Domestic brokerage and research firm ICICI Direct in a note on Chemical stock Sudarshan Chemical post its Q1FY22 results said that it has a ‘Buy’ rating on the stock and has revised its target price upwards on the back of better growth outlook from speciality pigments.
The company’s topline was almost in line with ICICI’s estimates but margins missed owing to higher-than-expected other cost. Sudarshan Chemical Q1 net profit increased 44% YoY to ₹26 crore owing to lower taxes (up 29.2% vs. 34.5% in Q1FY21). It reported revenue growth of 34.5% on a yearly basis to ₹473.9 crore, led by higher growth from pigment segment (up 32.8% YoY). Gross margins rose 234 bps YoY to 46.4% while EBITDA margin fell 190 bps YoY to 13%, due to higher other operating cost.
The stock appreciated at 30% CAGR (compound annual growth rate) in last three years. ”We retain BUY rating on the back of better growth outlook from speciality pigments, at a revised target price of ₹795 per share (earlier ₹775/share),” it said in a note on Wednesday.
The brokerage sees these as key triggers for future price performance: Upcoming capex bodes well for speciality pigments revenue growth, higher share of value added business portfolio to improve margins profile of the business and allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further.
Established in 1951, Sudarshan Chemical is a leading player in the Indian colour pigment industry with ~35% market share and is also among the top four players globally.
Apart from Sudarshan Chemical, in its chemical coverage, ICICI also likes 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,” it said in the note.
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