BUY CMP 114.05 Target Price 140.00 SUDARSHAN CHEMICAL INDUSTRIES LTD Result Update (PARENT BASIS): Q2 FY15 JANUARY 8 th 2015 ISIN: INE659A01023 Index Details Stock Data Sector Specialty Chemicals BSE Code 506655 Face Value 2.00 52wk. High / Low (Rs.) 133.40/40.00 Volume (2wk. Avg. Q.) 28000 Market Cap (Rs. in mn.) 3947.84 Annual Estimated Results (A*: Actual / E*: Estimated) YEARS FY14A FY15E FY16E Net Sales 10266.50 12114.47 13568.21 EBITDA 1277.76 1570.27 1743.18 Net Profit 344.17 520.23 602.10 EPS 49.71 15.03 17.39 P/E 2.29 7.59 6.56 Shareholding Pattern (%) 1 Year Comparative Graph SUDARSHAN CHEMICAL INDUSTRIES LTD BSE SENSEX SYNOPSIS Sudarshan Chemical Industries Limited is one of the largest manufacturers of Pigments in India with more than 30% market share. In Q2 FY15, Net profit jumps to Rs. 164.39 mn an increase of 60.13% against Rs. 102.66 mn in the corresponding quarter of previous year. Net sales registered 11.75% increase and stood at a record Rs. 3029.61 mn from Rs. 2711.12 mn over the corresponding quarter of previous year. Operating profit is Rs. 402.67 mn as against Rs. 313.12 mn in the corresponding period of the previous year, grew by 28.60%. PBT at Rs. 234.47 mn in Q2 FY15 compared to Rs. 136.84 mn in Q2 FY14, registered a growth of 71.35%. EPS of Rs. 23.75 for the 2 nd quarter as against an EPS of Rs. 14.83 in the corresponding quarter of the previous year. Export revenues grew by 13.9% largely driven by strong demand for pigments and better penetration in countries of operation. Sudarshan has acquired 100% equity shares of RIECO Industries Ltd. and the Industrial Mixers business of Rathi Vessels & Systems Pvt. Ltd. Total income of the company stood at Rs. 3075.76 mn in Q2 FY15 as against Rs. 2702.27 mn in Q2 FY14, grew by 13.82%. For half year end of FY15, the company registered a growth of 10.38% in Net sales to Rs. 5702.08 mn from Rs. 5165.83 mn for half year ended of FY14. Net profit grew by 32.26% to Rs. 280.19 mn for the end of H1 FY15 from Rs 211.84 mn for the end of H1 FY14. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 42% over 2013 to 2016E respectively. PEER GROUPS CMP MARKET CAP EPS P/E (X) P/BV(X) DIVIDEND Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Sudarshan Chemical Industries Ltd 114.05 3947.84 49.71 2.29 0.31 150.00 Camlin Fine Sciences Ltd 71.40 6839.30 1.96 36.43 8.93 35.00 Adi Finechem Ltd 336.00 4634.80 14.22 23.63 9.80 15.00 Pidilite Industries Ltd 521.60 267404.90 9.51 54.85 13.11 270.00
QUARTERLY HIGHLIGHTS (PARENT BASIS) Results updates- Q2 FY15, Sudarshan, the largest pigment producer in India, has been prominent in the pigments market for over 60 years, supplying to paints, plastics, inks, construction, textile and cosmetics manufacturers worldwide has reported its financial results for the quarter ended 30 th September, 2014. Rs. In million Sep-14 Sep-13 % Change Net Sales 3029.61 2711.12 11.75 PAT 164.39 102.66 60.13 EPS 23.75 14.83 60.13 EBITDA 402.67 313.12 28.60 The company has achieved a turnover of Rs. 3029.61 million for the 2 nd quarter of the current year 2014-15 as against Rs. 2711.12 million in the corresponding quarter of the previous year. EBITDA of Rs. 402.67 million in Q2 FY15, an increase of 28.60% against the corresponding period of last year. In Q2 FY15, net profit of Rs. 164.39 million against Rs. 102.66 million in the corresponding quarter of the previous year. The company has reported an EPS of Rs. 23.75 for the 2 nd quarter as against an EPS of Rs. 14.83 in the corresponding quarter of the previous year. Break up of Expenditure During the quarter, total Expenditure rose by 12 per cent mainly on account of increased cost of materials consumed by 19%, Cost of traded goods by 1%, Employee benefits Expenses 16% and Depreciation by 14% are the primary attribute for the growth of expenditure. Total expenditure in Q2 FY15 stood to Rs. 2772.76 million as against Rs. 2478.90 million in Q2 FY14. Break up of Expenditure Cost of materials consumed (Rs in millions) Q2 FY15 Q2 FY14 % CHNG 1798.95 1517.66 19% Cost of traded goods 110.73 109.99 1% Employee benefits expense Depreciation and amortization expense 197.50 169.85 16% 99.67 87.75 14% Other expenses 634.14 651.20-3%
Segment Revenue Latest Updates The Company has raised External Commercial Borrowings (ECB) of Euros 13 million at competitive rate. Export revenues grew by 13.9% largely driven by strong demand for pigments and better penetration in countries of operation. Demand driven across industries led to growth of 12.2% in Pigments due to a turnaround in the macroeconomic environment and owing to the festival season. Sudarshan has acquired 100% equity shares of RIECO Industries Ltd. and the Industrial Mixers business of Rathi Vessels & Systems Pvt. Ltd. COMPANY PROFILE Sudarshan Chemical Industries Limited is one of the largest manufacturers of Pigments in India with more than 30% market share. Sudarshan manufactures an extensive range of Organic, Inorganic and Pearlescent pigments and dispersions catering to the Coatings, Plastics, Inks and Cosmetics Industries worldwide. Sudarshan s product portfolio includes recognized brands like Sudaperm, Sudafast, Sudacolor, Sumica and Sumicos. The Company s development focus is on pigments mainly for automotive coatings and engineering plastics that are produced in state of the art manufacturing facilities. Sudarshan also manufactures agrochemicals. Some of the well-known formulation brands are Sutathion, Sumidon and Quantum. All agro products have been well received in the Indian markets.
