By: ICN Bureau
Last updated : January 28, 2022 10:57 am
Revenues from pigments stood at Rs5.6bn benefiting from higher volumes and price increase.
Sudarshan Chemical Industries’ Q3FY22 EBITDA dipped 7.2% YoY, which was disappointing and due to higher input costs and operating expenses, particularly power and freight.
Sudarshan has been taking price hikes to pass on inflation, benefit of which should come in the next quarter as well. SCIL sees acceleration in revenue growth from Q4FY22 with encouraging response for its new products and commercialisation of new facilities. It is likely to complete its capex spend by FY23 and thereafter focus on increasing utilisation and FCF generation.
Pigment revenues grew 17.4% YoY (25% QoQ). Revenues from pigments stood at Rs5.6bn benefiting from higher volumes and price increase. RIECO revenues grew 42% YoY to Rs419mn. Within pigment segment, specialty grew 14% YoY to Rs3.8bn and non-specialty was up 25% to Rs1.9bn. Domestic sales benefited from recovery in demand across the board – coating, plastics and ink – and grew 17.2% YoY to Rs3bn. Exports saw increased competitive intensity with peers having low-cost inventory. Yet SCIL managed to increase its revenues by 17.6% to Rs2.5bn. Company has guided for strong growth in Q4FY22 onwards on the back of encouraging demand for new products, and more pricing action to pass on inflation.
Margins faced multiple pressures. SCIL’s gross profit margin shrunk 180bps QoQ to 40.5% on input cost pressures and higher competitive intensity. It has also seen rise in power cost (on higher coal prices) and 2x jump in freight cost. Company said it has increased prices to protect profit per kg, but margins are optically looking lower. It would continue to pass on some more inflation in Q4FY22; however, passing on the entire inflation from coal has been difficult. It expects ~70% of operating cost inflation to be passed on. Interest cost will fully reflect with commercialisation of all the new facilities.
New products to contribute Rs6bn of Rs15bn revenue from fresh capex. SCIL is in the process of completing Rs7.5bn capex of which Rs6.5bn will be done by FY22 and Rs1bn will spill over to FY23. It estimates total revenue potential of Rs15bn, of which Rs6bn to come from new blockbuster products. While the rest of capacity will be to enhance production of existing products and products coming from some modification. Capex would be heavily aligned towards specialty.
Focus on FCF generation post the expansion. SCIL does not see much need for capex post spend of Rs7.5bn, and FCF will be incrementally used for retiring debt.