Sudarshan Chemical’s consolidated net profit drops by 34.4 per cent to Rs 30.33 crore on 1.1 per cent increase in net sales to Rs 423.24 crore in quarter ended September 2020 over Q2 September 2019. Consolidated profit before tax declined 9.6% to Rs 42.47 crore in Q2 September 2020 as against Rs 46.97 crore in Q2 September 2019. Pigment segment grew mere 0.4% YoY, 17.8% QoQ to Rs 402 crore. Muted YoY growth was mainly due to production disruption in July amid Covid-19.

According to ICICI Direct, Indian pigment production increased at ~8% CAGR in FY13-19 compared to global growth of 3-4%. This was on the back of: strong demand from domestic end users, global consolidation and exits of top players like BASF, Clariant to focus on different priorities besides unfavourable economies of scale and diversification of end users’ preference to India from China due to supply disturbances amid recurring issues like pollution concerns, US-China trade war and now Covid.

Apart from the above factors, focus on fast growing organic segment (~84% of domestic production), cheap labour, strong technical capability and chemistry knowledge are addon advantages for the Indian players.

Meanwhile, Sudarshan’s estimated pigment volumes grew ~10% during same period, outpacing industry growth propelled by huge product offerings, robust cost and technical capability for consistent launches of new and customized products besides strong environmental compliance record.

“We believe the company is finely poised to reap the benefits of favourable macro factors and increasing domestic demand. Looking at the opportunities, Sudarshan has earmarked an aggressive capex plan of Rs 585 crore (Rs 250 crore spent in FY20) for capacity addition for growth projects (new and existing) largely in margin accretive HPP and specialty segments. Post pandemic, we expect the company to grow at ~15% CAGR in FY21-23E amid 20-25 annual new launches, capacity addition and strong demand,” ICICI Direct states in its report.

According to the report, Q2 results were better than estimates on all fronts. The company’s operations and demand from end users are reverting to normal as the economy opens up. Despite a challenging year, Sudarshan has reiterated its growth capex plan of Rs 585 crore (though delayed amid Covid), which shows its strong visibility and commitment towards future growth. Its strong track record, with favourable macro factors and strong domestic demand are key catalysts for it. Margins are also likely to improve due to backward integration, change in product mix towards margin accretive products, the report states.