Global Presence Sudarshan entered global markets in 2008 through its wholly-owned subsidiaries in North America, Europe. Sudarshan is preparing to open more sales offices 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. The company aspires 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. Sudarshan markets their product portfolio via their own sales channels in India and the Indian subcontinent, the Middle East, Turkey, Africa, Latin America and Russia, serviced from our 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. Sudarshan has also setup warehouses in Europe and USA. Manufacturing Plants 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. 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 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). Sudarshan s 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.
FINANCIAL HIGHLIGHT (PARENT BASIS) (A*- Actual, E* -Estimations & Rs. In Millions) Balance Sheet as at March 31, 2013-2016E I. EQUITY AND LIABILITIES: A. Shareholders Funds FY13A FY14A FY15E FY16E a) Share Capital 69.23 69.23 69.23 69.23 b) Reserves and Surplus 2741.71 2964.39 3409.05 3818.13 Sub-Total-Net worth 2810.94 3033.62 3478.28 3887.36 B. Non-Current Liabilities: a) Long-term borrowings 2103.90 1768.65 1680.22 1629.81 b) Deferred Tax Liabilities [Net] 252.26 348.16 438.68 526.42 c) Other Long Term Liabilities 27.81 27.79 30.57 32.10 d) Long Term Provisions 52.87 54.71 63.46 68.54 Sub-Total-Long term liabilities 2436.84 2199.31 2212.93 2256.87 C. Current Liabilities: a) Short-term borrowings 1443.17 1469.85 1381.66 1395.48 b) Trade Payables 1017.26 1077.14 1788.05 2145.66 c) Other Current Liabilities 882.48 1093.99 1214.33 1323.62 d) Short Term Provisions 145.07 167.51 56.95 56.38 Sub-Total-Current Liabilities 3487.98 3808.49 4440.99 4921.14 TOTAL-EQUITY AND LIABILITIES (A+B+C) 8735.76 9041.42 10132.20 11065.37 II. ASSETS: D. Non-Current Assets: Fixed Assets i. Tangible Assets 2959.99 3030.56 3124.51 3187.00 ii. Intangible Assets 120.94 126.76 131.83 135.79 iii. Capital work-in-progress 225.88 62.87 37.72 26.41 a) Sub-Total-Fixed Assets 3306.81 3220.19 3294.06 3349.19 b) Non Current Investments 251.84 292.76 316.18 347.80 c) Long Term Loans and Advances 210.07 202.57 195.68 191.77 d) Other non-current assets 3.00 2.50 2.63 2.73 Sub-Total-Non-Current Assets 3771.72 3718.02 3808.55 3891.49 E. Current Assets: a) Inventories 1858.57 2113.44 2472.72 2843.63 b) Trade Receivables 1995.93 2645.50 2962.96 3259.26 c) Cash and Bank Balances 217.04 121.31 220.78 309.10 d) Short Term Loans and Advances 644.34 158.64 425.16 517.45 e) Other Current Assets 248.16 284.51 242.03 244.45 Sub-Total-Current Assets 4964.04 5323.40 6323.65 7173.89 TOTAL-ASSETS (D+E) 8735.76 9041.42 10132.20 11065.37
Annual Profit & Loss Statement for the period of 2013 to 2016E Value(Rs.in.mn) FY13A FY14A FY15E FY16E Description 12m 12m 12m 12m Net Sales 7852.54 10266.50 12114.47 13568.21 Other Income 115.01 47.29 206.18 237.11 Total Income 7967.55 10313.79 12320.65 13805.32 Expenditure -7154.89-9036.03-10750.38-12062.14 Operating Profit 812.66 1277.76 1570.27 1743.18 Interest -311.79-375.97-357.17-385.75 Gross profit 500.87 901.79 1213.10 1357.44 Depreciation -250.37-353.52-406.55-445.17 Profit Before Tax 250.50 548.27 806.55 912.27 Tax -39.95-204.10-286.33-310.17 Net Profit 210.55 344.17 520.23 602.10 Equity capital 69.23 69.23 69.23 69.23 Reserves 2243.26 2465.94 2986.17 3588.26 Face value 10.00 10.00 2.00 2.00 EPS 30.41 49.71 15.03 17.39 Note: Decrease of EPS due to stock split from Rs. 10/- per share to Rs. 2/- per share. Quarterly Profit & Loss Statement for the period of 31 Mar, 2014 to 31 Dec, 2014E Value(Rs.in.mn) 31-Mar-14 30-Jun-14 30-Sep-14 31-Dec-14E Description 3m 3m 3m 3m Net sales 2669.97 2672.47 3029.61 3181.09 Other income 32.46 88.32 46.15 27.69 Total Income 2702.43 2760.79 3075.76 3208.78 Expenditure -2404.50-2387.56-2673.09-2780.27 Operating profit 297.93 373.23 402.67 428.51 Interest -83.50-114.41-68.53-75.04 Gross profit 214.43 258.82 334.14 353.47 Depreciation -89.27-96.99-99.67-101.66 Profit Before Tax 125.16 161.83 234.47 251.80 Tax -73.38-46.03-70.08-82.59 Net Profit 51.78 115.80 164.39 169.21 Equity capital 69.23 69.23 69.23 69.23 Face value 10.00 10.00 10.00 2.00 EPS 7.48 16.73 23.75 4.89
