Sample  Research Report  
 Sudarshan Chemical Industries   
Vol. No. : 14    Issue No. : 39                             Wednesday, March 09, 2016

Sound and consistent growth

A leading pigment manufacturer, the company’s prospects remain encouraging in domestic as well as global markets

Related Tables
4Sudarshan Chemicals: Financials
4Sudarshan Chemicals: Results
4Sudarshan Chemicals: Segment results

Buy Sudarshan Chemical Industries
BSE Code 506655
BSE Group B
NSE Code SUDARSCHEM
ISIN Demat INE659A01023
Bloomberg SCHI@IN
Reuters SDCH.BO
Par Value Rs 2
52-week High/Low Rs 135 / Rs 77
Current Price Rs 86 (as on 9th March 2016)

Sudarshan Chemical Industries (Sudarshan) is a globally renowned player in the Pigment Industry and manufactures a wide range of Organic and Inorganic Pigments, Effect Pigments, Agro Chemicals and other products with facilities at Roha and Mahad, Dist. Raigad, Maharashtra. The company has also set up an ultra modern R&D Facility at Ambedvet (Sutarwadi), Pune, India

It was the first chemical company in India to be awarded the ISO 9001 certificate in 1993. The company is now also accredited with ISO 14001, OHSAS 18001 and ISO 17025 international quality standards.

In order to improve the customer service, the company has implemented many planning tools like SAP and CRM that connect its factories, branch offices and depots. Supply chain solutions are currently being implemented.

Sudarshan's manufacturing plants are located at Roha and Mahad, Dist. Raigad in the State of Maharashtra. Both plants manufacture various types of pigments. The company’s pesticide plant is located in Roha. Both Roha and Mahad plants have received the British Five Star Rating which is testimony to strenuous efforts taken by the company to achieve operational excellence in Environment, Health and Safety.

Pigment business - A strong, dominant and experienced player with 35% market share

Pigment business of the company mainly comprises of manufacturing of High Performance Pigments and Commodity Pigments apart from customized pigments for niche segments catering to domestic and international customers as also manufacture of Effect Pigments for cosmetics, coating applications etc.

The Pigment Industry worldwide is one of the dominant industries with a collective revenues of over USD 5 billion. The growth of the Pigment Industry has more or less moved in tandem with the growth of Global economy. Growth in per capita income leading to growth in per capita spending fuels demand for Pigments ranging from paints to plastics to polymer, ink to cosmetics and more , encompassing every sphere of life.

Pigment business of the company mainly comprises of manufacturing of High Performance Pigments and Commodity Pigments apart from customized pigments for niche segments catering to domestic and international customers as also manufacture of Effect Pigments for cosmetics, coating applications etc.

The company is leader in the domestic Pigment manufacturing Industry with a 35% market share. The company manufactures a wide range of Organic, Inorganic and Effect Pigments catering to domestic and export markets and mainly paint, inks, plastics, cosmetics, fashion accessories and automobiles as the user industries. The Company's Pigments are exported to most of the discerning markets in Europe, America and Asia. The manufacturing activity is carried out at Roha and Mahad factories with R&D facilities at Ambadvet (Sutarwadi), Dist. Pune

In December 2015 quarter, sales from the Pigment business grew 9% to Rs 246.54 crore and accounted for 91% of sales. PBIT from the same grew 3% to Rs 30.40 crore and accounted for 103% of total.

For the nine months, sales from the Pigment business grew 9% to Rs 787.02 crore and accounted for 88% of sales. PBIT from the same grew 18% to Rs 110.11 crore and accounted for 100% of total.

Agro Chemicals business

Sudarshan also manufactures agrochemicals. Agro Chemical business of the company consists primarily of Products which are generic in nature. Some of the well-known formulation brands are Sutathion, Sumidon and Quantum. All agro products have been well received in the Indian markets.

It also ranks among the major technical grade manufacturers in India. Its Research & Development team has kept pace with the latest technology and has consistently introduced newer molecules with a more favourable environmental profile. Presently it offers a range of agrochemical ingredients and formulations which are manufactured at its plant in Roha, located near Mumbai.

Beside the given range of agrochemicals which are manufactured in Roha, the company also offers customized service related to research, development and manufacturing of agrochemicals, intermediates and specialty chemicals from pilot plant to commercial quantities. Sudarshan is focused on establishing itself as a leading custom manufacturing company with a broad tool box of capabilities and technologies. Its years of experience and satisfactory track record in the field of custom manufacturing, is helping it to move towards its goal.

In December 2015 quarter, sales from the Agro Chemicals business grew 11% to Rs 21.27 crore and accounted for 8% of sales. PBIT from the same jumped 114% to Rs 1.79 crore and accounted for 6% of total.

For the nine months, sales from the Agro Chemicals business fell 5% to Rs 89.67 crore and accounted for 10% of sales. PBIT from the same fell 32% to Rs 4.29 crore and accounted for 4% of total.

