Sharekhan is bullish on Sudarshan Chemical Industries has recommended buy rating on the stock with a target price of Rs 530 in its research report dated May 24, 2023.
Sharekhan’s research report on Sudarshan Chemical Industries
SCIL posted strong recovery in Q4FY2023, led by improving demand for pigment in the domestic/export market. Revenue/OPM at Rs. 691 crore/12.3% was up 31%/437 bps q-o-q and significantly above our estimate, largely reflecting volume growth and higher gross margin. PAT increased to Rs. 33 crore versus only Rs. 1 crore in Q3FY2023, led by strong operational performance. Pigment domestic/export revenue increased by 20%/26% q-o-q to Rs. 301 crore/Rs. 293 crore, given the recovery in both domestic and global demand. Pigment specialty revenue segment grew by 21% q-o-q. Margin improvement reflects softening of input cost, but other expenses (up 21% q-o-q) still remain elevated. Management hinted for gradual ramp-up of new products given concerns of global economic slowdown and it expects full revenue potential of recently completed Rs. 750 crore capex over the next 3-4 years. Gross margin improvement would continue and management has guided for 100bps improvement going forward. Land monetisation receipt of Rs. 356 crore would help improve the balance sheet.
Outlook
We believe the earnings downgrade cycle is over for SCIL and ramp-up in new projects would revive growth in FY2024. Consolidation in the global pigment industry bodes well for long-term earnings growth of SCIL. Hence, we upgrade SCIL to Buy (from Hold) with an increased PT of Rs. 530 (higher PT reflects rollover of PE multiple to FY2025E EPS). The stock trades at 24x/18x FY2024E/FY2025E EPS.
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Sudarshan Chemical Industries – 25 -05 – 2023 – khan
Read More: Buy Sudarshan Chemical Industries; target of Rs 530: Sharekhan