SUDARSHAN CHEMICAL INDUSTRIES LTD Result Update: Q4 FY 11 C.M.P: Rs. 760.00 Target Price: Rs. 859.00 Date: July 16 th 2011 BUY Stock Data: Sector: Specialty Chemicals Face Value Rs. 10.00 52 wk. High/Low (Rs.) 795.00/557.00 Volume (2 wk. Avg.) 2085.00 BSE Code 506655 Market Cap (Rs in mn) 5261.48 Share Holding Pattern SYNOPSIS Sudarshan Chemical Industries Limited is owned by the Rathi group of companies and accounts for 70% of the Rathi group sales revenue each year. It manufactures, sells, and exports pigments and agro chemicals in India and internationally. The company has declared a dividend of Rs. 12.50 per equity share of Rs.10 each for the financial year 2010-11. 1 Year Comparative Graph The Company upgrades its manufacturing facility to world class standards with Rs.100 crore investment in the first phase. Sudarshan BSE SENSEX Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 17% over 2010 to 2013E respectively. Years Net sales EBITDA Net Profit EPS P/E FY 11 7069.32 1030.62 558.11 80.62 9.43 FY 12E 7988.33 1163.25 647.54 93.54 8.13 FY 13E 9026.81 1311.83 737.61 106.55 7.13 1
Peer Group Comparison Name of the company CMP(Rs.) Market Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%) Sudarshan Chemicals 760.00 5261.48 80.62 9.45 2.58 125.00 BASF India 680.00 29434.20 30.08 22.61 2.98 80.00 Clariant Chemicals India 805.55 21476.60 113.80 7.08 5.85 300.00 INEOS ABS (India) 634.50 11158.10 40.34 15.73 3.34 40.00 *As on 16/07/2011 Investment Highlights Q4 FY11 Results Update During the quarter, the company disclosed a standalone profit of Rs. 111.06 million as against of Rs.134.97 million for the quarter ended March 31, 2010. Net sales are increased by 22% to Rs. 1914.78 million from Rs. 1575.73 million in the same quarter previous year. In the same period, standalone total income of the company was at Rs. 1928.23 million, a rise of 21% over the prior year period. Company EPS is stood at Rs.16.04 for the quarter ended March 2011. Quarterly Results - standalone (Rs in mn) As At Mar-11 Mar-10 %change Net sales 1914.78 1575.73 22 Net profit 111.06 134.97 (18) Basic EPS 16.04 19.50 (18) 2
Break-up of Expenditure Segment wise Revenue Segment Revenue (Rs. million) Pigments 1,968.60 Agro Chemicals 104.82 Total 2,073.42 3
Declaration of Dividend The company has declared a dividend of Rs. 12.50 per equity share of Rs.10 each for the financial year 2010-11. Upgrades manufacturing facility The company is upgrading its manufacturing facility at Roha with an investment of Rs. 100crores. The key developments include a state of the art warehouse, High Performance Pigment plants, Pearlescent and Cogeneration plants and an ultra-modern employee facility. Company Profile Sudarshan Chemical Industries Limited is owned by the Rathi group of companies and accounts for 70% of the Rathi group sales revenue each year. Sudarshan s color 4
and effect pigment business is the flagship of the group, contributing 67% of Sudarshan s group turnover, US$140 million. They make all products in-house on our production plants in Roha and Mahad, in the Maharastra state of India. Their extensive range of products includes organic and inorganic pigments, mica-based effect pigments, chemical intermediates and pesticides. They have a continuous R&D programme, with over 100 technologists working on new and customised solutions. It was the first chemical company in India to be awarded the ISO 9001 certificate in 1993 and continuously evolve and improve itself throughout to maintain high quality standards at every level of the company. It is also accredited with ISO 14001, ISO 18000 and ISO 17025 international quality standards. In order to improve the customer service, they have implemented many planning tools like SAP and CRM that connect their factories, branch offices and depots. Supply chain solutions are currently being implemented to further increase the value of their goods. Product range of the company includes: Color product Plastics Industrial coatings Decorative paints Powder castings Liquid inks Offset inks Textile Cosmetics 5
Effect product Industrial coatings Powder castings Offset inks Textile Cosmetics Architectural coatings Automotive coatings Leather coatings Seed coatings Bead coatings 6
Financials Results 12 Months Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) FY10 FY11 FY12E FY13E Description 12m 12m 12m 12m Net Sales 5705.67 7069.32 7988.33 9026.81 Other Income 64.83 50.84 52.87 57.10 Total Income 5770.50 7120.16 8041.21 9083.92 Expenditure -4889.04-6089.54-6877.95-7772.09 Operating Profit 881.46 1030.62 1163.25 1311.83 Interest -89.49-106.55-112.47-120.24 Gross profit 791.97 924.07 1050.78 1191.59 Depreciation -134.05-132.14-138.75-151.23 Profit Before Tax 657.92 791.93 912.03 1040.36 Tax -198.83-233.82-264.49-302.74 Net Profit 459.09 558.11 647.54 737.61 Equity capital 69.23 69.23 69.23 69.23 Reserves 1415.46 1873.01 2520.55 3258.17 Face Value 10.00 10.00 10.00 10.00 Total No. of Shares 6.92 6.92 6.92 6.92 EPS 66.31 80.62 93.54 106.55 7
