9M were up 30 bps YoY at 15.6%.
  4. Production is back to pre-covid levels.
  5. EBITDA for pigment business was up 34% YoY in Q3 with EBITDA margin at 16.3% from 14.9% last year.
  6. Gross margin was down 20 bps in Q3 at 42.8%.
  7. ROCE was at 13.3% in 9M. Debt to equity was at 0.9 times in 9M.
  8. Earnings per share were at Rs 13.3 in 9M.

Investor Conference Call Highlights

  1. Pigment business grew 22% YoY with good traction in coating, plastics and paint.
  2. Volume growth in specialty is at 21% YoY, while Non-Specialty is at 24% YoY.
  3. The gross margins were lower YoY in Q3 because of lower export benefits and lag in passing on incremental cost rises to customers.
  4. The management expects the demand environment to remain robust in the coming quarters as the Indian as well as world economy returns to normalcy.
  5. Domestic to export mix for pigment sales was at 56:44.
  6. The company has accelerated its capex projects for the new product launches. It is expected to launch 4 or 5 high-performance pigments and a total of 20-25 products in the next year.
  7. The company is looking to expand its market reach in key export destinations like Japan, USA, EU & South East Asia.
  8. The management has stated that as the product mix shifts to higher margin products, overall gross margins should improve going forward. The full impact of these changes will be visible in a few years.
  9. Despite being cost leaders, the fall in gross margins was accompanied by a rise in EBITDA margins. This is mainly due to changing product mix and focus on specialized business.
  10. The company is looking to do a full-blown launch for yellow 128 in H1FY22.
  11. The company is looking to complete the launch of the inorganic compound in March as scheduled but the Sep product launch is expected to be delayed by 1-2 months.
  12. The bookings for plastic and inks have been robust from Asia and India but they have been subdued from USA & EU due to the ongoing 2nd wave of COVID-19.
  13. The company is looking at asset turnover of 2.5 times from the new product launches at full scale.
  14. The full scale benefit from the completion of capex projects is expected to be realized in 2-3 years after completion.
  15. The newly launched products are expected to account for 15-20% of sales going forward.
  16. The MEIS impact for Q3 was at Rs 2.4 Cr.

Analyst’s View

Sudarshan Chemicals is one of the largest pigment makers in the world. The company has had a good Q3 with domestic demand coming back robustly and export demand remaining resilient. It also has a launch schedule for 20-25 new products including 5 high-performance pigments in FY22. Sudarshan was also able to increase EBITDA margins despite a slight fall in gross margin. This was mainly due to the shift to a better product mix. It is also doing well to focus on expanding market reach in fast-growing export markets and associating with key players in the ever-rising domestic paints industry. It remains to be seen how the new products are received for the company and how long will it take for the company to reach its goal of cracking the global top 3 in the pigment industry. Nonetheless, given the company a strong position in both domestic and export markets and its steadily improving margins due to an improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.

 


Q2FY21 Updates

Financial Results & Highlights

 

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 396 382 3.66% 332 19.28% 727 765 -4.97%
PBT 39 43 -9.30% 33 18.18% 72 107* -32.71%
PAT 28 43 -34.88% 23 21.74% 51 88 -42.05%

 

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 431 426 1.17% 353 22.10% 781 836 -6.58%
PBT 42 47 -10.64% 28 50.00% 70 109* -35.78%
PAT 30 46 -34.78% 18 66.67% 49 89 -44.94%

*Includes exceptional item of Rs 19.32 Cr from the sale of its Industrial Mixing Solutions Division

 

Detailed Results

  1. Consolidated revenues were up 1% YoY. Profit was down 35% YoY and up 66% QoQ in Q2.
  2. EBITDA margin for Q2 was up 20 bps YoY to 15.8%.
  3. H1 sales were down 6.6% YoY mainly due to plant shutdown during the lockdown in Q1. EBITDA margins in H1 were down only 10 bps YoY at 15.4%.
  4. EBITDA for pigment business was flat YoY in Q2 at 16.3%.
  5. Gross margins improved to 44.2% in Q2 vs 43.2% a year ago.
  6. ROCE was at 12.8% in Q2. Debt to equity was at 0.9 times in H1.
  7. Earnings per share were at Rs 7.2 in Q2.

