Sudarshan Chemical Industries Ltd Q3 FY25 concall analysis

Here is a detailed management commentary from the Sudarshan Chemical Industries Ltd Q3 FY2024-25 Earnings Conference Call:

1. Financial Performance Overview

Sudarshan Chemical Industries Ltd reported strong financial results for Q3 FY25, showcasing revenue growth and margin expansion. The total income from operations for the quarter stood at ₹666 crore, reflecting an 18% YoY growth compared to ₹566 crore in Q3 FY24. The EBITDA for the quarter was ₹79 crore, an improvement from ₹62 crore in the same period last year. The EBITDA margin expanded to 11.9% from 10.9%, demonstrating improved operational efficiency.

For the 9M FY25 period, the company’s total income from operations reached ₹1,996 crore, reflecting a 12% YoY increase. The EBITDA for this period stood at ₹254 crore, with an EBITDA margin of 12.7% compared to 11.1% in the same period last year.

2. Pigment Business Performance

a) Revenue Growth & Market Trends

The pigment business remains a core revenue driver, generating ₹601 crore in revenue for Q3 FY25, up 15% YoY from ₹521 crore in Q3 FY24.
This marks the eighth consecutive quarter of YoY sales growth, demonstrating sustained business momentum.
Seasonal impact: Post-festive demand in India and calendar year-end seasonality in international markets led to a softer quarter compared to Q2.
Exports grew significantly, reaching ₹315 crore, a 29% YoY increase (₹244 crore in Q3 FY24).
Domestic sales stood at ₹286 crore, a modest 3% growth YoY, impacted by muted demand from the coatings segment.

b) Specialty & Non-Specialty Pigment Sales

Specialty pigment sales reached ₹416 crore, up 16% YoY.
Non-specialty pigment sales stood at ₹186 crore, a 14% YoY increase.
Export market contribution increased to 52% in Q3 FY25 from 47% in Q3 FY24, highlighting the company’s growing global footprint.

c) Profitability & Margins

Gross margins remained stable at 45.2% (compared to 45.5% in Q3 FY24).
YTD FY25 Performance:
- Total pigment revenue: ₹1,850 crore, up 17% YoY.
- EBITDA: ₹274 crore, compared to ₹200 crore in 9M FY24.
- EBITDA margin expanded to 14.8% from 12.7%, driven by operational efficiencies and better product mix.
- Exports surged 28%, reaching ₹977 crore in 9M FY25.
- Domestic sales grew by 7%, reaching ₹873 crore.

3. Engineering Business (RIECO) Performance

The engineering division showed significant improvement, benefiting from better cost control and execution.
Revenue for Q3 FY25: ₹65 crore, a 44% YoY increase (₹45 crore in Q3 FY24).
EBITDA improved, breaking even this quarter compared to a ₹7 crore loss in Q3 FY24.
The company has initiated a transformation project to make RIECO a sustainable and profitable business, with visible benefits expected over the next 18-24 months.

4. Balance Sheet & Financial Strength

The company’s balance sheet remains strong, with net debt reducing to ₹362 crore in Q3 FY25, down from ₹434 crore in Q3 FY24.
Leverage ratio improved from 4x to 3x, reflecting better financial discipline.
Working capital cycle optimized, with a 4-day reduction in the cash conversion cycle (now at 80 days).
Cash flow remains stable, supporting future investments and acquisitions.

5. Acquisition of UBC Global Pigment Business

Post Q3 FY25, Sudarshan Chemical completed an equity fundraising via QIP and preferential allotment, securing financing for the acquisition.
Despite challenging market conditions, investor demand was strong, reflecting confidence in the company’s growth strategy.
Regulatory approvals for the acquisition are in place, and the company expects to finalize the transaction by March 2025.
₹41.9 crore in acquisition and integration-related costs were recorded as exceptional items in FY25.

6. Industry Trends & Market Outlook

Muted demand in the coatings segment in Q3 impacted domestic sales, but a rebound is expected in Q4 FY25.
New product launches in specialty pigments continue to gain traction in international markets.
Inventory destocking affected Q3 results, but underlying demand remains strong.
Higher exports and specialty pigment sales are driving margin improvements.

