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Sudarshan Chemical back on the radar of institutional investors

Existing capacity utilisation is north of 70 per cent.

, ET Bureau|
Dec 09, 2019, 07.54 AM IST
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ET Intelligence Group: The stock of Sudarshan Chemical Industries, India’s largest pigment producer, is back on the radar of institutional investors due to its high revenue visibility from ongoing capacity expansion for specialty products.

The stock rose 23 per cent in the past three months, an outperformance of 10 per cent to the BSE Midcap index in the same period. Its products are used in industries that make coatings, inks, plastics and cosmetics. In daily life, the pigments are used in the making of nail paints, skin creams, eye shadows, and pencils.

Pune-based Sudarshan is investing around Rs 300-320 crore in the current year and about Rs 200 crore next year to expand its capacities, which will rise 40-50 per cent in the next three to four years. Existing capacity utilisation is north of 70 per cent.

Global chemical companies such as Clariant and BASF are planning to exit the pigment business, which is worth around $10 billion. Of this, organic pigment where Sudarshan has greater presence accounts for half the total.

Sudarshan Chemical has 2 per cent global market revenue share of the global organics pigment market, according to the company’s annual report. The exit of global biggies will help the company improve market share.
sudarshan-graph

It is increasing focus on the highmargin specialty pigment, the share of which has consistently risen the past five years. With the addition of new capacities, the proportion of the specialty business is likely to further improve.

Growth of the specialty chemical business of Sudarshan Chemical has outperformed the non-specialty business. Consequently, the company posted 12 per cent revenue growth annually in the last decade. This trend is likely to sustain, with the company adding 25-35 new products every year.

The total product portfolio has reached more than 400. Despite the industry appearing to be commoditized, given that every product is customized for every customer, it becomes an entry barrier for new players. In addition, costs are lower for the India-based manufacturer. The export share rose to 46 per cent in FY19 compared with 39 per cent in FY13 as its global reach spread to 85 countries.

The stock is trading at 21 times its one-year forward earnings, a premium of 50 per cent to the long-term average.

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