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.
Q3FY22 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q3FY22 | Q3FY21 | YoY % | Q2FY22 | QoQ % | 9MFY22 | 9MFY21 | YoY% | |
Sales | 542 | 464 | 16.8% | 437 | 24.0% | 1414 | 1192 | 18.6% |
PBT | 42 | 64 | -34.4% | 24 | 75.0% | 95 | 125 | -24.0% |
PAT | 31 | 45 | -31.1% | 18 | 72.2% | 71 | 97 | -26.8% |
Consolidated Financials (In Crs) | ||||||||
Q3FY22 | Q3FY21 | YoY % | Q2FY22 | QoQ % | 9MFY22 | 9MFY21 | YoY% | |
Sales | 603 | 509 | 18.5% | 499 | 20.8% | 1577 | 1292 | 22.1% |
PBT | 49 | 56 | -12.5% | 28 | 75.0% | 114 | 126 | -9.5% |
PAT | 36 | 39 | -7.7% | 23 | 56.5% | 85 | 88 | -3.4% |
Detailed Results:
- The company’s consolidated income from operations increased 18% YoY to Rs 603 Cr.
- The company recorded an EBITDA decline of 7.5% YoY to Rs 74 Cr.
- EBIDTA margins decreased 340 bps YoY from 15.7% to 12.3%.
- The company’s PAT decreased by 16% YoY to Rs 36 Cr.
- Pigment business saw revenue rise by 17% YoY to Rs 560 Cr. EBIDTA margin of this division contracted by 260 bps to 13.7% due to soft demand and rise in coal and logistics costs. Capacity utilization was at 80%.
- Gross margins for the quarter in the pigment business stood at 41.6% vs 43.2% YoY due to very high basic and chemical intermediates prices along with energy crisis leading to difficulty in passing costs increases to customers.
- Exports of the pigment business increased by 17% YoY to Rs 254 Cr. Domestic sales increased 17% YoY.
- The specialty segment’s revenue rose by 14% YoY while non-specialty revenue also rose by 25% YoY.
- The current ratio for Q3 was at 1.1 while debt to equity was at 1.0 times.
- The cash conversion cycle had reduced from 105 days in Q2FY22 to 91 days in Q3.
Investor Conference Call Highlights
- Coal prices are still above 200% of the level seen in the last year’s quarter 4 FY21 which is pushing up the manufacturing cost.
- The company completed the commercialization of the capex project of Rs.150 Cr from an ongoing capex plan of Rs.750 Cr. Management expects total capitalization to be at Rs.300 Cr. This will include capex projects in the new molecules as well as capacity additions in the existing segment as well as the infrastructure-related capex.
- The management is seeing a good ramp in high-performance pigment.
- Out of capex, Rs.600 Cr revenue will be generated from new blockbuster products while the rest Rs.900 Cr is expected to be from old products.
- The specialty pigment segment has 50% more margins than the non-specialty pigment division.
- The management doesn’t see further raw material pressure till Q4.
- The management expects challenges in terms of revenue contribution from its new capex for the next few quarters because they have bought material at peak price due to being a new entrant whereas their competitors bought at lower prices.
- The new capex will be focused on taking market share from European players.
- The boards will decide on a backward integration project in March.
- The company faced aggressive pricing pressure in the current quarter due to the availability of adequate raw material inventory with the European players.
- The management has increased its guidance of possible revenue to be generated by its capex after 3 years from Rs.1200 Cr to Rs.1500 Cr due to an increase in realizations and chance in the mix of investments.
- The company doesn’t expect margins to improve due to its new capex, however the company expects the margins to improve once backward integration takes place.
- The company has only capitalized capex of Rs.400 Cr instead of Rs.300 Cr as guided by the company due to its policy of capitalizing capex only when products are commercialized.
- The company has experienced logistics costs increasing by 2X-3X.
- 80% of the new capex will be towards specialty pigments.