Strong global footing

Sudarshan entered global markets in 2008 through its wholly-owned subsidiaries in North America, Europe. It is preparing to open more sales offices/channel partners in Asia Pacific and Latin America. Sudarshan has an extensive presence globally in the organic pigments market, with sales in over 60 countries worldwide. During the last decade, the company has been aggressively expanding into international markets. It is the management aspiration to establish Sudarshan as a leading brand, worldwide.

Sudarshan's subsidiaries in Europe and North America continue to aggressively tap new markets and key potential customers. It markets its product portfolio via its own sales channels in India and the Indian sub-continent, the Middle East, Turkey, Africa, Latin America and Russia, serviced from head office in Pune, India. About 73% of the total product range is exported to overseas markets.

The customers are served through a distribution network operating in USA, Europe, South Africa, South America, Turkey, with sales representatives in USA and Europe. It has also setup warehouses in Europe and USA.

The Company's overseas subsidiaries in Netherlands and North America set up with the objective of marketing and selling Pigments continue to record improved performance. Sales from exports for FY 2015 amounted to Rs 460.2 crore against Rs 438.0 crore achieved during the previous year.

Research and Development Centre

Recognizing the need for continuous development, Sudarshan has set up a dedicated well-equipped Research and Development Centre to develop cutting edge products to keep pace with evolving customer requirements. The R&D facilities are located at Roha, Dist. Raigad and Ambadvet, Amralevadi, Tal, Mulshi, Dist, Pune.

The company has a continuous R&D programme, with over 100 technologists working on new and customised solutions.

The certification of ISO 9001, ISO 14001 and OHSAS - ISO 18001 from BVQI is a testimony to the company’s commitment towards quality, safety and sustainable environment friendly approach. The company’s R&D laboratories are recognized by the Department of Scientific & Industrial Research (DSIR). Its labs are also ISO 17025:2001 certified by National Accreditation Board for Testing and Calibration Laboratories (NABL), Government of India and has received recognition for a further period of 4 years i.e. upto March 31, 2016 from the Ministry of Science & Technology, New Delhi.

Financials remain on growth track

In December 2015 quarter, sales grew 11% to Rs 271.97 crore. OPM grew 20 basis points to 11.3% which saw OP growing 13% to Rs 30.73 crore. PAT grew 22% to Rs 13.15 crore.

For the nine months ending In December 2015, sales grew 9% to Rs 889.48 crore. OPM grew 160 basis points to 12.8% which saw OP growing 25% to Rs 113.76 crore. PAT grew 28% to Rs 49.70 crore.

Encouraging outlook

There exists good opportunities for growth in the Pigment Industry considering the low per capita income spending in India as compared to the developed economies. The Indian Paint Industry in particular has undergone sophistication in the last couple of years in terms of high end Product range and technological competence. This along with growing domestic housing needs hold promise for varied Pigment applications. Automotive paints and Personal care segment on the back of increasing disposable income of a growing middle class provides opportunity for growth. Inks and plastics market also holds lot of promise as the Paper and Printing Industry is poised to record growth.

Pigment manufacturers in the developed countries, owing to high manufacturing costs and stringent environment control regulations are shifting their manufacturing bases to developing countries. This provides an opportunity to Indian manufacturers to get exposed to world class manufacturing practices.

The Company's globalization plans and its strong base in the Indian Market provides a great opportunity for growth. Also the Company's strategy of focusing among others on High Performance Pigments and specialized Azo Pigments provide a great future.

The Indian Pigment Industry has evolved from a basic Pigment producer to that of a knowledge intensive industry catering to requirement of colorants for all segments. The domestic demand for Pigments offers opportunity to the Company to improve its market share. Many new High Performance and Effect Pigments are also being launched for cosmetic and coating markets. The Company's strategy of setting up sales offices to cater to European and North American Customers is expected to give push to Pigment exports as the Company is better equipped to understand and comply with their preferences.

As a result of the slowdown in Western markets, end consumers of Pigment Products are on the lookout for alternative suppliers to meet their varied requirements. Sudarshan with a wide range of high performance pigments as also effect pigments is ideally placed to meet their requirements. As a consequence of all these actions, the Company expects better results going forward.

The company expects to improve the performance of its agro chemical business by laying more emphasis on Technical and Bulk as well as brand Business. Notwithstanding availability constraints of key raw materials and difficult market conditions, the current year is expected to end on a positive note.

Valuation

For FY’16, we expect the company to register standalone net sales and PAT of Rs 1189.30 crore and Rs 53.50 crore respectively. This gives an EPS of Rs 7.7 for FY’16. This EPS is likely to rise to Rs 9.9 in FY 2017 on sales of Rs 1332.02 crore and PAT of Rs 68.19 crore. At current market price of Rs 86, the share.trades at 8.7 times its expected FY’17 earnings.

