- 27 May 2022
- ICICIdirect Research
SUDARSHAN CHEMICAL REPORTS LOWER TOPLINE GROWTH BUT MARGINS IMPROVE QOQ
News: Revenues grew 8.8% YoY to Rs. 627.2 crore (I-direct estimate: Rs. 693.4 crore), largely led by 56.3% growth from other segment comprising engineering business. The revenue from pigments was up by 4.9% YoY to Rs. 558.4 crore, of which domestic & exports pigments grew by 5% YoY to Rs. 287 crore & Rs. 272 crore respectively. EBITDA margins contracted by 150 bps YoY to 13.7% due to higher COGS (+11% YoY). EBITDA stood at Rs. 86.1 crore (-1.6% YoY) against I-direct estimates of Rs. 86.7 crore. Net profit declined by 16.3% YoY to Rs. 44.7 crore (I-direct estimate: Rs. 45.9 crore). The lower growth in bottom-line is on account of higher taxes (22.4% v/s 16.8% in Q4FY21)
Views: The company has been struggling with input price inflation due to higher prices such as S acid, caustic soda and other crude based derivatives, which is reflected in the GPM (40.8% v/s 40.5% in Q3FY22 & 42% in Q4FY21). Capacity utilisation for Q4FY22 in the pigment business was around 76% against 80% in Q3FY22. Since paint companies reported higher single digit volume growth during the quarter, lower utilisation remained a key concern, which is to be explained by the management during the concall. Thus, we expect majority of the pigment revenue growth was driven by better realisations. We expect the normalisation of margins can take around two/three quarters at least. In the long term, the story remains intake given that the company had already increased its capacity for some speciality pigments, which would eventually lift GPM due to favourable product mix and thereby better group performance
Impact: Neutral