- The management states that every raw material is currently haunting the company due to continuous rise in prices.
Analyst’s View:
Sudarshan Chemicals is one of the largest pigment makers in the world. The company had a decent quarter sequentially with margins improving QoQ but YoY margins were eroded by 340 basis points due to rising input and logistics costs. The management expects the coming quarter to be more robust due to the improving demand scenario. It is also confident of improving margins from the current low level and in the market potential of Sudarshan’s Rs 750 Cr capex plan. It remains to be seen whether the growth capex will deliver to its expectations in the given time frame, how long will the supply chain issues and raw material price inflation last, and what issues will the company face to reach its goal of cracking the global top 3 in the pigment industry given the consolidations among the top 5 players. 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.
Q2FY22 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q2FY22 | Q2FY21 | YoY % | Q1FY22 | QoQ % | H1FY22 | H1FY21 | YoY% | |
Sales | 437 | 396 | 10.35% | 435 | 0.46% | 873 | 728 | 19.92% |
PBT | 24 | 39 | -38.46% | 29 | -17.24% | 53 | 72 | -26.4% |
PAT | 18 | 28 | -35.71% | 22 | -18.18% | 40 | 52 | -23.08% |
Consolidated Financials (In Crs) | ||||||||
Q2FY22 | Q2FY21 | YoY % | Q1FY22 | QoQ % | H1FY22 | H1FY21 | YoY% | |
Sales | 499 | 431 | 15.78% | 475 | 5.05% | 974 | 783 | 24.39% |
PBT | 28 | 42 | -33% | 37 | -24.32% | 65 | 70 | -7% |
PAT | 23 | 30 | -23% | 26 | -11.54% | 49 | 49 | 0.00% |
Detailed Results:
- The company’s consolidated income from operations increased 16% YoY to Rs 499 Cr.
- The company recorded an EBITDA decline of 12% YoY to Rs 53 Cr.
- EBIDTA margins decreased 520 bps YoY from 15.8% to 10.6%.
- The company’s PAT decreased by 23% YoY to Rs 28 Cr.
- Pigment business saw revenue rise by 12% YoY to Rs 448 Cr. EBIDTA margin of this division contracted by 510 bps to 11.2% due to soft demand and rise in coal and logistics costs. Capacity utilization was at 60%.
- Gross margins for the quarter in the pigment business stood at 43.5% vs 44% due to very high basic and chemical intermediates prices along with energy crisis leading to difficulty in passing costs increases to customers.
- The Govt. has passed a RoDTEP scheme where pigment qualified for 0.8% benefit as compared to 2% in MEIS benefit scheme leading to margin contraction.
- Exports of the pigment business increased by 5% YoY to Rs 209 Cr. Domestic sales increased 18% YoY from owing to the lower base effect.
- The specialty segment’s revenue rose by 11% YoY while non-specialty revenue also rose by 11% YoY.
- H1 saw a similar trend with 24% YoY rise in revenues but PAT was flat YoY.
- The current ratio for Q2 was at 1.1 while debt to equity was at 1.1 times.
- The cash conversion cycle had risen from 96 days in Q1FY22 to 105 days in Q2.
Investor Conference Call Highlights
- The demand for the plastic industry was affected by the steep rise in polymer prices.
- The main challenges in Q2 for Sudarshan were subdued demand and availability of containers according to the management. The industry also saw aggressive pricing action by competitors.
- Coal prices have risen 250% since Q4FY21 thus pushing up the cost of manufacturing.
- The new yellow pigment has started commercial sales and is expected to ramp up. The high-performance pigment is expected to be commercially launched in Q4.
- The total capitalization in H1 was Rs 293 Cr out of the total Rs 750 Cr capex plan.
- Due to floods in its Mahad facility, the company lost 15 weeks of production in the previous month, and then due to breakdown in the plant, it was still experiencing a 15% loss of production almost every month. However, the plant is now stabilized.
