By: ICN Bureau
Last updated : May 30, 2022 9:03 am
The company is yet to capitalise Rs2.1bn of capex due to delay in certain equipment.
Sudarshan Chemical Industries’ (SCIL) Q4FY22 EBITDA dipped 1.6% YoY, which was disappointing, due to focus on profitable growth. It has taken price hike in specialty pigments and HPP, and was able to grow volumes.
However, standard pigments’ input inflation was higher vs global peers where it has to sacrifice volumes and manage margins. It plans more price hikes in standard pigments during H1FY23, and expects slower recovery / capacity utilisation.
SCIL is hopeful of consistent growth in new products and HPP, which will be further aided by industry consolidation. SCIL is mindful of net debt, and focus now will be to ramp-up capacities in FY24 and deleverage balance sheet; fresh capex spending including backward integration has been pushed to future years.
Pigments revenue grew 4.9% YoY (down 0.3% QoQ). Pigments revenue stood at Rs5.6bn with muted performance for standard pigments. It was hurt by higher raw-material inflation (India had higher inflation for basic commodity chemicals vs global peers). However, new products and HPP segment’s performance was good. Within pigment segment, specialty grew 5.5% YoY to Rs3.8bn and non-specialty was up 3.5% to Rs1.8bn. Domestic sales had good demand from coating and plastics, while ink was weak, and grew 5.1% YoY to Rs2.9bn. Exports revenue increased 4.6% to Rs2.7bn. SCIL has guided for consistent performance in new and specialty pigments, but standard pigments will have gradual ramp-up. RIECO revenue grew 56% YoY to Rs688mn.
Price increase in standard pigments will aid margins. SCIL’s gross profit margin rose 30bps QoQ to 40.8% from price increase in specialty pigments and better margins for RIECO. The company had input inflationary pressure in standard pigments where it has planned more price hikes in H1FY23. Notably, the company has sacrificed certain volumes in Q4FY22 as it was not willing to compromise on margins. Employee cost was up 15% YoY and other expenses increased 8% on higher freight and power cost. EBITDA dipped 1.6% YoY to Rs861mn. Net profit was down 16% YoY to Rs447mn on higher finance cost and tax rates.
Other highlights. 1) SCIL is yet to capitalise Rs2.1bn of capex due to delay in certain equipment. It expects to finish the projects in H1FY23 with incremental capex outflow of Rs200mn, and this should end company’s total planned capex of Rs7.5bn. Its planned capex is only Rs0.4-0.6bn for FY23; 2) SCIL has plans for backward integration in key molecules where pilot projects are done, and will incur capex in future; 3) net debt has peaked out in FY22, and it will reduce debt from cashflow generation in FY23; new capex may start only from FY24; and 4) company has plans for price hikes, which will also cover higher operating cost.