Quarterly Ended Profit & Loss Account (Standalone) Value(Rs.in.mn) 30-Sep-10 31-Dec-10 31-Mar-11 30-Jun-11E Description 3m 3m 3m 3m Net sales 1922.46 1661.53 1914.78 1953.08 Other income 8.51 21.31 13.45 13.72 Total Income 1930.97 1682.84 1928.23 1966.79 Expenditure -1625.45-1377.99-1720.04-1699.18 Operating profit 305.52 304.85 208.19 267.62 Interest -28.36-31.40-24.13-25.34 Gross profit 277.16 273.45 184.06 242.28 Depreciation -32.63-32.10-33.78-34.79 Profit Before Tax 244.53 241.35 150.28 207.49 Tax -77.82-71.83-39.22-60.17 Net Profit 166.71 169.52 111.06 147.32 Equity capital 69.23 69.23 69.23 69.23 Face Value 10.00 10.00 10.00 10.00 Total No. of Shares 6.92 6.92 6.92 6.92 EPS 24.08 24.49 16.04 21.28 8
Key Ratio Particulars FY10 FY11 FY12E FY13E EBIDTA % 15% 15% 15% 15% PAT % 8% 8% 8% 8% P/E ratio (x) 11.46 9.43 8.13 7.13 ROE - % 31% 29% 25% 22% ROCE - % 31% 31% 28% 26% EV/EBIDTA (x) 1.33 4.04 5.07 5.01 Debt Equity Ratio 0.62 0.50 0.39 0.32 Book Value (Rs.) 214.46 280.55 374.08 480.63 Price/Book Value 0.79 2.71 2.03 1.58 Charts: Net sales & PAT 9
P/E Ratio (x) P/BV (X) 10
EV/EBITDA(X) Outlook and Conclusion At the current market price of Rs.760.00, the stock is trading at 8.13 x FY12E and 7.13 x FY13E respectively. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.93.54 and Rs.106.55 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 17% over 2010 to 2013E respectively. On the basis of EV/EBITDA, the stock trades at 5.07 x for FY12E and 5.01 x for FY13E. Price to Book Value of the stock is expected to be at 2.03 x and 1.58 x respectively for FY12E and FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.859.00 for Medium to Long term investment. 11
Industry Overview The Specialty Chemicals segment in the Indian Chemical Industry is a new emerging sector which brings promises of huge growth. Specialty chemicals are those chemicals which are produced at a low volume; they are high priced and usually targeted at a wide variety of markets. These chemicals are developed under the user's specifications which usually vary from one user to another. The methods of development depend on the application and the function of the chemicals. This industry requires the best technical know how. The different Specialty chemicals: Diagnostic Aids Adhesives Paper Additives Flavors & Fragrances Elastomers Foundry Chemicals Industrial Enzymes Cosmetic Additives Dyes Food Additives Metal Plating & Finishing Chemicals Lube Additives Category Specialty Chemicals Industrial Cleaning Agents Fuel Additives Polymer Additives Oilfield chemical Mining Chemicals Photographic Chemicals Paint Additives Construction Chemicals Rubber Chemicals Water Management Chemicals Surfactants Textile Auxiliaries Electronic Chemicals. 12
The Specialty Chemicals segment is disunited with a huge number of companies. TNCs have a stellar inherence in this sector. Many of the present textile manufacturers are emerging as specialty chemical developers. Major companies in the Specialty chemicals segment: ClariantIndia Ltd Ciba Specialty Chemicals Color Chem BASF Foseco Hindustan Organic Chemicals Balmer Lawrie Major consumers in the Specialty chemicals segment: Textile industry Leather industry Paper industry Detergent industry Rubber industry Paints industry Agro chemical industry Oil & gas industries. Market Characteristics The specialty chemicals segment is estimated around US $ 465 million The industry has emerged from textile auxiliary chemical industry. Key Success Factors Application of superb engineering skills for better chemical formulations Customization of the chemicals for specific end users requirements Technical knowhow to be imported for better production More export oriented productions Formulation of policies for the better functioning of the industry. 13
Future of the Specialty chemicals segment: Focus on improvement in efficient processes for enhanced productivity India to be one of the main source of base materials The demand of the segment depends on the demand of the end users. Disclaimer: This document prepared by our research analysts 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 do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s 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. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. 14
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