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Mixed Quarter; Focus on specialty pigment to drive growth

Result Update Q4FY22

* Revenue grew by 8.8% YoY to Rs 627cr driven by a mix of price increase and growth in its domestic pigment business. An increase in raw material (largely coal) impacted gross margins which were down by 120bps. EBITDA was down by 1.6% to Rs 86cr largely because of an increase in expenditure of 10.6% YoY. EBITDA margin was down by 144bps. PAT for the quarter declined by 16.4% YoY to Rs 45cr and PAT margin stood at 7.1% down by 214bps due to lower other income and rise in depreciation (+16%) and interest cost (+28.8%).

* Concall Highlights: 1) Commodity input price as well as energy & logistics cost are at elevated levels and are impacting company’s margin. Going ahead, management suggested that they would take some price hike to mitigate risk. 2) Exports sales grew by 10% YoY. 3) The company is in growth phase and total capex of ~750cr is to be used for expansion. Out of which ~Rs 20cr is yet to invest and new manufacturing facilities are expected to be commissioned by Q2FY23 from earlier Q1FY23. 4) The company is working on cost initiatives for existing as well as new molecules which would aid margin growth. 5) Domestic business grew by 21% YoY (51% of revenue) while exports grew by 4.6% YoY (49% of revenue).

Outlook Valuation

Sudarshan is well placed to capitalize opportunities in the organic pigment segment in the global as well as Indian pigment sector driven by consolidation of the industry players, high entry barrier in the sector and high demand from end users. Further, the company’s strategy will continue a) to focus on growing its specialty pigments portfolio, 2) Growing steadily in non-specialty pigment commissioning capacity 3) Ramping up sales from new capacity by next 2 quarters as well as improving utilisation levels will drive growth. In the near term, there would be challenges on high raw material cost and delay of capex plan but from medium to long term it is expected to ease. On the financial front, the company’s track record has been decent and we have estimated its revenue/PAT to grow at a CAGR of 14.5%/19.7% over FY22 -24E. We have a positive view on the company and have maintained a Buy on the stock with a revised target price of Rs 673.

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