Investor Conference Call Highlights

  1. Domestic business improved 70% QoQ in Q2.
  2. In Q2, the Roha plant was impacted for initial 2 weeks due to the presence of COVID-19 cases.
  3. Demand in the domestic market is back to pre-covid levels since August. Raw materials have remained relatively stable during the quarter.
  4. Capex outflow in H1 was at Rs 106 Cr. Out of the planned capex outlay of Rs 585 Cr in FY20 & FY21, the company has completed Rs 225 Cr in FY20. Projects worth INR 110 crores will spill over to FY22.
  5. The company expects to relaunch Yellow pigment by mid-December.
  6. The management expects demand to remain strong post-Diwali due to pent up demand pressure.
  7. In H1, domestic sales were at 44% of total sales while exports were at 56%.
  8. The planned product launches from before have all been delayed by more than 6-9 months due to COVID-19.
  9. Capacity utilization in July was at 30-40% and for the rest of the quarter, it rose to 80-85% levels.
  10. The revenue mix in Q2 was at 51% for domestic and 49% for exports.
  11. The company reached one of its highest ever production volumes in September indicating that there is a lot of pent-up demand in the market.
  12. The main concerns going forward for the company are the seasonal demand slowdown seen in the past in the industry post-Diwali and the rise of the 2nd wave of COVID-19 in export destinations in the near future.
  13. The management has stated that the majority of capex is aimed at growth and there is indeed some room for backward integration projects which are expected to improve margins slightly.
  14. The management continues to stress that there are good tailwinds for Sudarshan with 2 major players about to sell their business and uncertainties from creating opportunities for other players to rise up to a leadership position.
  15. The management has stated that the announced export rebate by China for its domestic companies mainly affects product sales at the lower end and higher-end products do not see much impact from it.
  16. The company has indeed gained a better cost position in a part of the range and it is aiming to achieve cost leadership in certain molecules and enhance this leadership through backward integration projects.
  17. The company is still dependent on China for 30-35% of its RM needs currently.
  18. The management has admitted that the potential in the export market is greater and the contribution of exports is expected to rise in the future.
  19. The company expects to start seeing the benefits of its capex projects from 2022 onwards.
  20. The company also looking to finalize capex beyond the Rs 550 Cr mentioned above and this will be finalized by the Board by March ’21.
  21. After the new capex is done, the management expects asset turnover to improve to 3 times.
  22. The major industries that the company caters to are coatings, plastics, printing inks, and cosmetics in that order. Printing inks and plastics is higher in India than in exports.
  23. Most of the cosmetics customers are global players.
  24. The company is looking to shift product mix towards higher-end applications globally, not just cosmetics, but for all other applications from the industrial side.
  25. The debt level for the company is at Rs 500 Cr currently.

Analyst’s View

Sudarshan Chemicals is one of the largest pigment makers in the world. The company has done well to improve its gross margins steadily throughout FY20 and continue to do so in H1 so far. The company did suffer a bit from the plant shutdown at the start of Q2 from COVID infections. But the demand for the company products remains stable and the management expects to remain consistent due to the pent-up demand pressure. The company has a good opportunity for growth from the China substitution movement and the exit of 2 major players in the global pigments industry. It is also doing well to reduce dependence on China for raw materials and looking for opportunities for backward integration which would further its priority of establishing cost leadership. It remains to be seen how the domestic market will recover for the company and how long will it take for the company to reach its goal of cracking the global top 3 in the pigment industry. Nonetheless, given the company a strong position in both domestic and export markets and its steadily improving margins due to an improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.


Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 332 384 -13.54% 370 -10.27%
PBT 33 63* -47.62% 32 3.13%
PAT 24 45 -46.67% 34 -29.41%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 353 412 -14.32% 450 -21.56%
PBT 28 63* -55.56% 30 -6.67%
PAT 19 43 -55.81% 27 -29.63%

*Includes exceptional item of Rs 19.32 Cr from the sale of its Industrial Mixing Solutions Division

Detailed Results

    1. Consolidated revenues were down 14.3% YoY. Profit was down 56% YoY and 29.6% QoQ in Q1.
    2. EBITDA margin for Q1 was down 40 bps YoY to 15%. Without COVID-19, the EBITDA margin was expected to be at 15.4%. It is estimated that the plant shutdown caused a revenue loss of Rs 45 Cr and an EBITDA loss of Rs 12 Cr.
    3. Exports stood at 64% of revenues in Q1 while 36% were from domestic sales.
    4. Specialty chemicals continue to have stronger traction and saw lower de-growth as compared to non-specialty chemicals.
    5. EBITDA for pigment business improved 370 bps QoQ but declined 60 bps YoY to 15.7% in Q1. Without COVID-19, this figure was expected to be at 17.1%. The estimated revenue loss and EBITDA loss in this business from COVID-19 were at Rs 45 Cr and 12 Cr respectively.
    6. Gross margins improved to 44% in Q1 vs 41.1% a year ago.
    7. ROCE declined to 11% in Q1 vs 14.6% a year ago.
    8. Debt to equity was at 0.9 times.
    9. Earnings per share declined to Rs 2.6 in Q1 from Rs 4.1 last year.
    10. 15 days of production loss due to plant closure at Roha (Covid-19) in July, is expected to made up during Q2. The closure was due to Cyclone Nisarga.

