Stock Review: Sudarshan Chemicals

 

The stock of Pune-based pigment manufacturer Sudarshan Chemicals has outperformed the broader market significantly over the past year. The scrip has gained over 75% during the period against the 10% increase in the benchmark Sensex, on account of the consistent financial growth reported by the company over the last few quarters.

Sudarshan Chemicals is the country's largest pigment supplier, commanding a market share of over 35%. It is present across North America and Europe and has plans to expand to Asia Pacific and Latin America. The company offers a wide range of organic and inorganic pigments, agro chemicals and other products. It caters to the coatings, plastics, inks, cosmetics, textiles and construction companies.

Over the last few quarters, the company has posted robust growth. During the nine months ended December 2010, its sales grew by 25% to Rs 514 crore and the net profit rose by nearly 37% to Rs 45 crore yearon-year. Over 90% of the company's total revenue came from the pigments business; the remaining came from the agro-chemicals segment.

Despit robust sales growth, its operating profit margin dropped 140 basis points (bps) to 13.5% for the period. The management expects to regain margins in the coming quarters on account of capacity expansion and upgradation.

 
On Wednesday, the company announced an investment of . 100 crore towards the first phase of upgradation of its pigment manufacturing facility at Roha. The investment is likely to be funded largely through debt and internal accruals. The expansion will help Sudarshan become the world's fourthlargest pigment company by the end of 2014, with a focus on high-performance pigments for the coatings, plastics and specialty ink markets. The company has also lined up investment plans for upgradation and expansion of its second facility at Mahad in the coming quarters. Currently, exports account for over 50% of its total revenue, which could further increase given the traction in international demand. The company expects exports to account for 65-70% of the . 1,500-crore revenues it hopes to achieve by 2014. It expects to end FY11 with a turnover of . 700 crore, which looks achievable going by the top-line growth reported by the company over the last few quarters.

At the current market price of . 715, the stock trades at 8.4 times its earnings for the trailing 12 months.