7. Future Growth Strategy & Investments

Sudarshan Chemical remains focused on innovation and product diversification to strengthen its leadership in the pigment industry.
Ongoing CapEx projects are expected to boost revenue growth over the next 3-4 years.
New molecules and premium pigments are driving gross margin expansion.
The company is strengthening its sales and distribution network in Europe, preparing for post-acquisition growth.

8. Conclusion: Strong Growth Momentum Ahead

Sudarshan Chemical Industries Ltd remains on a strong growth trajectory, supported by robust export performance, margin expansion, and strategic acquisitions. With an optimized balance sheet, improving leverage, and focused expansion in specialty pigments, the company is well-positioned for sustained growth in FY25 and beyond.

Question and Answer Session Highlights

1. Financial Performance & Margins

Q: The segmental EBIT for pigments and engineering has improved sequentially, but the consolidated EBIT has declined. What explains this anomaly?

A (CFO, Nikan Natu):

The engineering division (RIECO) showed improved revenue performance, but margins are still stabilizing.
Pigment EBIT increased by 27% QoQ, and engineering losses have reduced.
However, at a consolidated level, EBITDA declined due to one-time exceptional expenses.
The decline in consolidated EBIT was due to higher expenses related to the UBAC acquisition, which are non-recurring.

2. Demand Outlook Across End-User Segments

Q: Can you provide insights into demand trends in key end-user segments?

Coatings: Muted domestic demand in Q3, but expected to pick up in Q4.
Plastics & Packaging: Stable demand, especially in exports.
Textiles: Showing double-digit growth, particularly in Asia & Latin America.
Printing Inks: Steady growth, with higher export traction.

3. Export Growth & Global Expansion

Q: Export sales grew by 29% YoY. What are the key drivers, and can this growth continue?

Europe & North America are driving export growth, with higher sales in high-performance pigments (HPPs).
The company’s strategic push towards specialized pigments for coatings, plastics, and inks is yielding results.
Export share increased to 52% in Q3 FY25, up from 47% in Q3 FY24.
Growth is expected to continue, particularly in specialty pigment applications.

4. UBAC Acquisition & Synergies

Q: What is the latest update on the UBAC acquisition? When will it be consolidated into financials?

All regulatory approvals, including antitrust clearances, have been received.
The transaction is expected to close by March 2025.
UBAC’s business will be consolidated from Q1 FY26, adding to revenue and EBITDA.
The acquisition enhances Sudarshan’s global pigment capabilities, making it a top-three player globally.

5. Debt Levels & Financial Planning

Q: How will the UBAC acquisition be financed, and what will be the expected debt levels?

Equity raised via QIP & preferential allotment: ₹1,100 crore.
Remaining funding (~₹1,300 crore) to be raised via debt.
Net debt post-acquisition is expected to be ~₹1,400 crore, but leverage ratios will remain manageable.
Debt repayment is planned through strong free cash flows over the next three years.

6. Price Trends & Competitive Landscape

Q: Have you seen any pricing pressures, particularly from Chinese competitors?

China remains aggressive in commodity pigments, but Sudarshan is focused on high-margin specialty pigments.
Prices in specialty pigments are stable, and Sudarshan commands a premium due to its high-performance offerings.
Cost optimization efforts are helping to maintain margins.

7. R&D & Product Pipeline

Q: What new product developments can we expect?

Expansion in high-performance pigments (HPPs) for automotive and industrial coatings.
Increased focus on eco-friendly pigments for sustainability-conscious customers.
New formulations for digital printing and high-end plastic applications.

8. Market Outlook & Future Growth

Q: What is Sudarshan’s growth outlook for FY26 and beyond?

Targeting double-digit revenue growth, led by exports and premium pigment sales.
UBAC acquisition to drive scale & synergies.
Continued investment in R&D & new product launches.
Debt levels to remain under control, with strong free cash flow generation.

Conclusion: Positive Outlook with Strong Growth Prospects

Export momentum remains strong, with global expansion in Europe & North America.
UBAC acquisition to enhance market positioning & profitability.
Margins improving due to a better product mix & cost control.
Domestic demand expected to recover in Q4 FY25.
The company remains financially strong, with manageable debt & disciplined capital allocation.

Sudarshan Chemical Industries Ltd Q3fy25 result Download

Spread the love