- The completion of capex of Rs 750 Cr will lead to revenue being skewed even more towards specialty chemicals which is now accounting for 2/3 of sales.
- Industry-level consolidation is taking place with Heubach and SK Capital taking over Clariant & the DIC Group taking over BSF.
- The management states that normalization is taking place and the company is being able to pass on the cost increase this quarter.
- The company has been able to maintain its gross margins however it hasn’t been able to pass higher logistics and coal costs due to it being hit harder than its competitors leading to lower EBIDTA margins.
- The management expects to clock revenues of Rs 1500 Cr after 3 years due to the completion of capex. These additional revenues will be above the base of FY21 revenues.
- The management is confident of bringing back EBITDA margin to FY21 levels.
- The management states that despite tailwinds due to industry-level consolidation, it was unable to benefit out of that due to high logistics costs and shorter supply chain as compared to its competitors leading to the company losing its competitiveness in the market.
- The company will incur Rs 250 Cr of total capex this year and after completion of the capex plan of Rs. 750 Cr, it will only do capex necessary for backward integration.
- The management states that the company is moving towards a more professional management setup with the promoters moving away from active management and starting their new non-competing ventures for which, they are selling their equity to raise funds for these new ventures.
- The inventory of the company increased by Rs 70 Cr due to higher logistical costs and margin protection because the company was not getting decent prices for its finished product leading to higher inventory. However, the liquidation of this inventory is going on in Q3.
- The current utilization level is at 60% and the management expects it to rise to 80-85%.
- The management states that the Top 3 players hold a market of $3 billion out of the total $8.6 billion addressable market due to their first-mover advantage leading to a better network and supply chain thus making it difficult for other players to increase their market share. However, given the company’s product profile the management is bullish regarding its future growth prospects.
- The debt component increased due to the higher capex implementation program and working capital loans due to higher inventory.
- The management expects demand in the plastics and coatings business to remain sluggish.
- The management is focused on volume growth in the coming quarters and expects a strong recovery in the coming quarters.
- The company is facing tough competition from European players due to elevated logistics costs which these EU players are not facing due to their local presence.
Analyst’s View:
Sudarshan Chemicals is one of the largest pigment makers in the world. The company had a tough with margins declining by more than 500 bps due to loss of production days and rising input and logistics costs. The management expects the coming quarter to be more robust due to the improving demand scenario. It is also confident of improving margins from the current low level and in the market potential of Sudarshan’s Rs 750 Cr capex plan. It remains to be seen whether the growth capex will deliver to its expectations in the given time frame, how long will the supply chain issues and raw material price inflation last, and what issues will the company face to reach its goal of cracking the global top 3 in the pigment industry given the consolidations among the top 5 players. 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.
Q1FY22 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | |||||
Q1FY22 | Q1FY21 | YoY % | Q4FY21 | QoQ % | |
Sales | 435 | 332 | 31.01% | 522 | -16.61% |
PBT | 29 | 33 | -10.40% | 46 | -35.77% |
PAT | 22 | 24 | -6.42% | 40 | -44.36% |
Consolidated Financials (In Crs) | |||||
Q1FY22 | Q1FY21 | YoY % | Q4FY21 | QoQ % | |
Sales | 473 | 352 | 34.28% | 577 | -17.96% |
PBT | 37 | 28 | 32% | 64 | -42.19% |
PAT | 26 | 18 | 44% | 53 | -50.94% |
Detailed Results:
- The company’s consolidated income from operations increased by 35% YoY to Rs 474 Cr.
- The company recorded an EBITDA growth of 17% YoY to Rs 62 Cr as compared to Rs 52 Cr the previous year. However, EBIDTA margins decreased by 200 bps from 15% to 13%.
- The company’s PAT increased by 44% YoY to Rs 26 Cr.
- Pigment business saw revenue rise by 33% YoY to Rs 454 Cr. EBIDTA margin of this division contracted by 120 bps from 15.7% to 14.5% due to MEIS benefits going away, higher employee benefits expense, freight and coal costs. Capacity utilization was at 81%.
