Sudarshan Chemical SUDCHE -CMP 707 Target | 825 (17%) Target Period: 12 months

Anti-dumping on mica to aid earnings by 5-10%. 

Sudarshan Chemical

About the stock:

Established in 1951, Sudarshan Chemical is a leading player in the Indian color pigment industry with ~35% market share and is also among the top four players globally

1.It has a wide portfolio of 4,000+ varieties of products of Azos, blue and green, high-performance pigments (HPPs), effects, pigment preparations and inorganics.

 2. Among end-users, coatings industries contribute highest followed by plastics, inks, cosmetics, and other applications

Anti-dumping duty on mica pigment:

The Finance Ministry has imposed anti-dumping duty on natural mica-based pearl industrial pigments, excluding cosmetic grade products. The duty will be ~US$2-3/kg and will be levied for five years. As per

the initial document filed by the company, overall import volumes for mica pigment from key geographies is at ~2181 MT at an imported price of | 380/kg. The price undercutting is estimated to be ~20-30% as on the inquiry date. Mica pigment currently contributes in low single digits to the overall revenue of Sudarshan Chemical. Based on our calculation, sales volumes should be ~1300 MT against a total capacity of ~3000MT as per the pre-feasibility study report filed earlier. We expect potential earnings benefits due to price hike to be ~4-5% on FY21 PAT. We have not factored in any potential market share gains due to anti-dumping, going ahead. Any positive development can aid Bottom line in high single digits on FY21 PAT.

What should investors do? 

The stock appreciated at 30% CAGR in the last three years.

1.       We retain BUY rating on the back of a better growth outlook from speciality pigments

Target Price and Valuation: 

We value Sudarshan Chemical at 25x P/E FY23E EPS to arrive at a revised target price of | 825/share (earlier | 795/share). 

Key triggers for future price-performance:

 Upcoming capex bodes well for speciality pigments revenue growth 

 Higher share of value-added business portfolio to improve margin profile of the business 

 Allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further

Alternate Stock Idea:

Apart from Sudarshan Chemical, in our chemical coverage we also like Neogen Chemical. 

 For Neogen Chemical, future revenue growth is expected to be driven by increasing custom synthesis opportunity 

 BUY with a target price of | 1095 

Credit: ICICI Direct Research

 

Clean Science and Technology - Target of Rs 1700

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