Ratio Analysis Particulars FY13A FY14A FY15E FY16E EPS (Rs.) 30.41 49.71 15.03 17.39 EBITDA Margin (%) 10.35 12.45 12.96 12.85 PBT Margin (%) 3.19 5.34 6.66 6.72 PAT Margin (%) 2.68 3.35 4.29 4.44 P/E Ratio (x) 3.75 2.29 7.59 6.56 ROE (%) 9.10 13.58 17.03 16.46 ROCE (%) 18.14 28.25 32.32 32.75 Debt Equity Ratio 1.53 1.28 1.00 0.83 EV/EBITDA (x) 5.07 3.06 4.32 3.82 Book Value (Rs.) 334.03 366.20 88.27 105.66 P/BV 0.34 0.31 1.29 1.08 Charts
OUTLOOK AND CONCLUSION At the current market price of Rs. 114.05, the stock P/E ratio is at 7.59 x FY15E and 6.56 x FY16E respectively. Earning per share (EPS) of the company for the earnings for FY15E and FY16E is seen at Rs.15.03 and Rs.17.39 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 20% and 42% over 2013 to 2016E respectively. On the basis of EV/EBITDA, the stock trades at 4.32 x for FY15E and 3.82 x for FY16E. Price to Book Value of the stock is expected to be at 1.29 x and 1.08 x respectively for FY15E and FY16E. We recommend BUY in this particular scrip with a target price of Rs.140.00 for Medium to Long term investment. INDUSTRY OVERVIEW Pigments The Pigment Industry worldwide is one of the dominant industries with collective revenue 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. The Pigment Division manufactures a wide range of Organic, Inorganic and Effect Pigments catering to domestic and export markets and mainly catering to paint, inks, plastics, cosmetics, fashion accessories and automobiles as the user industries.
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 many opportunities to the Company to improve its market share. Many new High Performance and Effect Pigments are also being launched for cosmetic and coating markets. As a result of the slow down in Western markets, end consumers of Pigment Products are on the look out for alternative suppliers to meet their varied requirements. Sudarshan with a wide range of High Performance Pigments and also Effect Pigments is ideally placed to meet their requirements. Agro Chemicals As India continues to grow its economy in a greater way, the agriculture sector must also keep pace in improving its infrastructure, efficiency and productivity in a sustainable manner and contribute to the food security of over a billion people. Weather fluctuations continue to affect agriculture sector significantly. Favourable monsoon has in general helped to improve the agriculture sector s production prospects. Excess rainfall towards the end of the monsoon season in some of the areas led to crop damage. The Agro Chemical Industry has also seen a change in the product mix owing to a change in the crop pattern and also due to a change in the pattern of pest formation. The average per hectare consumption of agrochemicals in India is comparatively lower than consumption in USA, Japan and other developed countries. This augurs well for the Agro Chemical Industry. Rapid growth in acreage of Bt Cotton hybrids resulting in improvement in yield of cotton crop is opening new opportunities for more consumption of pesticides for the control of sucking pests and plant growth nutrients. Outlook There is an excess capacity for the manufacture of commodity pigments worldwide. This results in intense price competition in the commodity segments market. India being a tropical country, the consumption pattern of pesticides is tilted towards insecticides, accounting for around 58-60% of the crop protection chemical market. It is followed by herbicides and fungicides at 20% and 18% respectively. The Company is one of the largest domestic manufacturers of Pigments in India with a 35% market share. The Company s Pigments are exported to most of the discerning markets in Europe, America and Asia. Disclaimer: This document is prepared by our research analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients investment decision based on this document.
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