- Gross margins for the quarter stood at 47.1% vs 43.9% due to the majority of cost increases being passed to customers and the company benefitting from its cheaper inventory.
- Exports of the company increased by 13% YoY to Rs 250 Cr. Domestic sales increased 68% YoY from owing to the lower base effect.
- The specialty segment’s revenue rose by 32% YOY while non-specialty revenue rose by 33% YoY.
- The current ratio for Q1 was at 1.2 while debt to equity was at 0.9 times.
- The cash conversion cycle had risen from 86 days in Q4FY21 to 96 days in Q1.
Investor Conference Call Highlights
- The 2nd wave of COVID caused a big drop in demand in Q1 due to local lockdowns.
- There have been sharp increases in prices of intermediates and the company has passed on most of these increases to the customers according to the management.
- The management expects to complete capex worth Rs 120 Cr by the end of Q2 and commission the balance capex of 180-200 Cr in Q3.
- The loss of Rs 4 Cr in REICO was mainly due to execution issues caused by the local lockdowns in Q1. The management states that it should come back to profitability in Q2.
- The management expects pressure on margins to continue in the coming quarters owing to raw material costs inflation, higher coal and freight costs.
- Other expenses have decreased by only 1.5% even though revenues have decreased by 17-18% QoQ due to higher freight and coal costs.
- The management expects to launch the 3 specialty product lines by the end of Q3. Each product line is expected to have 10-15 products.
- Due to floods in its Mahad facility, the company lost two weeks of production in the plant.
- The company recorded poor in the domestic market in Q1 due to covid lockdown induced demand issues as well as polymer availability and pricing issues in its plastic industry segment according to the management.
- The export growth was subdued due to logistics issues. However, the company expects good growth going forward due to pent-up demand in both the domestic and exports market.
- The management states that direct raw material costs increases are passed easily whereas indirect costs hike like freight are passed with a lag of a couple of months or a quarter.
- The management is awaiting the results on anti-dumping duty on some products in mica-based pigments and will participate in that market if the duty is approved
- The management expects Sudarshan to benefit from global level consolidation as customers will be looking to secure alternate suppliers and from the China+1 theme. It sees good opportunities arising in the organic pigments segment from these developments.
- The management states that the domestic capacity additions made in raw material supply are insufficient to meet the industry demand currently.
- The management states that any new product launch or capex will take 3 years to ramp up. The company’s yellow pigment should ramp up by 2023.
- The company benefitted from the lower-cost inventory of raw materials leading to higher gross margins. However, the management expects gross margins to normalize in the next quarter.
- The management states that margins of REICO will normalize on yearly basis due to turnaround in the later quarters.
- The management believes that after 3 years of commissioning of capex in FY23, the company should start showing structurally higher EBIDTA and gross margins due to better sales mix and productivity gains.
- The management states that their product is very sensitive to the end-user application as each industry and geography has different time limits.
- The management states that it commercializes its new products by sending pilot plant samples to their customers who based on their technical evaluation give feedbacks and orders. This process may take a long time and it takes at least 3 years for any new capex to be fully utilized.
- The company was averaging sales of Rs 400 Cr in pigment business quarterly in FY20. However, because of the capex done at the time, the company has seen an increase in sales of 15-20% on a quarterly basis to Rs 470-500 Cr according to the management.
- The management expects the new capex to lead to an increase in turnover of Rs 300-400 Cr in the next 3 years.
Analyst’s View:
Sudarshan Chemicals is one of the largest pigment makers in the world. The company has had a slow Q1 with export demand down and domestic demand decline due to local lockdowns. It is also looking to complete a capex of Rs 300 Cr in the rest of FY22. Has seen a rise in gross margins due to raw material price rise and presence of low-cost inventory. The new product launches in FY22 have been delayed to Q3. It remains to be seen whether the growth capex will deliver to its expectations in the given time frame, how long will the supply chain issue and raw material price inflation last, and what issues will the company face to reach its goal of cracking the global top 3 in the pigment industry given the consolidations among the top 5 players. 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.
