Sudarshan Chemical Q4 Results Review - Strong Quarter, Significantly Improved Outlook: Dolat Capital

Dolat Capital Report

Sudarshan Chemical Industries Ltd.’s Q4 FY24 result was a significant beat on estimates, led by higher than expected pigments volume growth in domestic market and turnaround in others (RIECO).

Operating leverage benefits aided Ebitda margin by +332 basis points YoY/+465 bps QoQ, wherein gross margin was +96 bps/-186 bps QoQ.

Management indicated reaching optimum capacity utilization ahead of its previous guidance of four years (i.e. FY27); new capacity currently in an early utilization stage.

Turbulence in global pigment industry following Heubach's insolvency is likely to accelerate Sudarshan Chemical's growth; increasing contribution of specialty pigments will drive superior Ebitda margins.

We expect operating leverage to play out as capacity ramps up and generates healthy operating cash flow (Rs 6 billion over FY25-26), enabling it to turn debt free by FY26 (versus net debt of Rs 7.9 billion/ Rs 3.9 billion in FY23/24).

We increase our FY25/FY26 Ebitda estimates by 10%/12% to factor quicker ramp-up aided by industry tailwinds. Maintain ‘Accumulate’ rating with target price of Rs 900 (26 times FY26E earnings per share; earlier Rs 730).

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