Investor Conference Call Highlights

  1. The improvement in gross margin is because of a continuous improvement in product mix and prudent pricing strategies. Margins have also benefited from a relatively stable raw material environment during the quarter.
  2. The company is looking to reduce dependency on China for RM and is well stocked in major supplies for a while.
  3. There hasn’t been any major change in capex plans. Only the plans have gotten delayed by 6 months due to no availability of labour and the requirement for some of the commissioning of equipment where some of the company’s people need to travel abroad.
  4. The management maintains that there is indeed some tailwind for the Indian Chemicals industry from the China substitution phenomenon. The company is focussing on growing globally in the top 3 global players in the pigment industry. This is expected to involve the introduction of a much better product portfolio looking at some areas where the company can gain cost leadership.
  5. Revenues for some of the previously guided blockbuster products will start coming in from next year onwards as these product launches may have been delayed from the delay in capex due to COVID-19.
  6. The capex outflow in FY21 remains at Rs 250 Cr.
  7. Net debt at the end of Q1 was at Rs 500 Cr.
  8. The management expects to reach pre-COVID levels of production soon.
  9. Domestic demand had recovered to 70-80% of last year in July. This is expected to rise to 90-100% in August.
  10. In RM side, things are expected to stay stable at current levels going forward according to the management. Thus the management also expects current margins to persist going forward.
  11. The biggest impact for the company is from the customer segment of the auto while the least impact in packaging as food packaging demand has risen.
  12. The management maintains that the customers do not have enough bandwidth currently in labs to test the new products. Thus the company will be looking to focus on scaling production. As mentioned earlier, the realization for these new products is expected to be delayed by 4-6 months.
  13. A very small amount of the company’s capex in the next 2 years is for import substitution. Most of it is towards revenue generation and the introduction of new products and backward integration.
  14. The pricing of products is expected to remain stable going forward. The company has taken price hikes in only a couple of products so far.
  15. The revenue loss if Rs 45 Cr mentioned above is from plant shutdown
  16. The management remains confident of making up for the production losses in Q2 and assures that the company has adequate capacity to fulfill this aim.
  17. The management has stated that the third-largest player in pigments has sales of $500 million.
  18. Most of the export traction for the company is coming from the USA, EU, and some parts of SE Asia.
  19. The main areas the company is focussing on to drive its aim to crack the top 3 in the pigment industry are go-to-market experience & reach, comprehensive product portfolio, and cost leadership through backward integration.
  20. The company is already looking at JVs for backward integration. It has also set up a special cell in R&D to develop some of these technologies that will focus on backward integration. This has already been done for 2-3 minor molecules.
  21. Out of the company’s proposed multi-year capex plan of Rs 1400 Cr, around Rs 450 Cr is already done while Rs 340 Cr is currently under execution.
  22. The management has clarified that the revenue loss of Rs 45 Cr was for 1 week in June from Cyclone Nisarga. There will also be revenue loss in Q2 as the plant shutdown was till 15th July.
  23. The capex of Rs 250 Cr from last has not started generating revenue yet and is expected to take 4-6 more months to do so.
  24. The variance in forex loss from last quarter and gain in this quarter was Rs 10 Cr.
  25. The management expects to add around Rs 200+ Cr to the company’s debt in order to fulfill the multi-year capex plan for Rs 1400 Cr. Thus pea debt is expected to be Rs 700+ Cr.
  26. Around 60-70% of capex from the pending Rs 1000 Cr is for capacity enhancement.
  27. The payback period for this capex is expected to be around 4 years.
  28. Currently, the company sources 25% of its RM requirements from China.

Analyst’s View

Sudarshan Chemical is one of the largest pigment makers in the world. The company has done well to improve its gross margins steadily throughout FY20 and continue to do in Q1. The company did suffer a bit from the plant shutdown in Q1 from Cyclone Nisarga which led to a dip in EBIT margins. But the demand for the company products remains stable and the management expects to make up for this revenue loss in Q2 due to the steady demand. The company has a good opportunity for growth from the China substitution movement. It is also doing well to reduce dependence on China for raw materials and looking for opportunities for backward integration which would further its priority of establishing cost leadership. It remains to be seen how the domestic market will recover for the company and how long will it take for the company to reach its goal of cracking the global top 3 in the pigment industry. Nonetheless, given the company a strong position in both domestic and export markets and its steadily improving margins due to improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.