Q4FY21 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q4FY21 | Q4FY20 | YoY % | Q3FY21 | QoQ % | FY21 | FY20 | YoY% | |
Sales | 522 | 370 | 41.08% | 464 | 12.50% | 1714 | 1526 | 12.32% |
PBT | 46 | 32 | 43.75% | 64* | -28.13% | 181* | 178** | 1.7% |
PAT | 40 | 34 | 17.65% | 45 | -11.11% | 136 | 149 | -8.72% |
Consolidated Financials (In Crs) | ||||||||
Q4FY21 | Q4FY20 | YoY % | Q3FY21 | QoQ % | FY21 | FY20 | YoY% | |
Sales | 579 | 450 | 28.67% | 509 | 13.75% | 1871 | 1713 | 9.22% |
PBT | 64 | 30 | 113% | 56 | 14.29% | 190 | 180 | 6% |
PAT | 53 | 27 | 96% | 39 | 35.90% | 141 | 145 | -2.76% |
*Contains exceptional item of Rs 11 Cr
**Contains exceptional item of Rs 17 Cr
Detailed Results
- Consolidated revenues were up 29% YoY in Q4. Profit was up 96% YoY. EBITDA margin rose 320 bps YoY in Q4 to 15.2%.
- Pigment business saw revenue rise of 33% YoY with capacity utilization of 86% and EBITDA margin at 15.8% vs 12% in Q4 last year. Gross margin was down 100 bps YoY to 42.9% in Q4 mainly due to sharp price increase in many intermediates, which normally gets passed on with a lag of 1 quarter.
- Domestic revenues rose 5% YoY while export revenues rose 20% YoY in Q4FY21 for the pigment business. Specialty revenue rose 10% YoY while non-specialty revenue rose 15% YoY in the same period.
- FY21 revenues were up 9.2% YoY. EBITDA margin for FY21 was up 100 bps YoY to 15.4%.
- ROCE was at 14.8% vs 15.7% last year.
- Debt to equity was at 0.8 times in FY21.
- Cash Conversion Cycle was reduced to 86 days in FY21 from 93 days last year.
- The pigment business saw 10% YoY revenue growth in FY21. Gross margin for the business was at 43.4% vs 42.8% last year. EBITDA margin for the business improved to 16% vs 14.7% last year.
- Domestic revenues rose 6% YoY while export revenues rose 14% YoY in FY21 for the pigment business. Specialty revenue rose 8% YoY while non-specialty revenue rose 14% YoY in the same period.
Investor Conference Call Highlights
- The rest of the ongoing multi-year capex is around Rs 307 Cr and it is expected to be completed in FY22.
- The potential sales from this capex are expected to be around Rs 1000-1200 Cr on the base of FY20.
- The major part of the investment for new products is over while some areas for volume expansion are pending according to the management.
- The major launches in the recent past have been received well so far. The company is also looking at some more major launches in Q2 later.
- The company is also looking at 2 potential M&As in the industry from 2 players looking to exit the business.
- The next leg of growth capex will depend on how the currently planned new products are received and how long does it take for Sudarshan to complete backward integrations.
- The company is also planning on an additional capex of Rs 135 Cr in FY22 which will be separate from the long-term planned capex of Rs 307 Cr.
- Other expenses have risen in Q4 mainly due to a rise in coal prices and container shortage. Also, the higher share of specialty chemicals has increased the cost of manufacturing due to higher hazardous split costs.
- The net debt as of March 2021 was at Rs 614 Cr.
- Most of the multi-year growth capex of Rs 600 Cr, of which Rs 307 Cr is pending, is for specialty products.
- The management states that the overall margins are subdued for Sudarshan as it has an international sales team and high R&D costs as compared to most competitors. But the management assures that all of this should yield a big benefit for the company in the future.
