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Sudarshan Chemical Industries Ltd (SCIL) reported robust earnings performance led by an overall recovery in the domestic markets. Its revenue came in at ?7.6 bn in Q4FY24 as against ?6.9 bn in the year-ago quarter up by 11% YoY on the back of double-digit volume growth recovery in the domestic market and some of the key export markets during the quarter. SCIL’s EBITDA & PAT came in at ?1.2 bn/?579 mn up by 41%/78% YoY, the growth is albeit on a low base of last year the growth has so far sustained mainly owing to its diversified product mix and demand recovery in the domestic as well as key export markets. Its domestic vs export split during the quarter stood at 54% & 46% vs 51% & 49% in the year-ago quarter respectively. Pigments business saw a strong 24% sequential recovery during the quarter as the segment reported highest ever EBITDA of ?1.0 bn up 37% YoY with Pigments revenue of ?6.4 bn up by 9% YoY. Domestic/Exports revenue from pigment business came in at ?3.5 bn/?3.0 bn in Q4FY24 vs ?3.0 bn/?2.9 bn in Q4FY23 showing a decent growth of 15%/2% YoY respectively. According to the management strong volume growth in both specialty and non-specialty pigments coupled with robust growth in domestic sales, particularly plastics segment contributed to growth in its pigment biz. SCIL’s Gross/ EBITDA/PAT margin in Q4FY24 stood at 42.8%/15.6%/7.6% as against 42.0%/12.2%/4.7% showing an improvement of 96bps/332bps/288bps respectively SCIL’s EBITDA and Gross margins continued to revive from FY23 lows as a result of improvement in gross margin of its pigments business (44% in Q4FY24 vs 42% in Q4FY23) which was mainly due to significant traction for its specialty products particularly High Performance Pigments (HPPs) which are more margin accretive in nature.

The management commentary suggests sequential improvement in Europe sales and continued momentum in North America market. As far as the end-user industry is concerned demand from plastics outperformed, however printing inks demand remained muted, Coatings saw a sustainable uptick in demand during the quarter. Demand in the coating segment is expected to be strong going ahead as the bigger opportunities lies in coatings. Overall, in FY24 its Revenue/EBITDA/PAT stood at ?25.4 bn/3.2 bn/1.1 bn up by 10.3%/50.2%/149.2% YoY respectively beating our expectations by 2%/16%/2% respectively.

Pigments revenue up for fourth consecutive quarter; Export market sees sustained growth

SCIL’s revenue from pigment business stood at ?6.4 bn higher by 8.5% YoY and a strong 23.5% on a QoQ basis on the back of strong volume growth in both specialty and non-specialty pigments coupled with robust sales in the domestic markets which was up 15% YoY as the company continues to gradually ramp-up its new facilities. Its newly launched products are seeing healthy and progressive engagement from customers and on-time approval cycles. Demand environment has comparatively improved in overall FY24 as compared to last year and the company expects this growth momentum to continue going ahead as the current turbulent environment (post Heubach’s insolvency) in the pigment market provides a golden opportunity for the company. Also, the company is expecting much faster ramp-up of its newly capitalised capacities as compared to earlier and a consistent increase in picking up of its speciality pigments. Currently only ~1/3rd of its newly commissioned capacities are getting utilised and the current events have led to an improvement in interaction with global customers and approval velocity for its Specialty portfolio (Azo & HPPs). Its Speciality vs Non-Speciality mix came in at 68%/32% in Q4FY24 and in FY24 too this mix stands at 68%/32% respectively.

The management is committed to sustainable and ethical business methods and is very optimistic about the company’s long-term growth possibilities especially after recent events in the overall pigments market. Additionally, they anticipate a sustained order book going ahead from their Specialty portfolio from the Domestic as well as Export markets. On the operational front the company’s cash conversion cycle was significantly improved despite headwinds among the global pigment players. The working capital cycle has been well handled. The company’s Net debt/EBITDA has significantly decreased from 3.8x in Q4FY23 to 1.2x Q4FY24. Its cash conversion cycle came down significantly from as high as 88 days in Q3FY24 to 66 days. For FY25 and beyond the management is committed to achieving profitable growth and has faith in the long-term value proposition of the business. Going forward, the management continues to remain focused on expanding its already diverse product portfolio, penetrating in select international geographies, achieving deeper customer penetration with focus on its specialty segment. They are also confident in the company’s long-term value proposition and intend to concentrate on generating profitable growth by accelerating sales ramp-up from newly commissioned capex projects.

Strong margin uptick continues; Growth in specialty portfolio/export market remains key in sustaining margins SCIL’s EBITDA margin

rose 332bps YoY to 15.7% from 12.2% and up 464bps sequentially on the back of ramp-up of its specialty portfolio and strong domestic sales during the quarter. The company expects margin improvements from the operating leverage as they scale their export and specialty products portfolio. The company has already launched over five products across their Specialty portfolio during the year FY24. SCIL’s EBITDA grew 41% YoY to ?1.2 bn. EBITDA margin will benefit from operating leverage with further rise in the capacity utilisation levels going forward.

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