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Sudarshan Chemicals: Financials
 
  1303 (12) 1403 (12) 1503 (12) 1603 (12P) 1703 (12P)
Sales 785.25 1026.66 1088.29 1189.30 1332.02
OPM (%) 8.9 12.0 10.0 11.3 11.6
OP 69.77 123.06 109.16 134.45 154.51
Other inc. 11.50 4.72 23.03 6.54 7.20
PBIDT 81.27 127.78 132.19 140.99 161.71
Interest 31.18 37.60 32.81 25.82 20.66
PBDT 50.09 90.18 99.37 115.17 141.05
Dep. 25.04 35.35 39.75 42.13 46.34
PBT 25.05 54.83 59.62 73.04 94.71
EO 0.00 0.00 0.00 0.00 0.00
PBT after EO 25.05 54.83 59.62 73.04 94.71
Total Tax 4.00 20.41 17.21 19.55 26.52
PAT 21.06 34.42 42.41 53.50 68.19
EPS (Rs) * 3.0 5.0 6.1 7.7 9.9
* on current equity of Rs 13.85 crore. Face Value: Rs 2
Figures in Rs crore
(P): Projections
Source: Capitaline Databases

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Sudarshan Chemicals: Results
 
  1512 (3) 1412 (3) Var. (%) 1512 (9) 1412 (9) Var. (%) 1503 (12) 1403 (12) Var. (%)
Sales 271.97 245.52 11 889.48 815.73 9 1088.29 1026.66 6
OPM (%) 11.3 11.1   12.8 11.2   10.0 12  
OP 30.73 27.13 13 113.76 91.27 25 109.16 123.06 -11
Other inc. 2.06 4.16 -51 3.29 17.61 -81 23.03 4.72 388
PBIDT 32.79 31.29 5 117.05 108.88 8 132.19 127.78 3
Interest 6.29 6.78 -7 18.70 25.07 -25 32.81 37.6 -13
PBDT 26.50 24.51 8 98.35 83.81 17 99.37 90.18 10
Dep. 10.54 9.64 9 31.05 29.31 6 39.75 35.35 12
PBT 15.96 14.87 7 67.30 54.50 23 59.62 54.83 9
EO 0.00 0.00 -- 0.00 0.00 -- 0.00 0 --
PBT after EO 15.96 14.87 7 67.30 54.50 23 59.62 54.83 9
Total Tax 2.81 4.05 -31 17.60 15.66 12 17.21 20.41 -16
PAT 13.15 10.82 22 49.70 38.84 28 42.41 34.42 23
EPS (Rs) * # #   # #   6.1 5.0  
* on current equity of Rs 13.85 crore. Face Value: Rs 2
Figures in Rs crore
#EPS can not be annualized due to seasonality in business
Source: Capitaline Databases

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Sudarshan Chemicals: Segment results
 
Segments 1512 (3) 1412 (3) Var. (%) % to Total 1512 (9) 1412 (9) Var. (%) % to Total 1503 (12) % to Total
Sales                    
Pigments 246.54 226.39 9 91 787.02 720.96 9 88 962.80 88
Agro Chemicals 21.27 19.13 11 8 89.67 94.76 -5 10 115.50 11
Other operations 4.16 0.00 100 2 12.78 0.00 100 1 9.99 1
TOTAL 271.97 245.52 11 100 889.48 815.73 9 100 1088.29 100
Less: intersegment sales 0.00 0.00     0.00 0.00     0.00  
Add: Unallocable sales 0.00 0.00     0.00 0.00        
Net Sales 271.97 245.52     889.48 815.73     1088.29  
PBIT                    
Pigments 30.40 29.55 3 103 110.11 93.31 18 100 116.72 97
Agro Chemicals 1.79 0.84 114 6 4.29 6.34 -32 4 7.74 6
Other operations -2.57 0.00 -100 -9 -4.83 0.00 -100 -4 -3.96 -3
TOTAL 29.62 30.39 -3 100 109.56 99.65 10 100 120.49 100
Less interest 6.29 6.78     18.70 25.07     32.81  
Less unallocable expenditure net of inc. 7.37 8.74     23.56 20.07     28.06  
Add: Interest income                    
PBT 15.96 14.87     67.30 54.50     59.62  
Capital Employed                    
Pigments 484.74 507.13 -4 71 484.74 507.13 -4 71 467.05 73
Agro Chemicals 17.98 22.23 -19 3 17.98 22.23 -19 3 24.54 4
Other operations 26.71 0.00 #DIV/0! 4 26.71 0.00 #DIV/0! 4 18.43 3
Add: Unallocable 156.75 137.01 14 23 156.75 137.01 14 23 130.48 20
TOTAL 686.17 666.37 3 100 686.17 666.37 3 100 640.49 100
Figures in Rs crore
Source: Capitaline Databases

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