- The maintenance capex for Sudarshan is around Rs 30-35 Cr per year.
- RM prices have risen sharply across the board for the industry, but the management is not too concerned by it as demand is expected to remain intact.
- The management has stated that the inflation impact due to the raw material price increases will be somewhere between 2% to 2.5%.
- The company has not seen any disruption in terms of sales and has only seen some delays in logistics in April & May so far.
- The management has stated that EBITDA should indeed rise from current levels of 15% in the next few years with the ramp-up of current capex and the operating leverage coming into play.
Analyst’s View
Sudarshan Chemicals is one of the largest pigment makers in the world. The company has had a good Q4 with export demand rising robustly and domestic demand remaining resilient. It is also looking to complete the remainder of the multi-year growth capex of Rs 600 Cr in FY22. Sudarshan was also able to increase EBITDA margins despite a fall in gross margin due to RM inflation. This was mainly due to the rise of specialty products contribution. It has also seen a good response to products launched so far in FY21 and is planning additional launches in Q2 later in FY22. It remains to be seen whether the growth capex will deliver to its expectations in the given time frame 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.
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
- Consolidated revenues were up 20% YoY. Profit was up 39% YoY.
- EBITDA margin for Q3 was up 80 bps YoY to 15.7%.
- 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%.
- Production is back to pre-covid levels.
- EBITDA for pigment business was up 34% YoY in Q3 with EBITDA margin at 16.3% from 14.9% last year.
- Gross margin was down 20 bps in Q3 at 42.8%.
- ROCE was at 13.3% in 9M. Debt to equity was at 0.9 times in 9M.
- Earnings per share were at Rs 13.3 in 9M.
Investor Conference Call Highlights
- Pigment business grew 22% YoY with good traction in coating, plastics and paint.
- Volume growth in specialty is at 21% YoY, while Non-Specialty is at 24% YoY.
- The gross margins were lower YoY in Q3 because of lower export benefits and lag in passing on incremental cost rises to customers.
- The management expects the demand environment to remain robust in the coming quarters as the Indian as well as world economy returns to normalcy.
- Domestic to export mix for pigment sales was at 56:44.
- 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.
- The company is looking to expand its market reach in key export destinations like Japan, USA, EU & South East Asia.
- 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.
- 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.
- The company is looking to do a full-blown launch for yellow 128 in H1FY22.
- 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.
- 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.
- The company is looking at asset turnover of 2.5 times from the new product launches at full scale.
- The full scale benefit from the completion of capex projects is expected to be realized in 2-3 years after completion.
- The newly launched products are expected to account for 15-20% of sales going forward.
- 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
- Consolidated revenues were up 1% YoY. Profit was down 35% YoY and up 66% QoQ in Q2.
- EBITDA margin for Q2 was up 20 bps YoY to 15.8%.
- 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%.
- EBITDA for pigment business was flat YoY in Q2 at 16.3%.
- Gross margins improved to 44.2% in Q2 vs 43.2% a year ago.
- ROCE was at 12.8% in Q2. Debt to equity was at 0.9 times in H1.
- Earnings per share were at Rs 7.2 in Q2.
Investor Conference Call Highlights
- Domestic business improved 70% QoQ in Q2.
- In Q2, the Roha plant was impacted for initial 2 weeks due to the presence of COVID-19 cases.
- Demand in the domestic market is back to pre-covid levels since August. Raw materials have remained relatively stable during the quarter.
- 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.
- The company expects to relaunch Yellow pigment by mid-December.
- The management expects demand to remain strong post-Diwali due to pent up demand pressure.
- In H1, domestic sales were at 44% of total sales while exports were at 56%.
- The planned product launches from before have all been delayed by more than 6-9 months due to COVID-19.
- Capacity utilization in July was at 30-40% and for the rest of the quarter, it rose to 80-85% levels.