 

Q4FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 370 392 -5.61% 389 -4.88% 1526 1439 6.05%
PBT 32 30 6.67% 39 -17.95% 178 213 -16.43%
PAT 34 14 142.86% 27 25.93% 149 150 -0.67%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 450 434 3.69% 425 5.88% 1713 1600 7.06%
PBT 30 47 -36.17% 41 -26.83% 180 201 -10.45%
PAT 27 27 0.00% 28 -3.57% 145 133 9.02%

 

Detailed Results

    1. Consolidated revenues were flat with only 3.7% YoY growth. Profit was also flat YoY in Q4.
    2. FY20 performance saw revenues rising 7% YoY while profits rose 9% YoY.
    3. EBITDA margin for FY20 was up 160 bps YoY to 14.4% despite the disruption from the lockdown. It is estimated that the lockdown caused a revenue loss of Rs 125 Cr and an EBITDA loss of Rs 41 Cr.
    4. Exports stood at 48% of revenues in FY20 while 52% were from domestic sales.
    5. Capex for FY20 was at Rs 250 Cr.
    6. Specialty and Non-Specialty portfolio was flat in Q4 YoY owing to the disruption in sales from CoVID-19.
    7. Gross margins improved dramatically in Q4 at 44.1% vs 39.8% last year and 43% in the last quarter.
    8. The EBITDA margin however was subdued at 12% in Q4 mainly due to the disruption in sales from COVID-19.
    9. ROCE improved to 15.9% in FY20 vs 14.6% a year ago.
    10. Debt to equity was at 0.8 times.
    11. Earnings per share improved to Rs 15.7 in FY20 from Rs 11.7 in FY19.

Investor Conference Call Highlights

  1. Currently, the management does not see any disruption in raw material supplies or in pricing.
  2. The company is seeing an uptake in demand from the export business due to supply disruption from China and also tailwinds to move supplies from China to India.
  3. Capex for FY21 is expected to be around Rs 345-355 Cr.
  4. The management sees domestic demand coming back from Q2 onwards.
  5. The management good opportunity for the company from the China substitution opportunity and from the acquisition of new entities that should open new markets for the company.
  6. The expansion projects for the company have gotten delayed by 6 months due to COVID-19.
  7. The management has attributed the gross margin improvement to the improvement in product portfolio for the company.
  8. The management has stated that the debt to equity for the company can go up to 1-1.1 times.
  9. The management has stated that the sharp decline in EBIT margin for Q4 was mainly due to the higher expenses as sales were expected to be high but were delayed due to the lockdown.
  10. The engineering business has seen a turnaround and posted an EBIT of Rs 6 Cr in Q4Fy20 vs a loss of Rs 50 lacs a year ago.
  11. Most of the orders in the quarter were from existing customers.
  12. In terms of segments catered to by the company, the coatings segment has seen a slowdown in the domestic front while cosmetics has remained muted. The rest have done well or as expected.
  13. Around 25-30% of raw materials come from China for the company. The company is indeed looking for alternative sources for this RM demand.
  14. The management has stated that due to muted demand from the market, there have not been any major price hikes in the industry. The raw material prices are expected to remain stable going forward.
  15. The company has not yet adopted the new corporate tax regime as it still has deferred tax liabilities to run down.
  16. The company has seen losses of Rs 6 Cr in foreign exchange hedges in Q4.
  17. The management has stated that currently all engineering business is conducted under the brand of Rieco which focuses on pneumatic conveying systems, pollution control, etc.
  18. The company is indeed looking into opportunities to backward integrate some of its molecules and to partner with local producers to reduce dependence on imports for supplies.
  19. The management has stated that post-COVID the company is seeing rising demand from the USA and EU.
  20. The management has stated that they clearly see consolidation taking place in the global pigments industry within the next 5 years.

Analyst’s View

Sudarshan Chemicals is one of the largest pigment makers in the world. The company has done well to improve its gross margins steadily throughout FY20. The company did suffer a bit from the lockdown and COVID-19 disruption in March which led to a dip in EBIT margins. But the demand for the company products remains stable and is expected to be on the rise in export markets. The company has a good opportunity for growth from the China substitution movement. It is also doing well to reduce dependence on China for raw materials and looking for opportunities for backward integration. It remains to be seen how the domestic market will recover for the company and whether the planned expansion which got delayed due to COVID-19 will be able to finish in time. Nonetheless, given the company a strong position in both domestic and export markets and its steadily improving margins due to improving product portfolio, Sudarshan Chemicals is a pivotal chemical sector stock to watch out for.

 

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