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Sudarshan Chemicals (SCIL) is one of the largest pigment manufacturers with a 35% market share in its home market and third-largest player globally. Its strong brand equity, leadership position, regular capacity additions, high entry barriers owing to long approval cycles and focus on high-margin speciality portfolio with growing presence in the export market have been its key competitive strengths. We believe recent headwinds in the overall pigment industry will be transient and that shifting of global players away from pigment businesses (Top players like BASF & Clariant selling pigment biz), China +1 and sustained demand recovery will be some of the key tailwinds for the overall pigment industry and are likely to benefit SCIL as well. We believe that challenges like a)consolidation in pigment industry, b)high inflation in developed economies, c)weak geopolitical scenario, d)sharp volatility in commodity prices and e)supply chain disruptions are expected to hit mid-sized and small pigment players resulting in benefit to major players like SCIL. Despite all challenges, the company has successfully completed its largest capex and is waiting for the demand scenario to turn and key tailwinds like fall in commodity prices, freight expenses, energy prices and cost efficiencies to aid its recovery ahead. We expect SCIL’s Revenue/EBITDA/PAT to increase by 11.2%/25.7%/76% CAGR over FY23-25E. We Initiate with a BUY on SCIL with a target price of ?605 valuing the company at 30.2x its FY25E earnings.

Third largest player in Pigments Globally

SCIL has established itself as a third-largest pigment player globally. SCIL has a wide portfolio of organic and inorganic product offerings, including azos, high-performance pigments, phthalocyanines (blue and green) and pearlescent pigments, among others, which are utilised in a range of finished products and applications. Over the last decade, SCIL has transformed itself from being a domestically oriented company to a leading global provider of colour solutions. This transformation was achieved by focussing on establishing a portfolio of specialty pigments, growing its international business and building a world-class organisation. The Company caters to international markets through globalised operations in countries such as Europe, North America, Mexico, China, Japan, and several other geographies.

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SEBI Registration number is INM000002483