- The revenue mix in Q2 was at 51% for domestic and 49% for exports.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- The company is still dependent on China for 30-35% of its RM needs currently.
- 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.
- The company expects to start seeing the benefits of its capex projects from 2022 onwards.
- 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.
- After the new capex is done, the management expects asset turnover to improve to 3 times.
- 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.
- Most of the cosmetics customers are global players.
- 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.
- 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
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- Consolidated revenues were down 14.3% YoY. Profit was down 56% YoY and 29.6% QoQ in Q1.
- 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.
- Exports stood at 64% of revenues in Q1 while 36% were from domestic sales.
- Specialty chemicals continue to have stronger traction and saw lower de-growth as compared to non-specialty chemicals.
- 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.
- Gross margins improved to 44% in Q1 vs 41.1% a year ago.
- ROCE declined to 11% in Q1 vs 14.6% a year ago.
- Debt to equity was at 0.9 times.
- Earnings per share declined to Rs 2.6 in Q1 from Rs 4.1 last year.
- 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
- 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.
- The company is looking to reduce dependency on China for RM and is well stocked in major supplies for a while.
- 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.
- 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.
- 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.
- The capex outflow in FY21 remains at Rs 250 Cr.
- Net debt at the end of Q1 was at Rs 500 Cr.
- The management expects to reach pre-COVID levels of production soon.
- Domestic demand had recovered to 70-80% of last year in July. This is expected to rise to 90-100% in August.
- 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.
- 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.
- 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.
- 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.
- 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.
- The revenue loss if Rs 45 Cr mentioned above is from plant shutdown
- 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.
- The management has stated that the third-largest player in pigments has sales of $500 million.
- Most of the export traction for the company is coming from the USA, EU, and some parts of SE Asia.
- 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.
- 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.
- 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.
- 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.
- 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.
- The variance in forex loss from last quarter and gain in this quarter was Rs 10 Cr.
- 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.
- Around 60-70% of capex from the pending Rs 1000 Cr is for capacity enhancement.
- The payback period for this capex is expected to be around 4 years.
- 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
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- Consolidated revenues were flat with only 3.7% YoY growth. Profit was also flat YoY in Q4.
- FY20 performance saw revenues rising 7% YoY while profits rose 9% YoY.
- 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.
- Exports stood at 48% of revenues in FY20 while 52% were from domestic sales.
- Capex for FY20 was at Rs 250 Cr.
- Specialty and Non-Specialty portfolio was flat in Q4 YoY owing to the disruption in sales from CoVID-19.
- Gross margins improved dramatically in Q4 at 44.1% vs 39.8% last year and 43% in the last quarter.
- The EBITDA margin however was subdued at 12% in Q4 mainly due to the disruption in sales from COVID-19.
- ROCE improved to 15.9% in FY20 vs 14.6% a year ago.
- Debt to equity was at 0.8 times.
- Earnings per share improved to Rs 15.7 in FY20 from Rs 11.7 in FY19.
Investor Conference Call Highlights
- Currently, the management does not see any disruption in raw material supplies or in pricing.
- 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.
- Capex for FY21 is expected to be around Rs 345-355 Cr.
- The management sees domestic demand coming back from Q2 onwards.
- 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.
- The expansion projects for the company have gotten delayed by 6 months due to COVID-19.
- The management has attributed the gross margin improvement to the improvement in product portfolio for the company.
- The management has stated that the debt to equity for the company can go up to 1-1.1 times.
- 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.
- 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.
- Most of the orders in the quarter were from existing customers.
- 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.
- Around 25-30% of raw materials come from China for the company. The company is indeed looking for alternative sources for this RM demand.
- 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.
- The company has not yet adopted the new corporate tax regime as it still has deferred tax liabilities to run down.
- The company has seen losses of Rs 6 Cr in foreign exchange hedges in Q4.
- 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.
- 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.
- The management has stated that post-COVID the company is seeing rising demand from the USA and EU.
- 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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