SUDARSHAN CHEMICAL INDUSTRIES

Riding magic carpet of pigments

Incorporated in 1952, Pune-headquartered Sudarshan Chemical Industries is a globally renowned manufacturer of pigments. It is the largest producer of pigments in India, enjoying a hefty 35 per cent marketshare, and is the fourth largest player in the segment in the world. Starting with the manufacture of pigments, agro chemicals and master batch businesses, the company during the lost seven decades of its existence has evolved into a pure pigment player, manufacturing an extensive range of products ranging from organic, inorganic and effect pigments and dispersions to performance colorants, pearlescent pigments and speciality chemicals.

The company has two manufacturing facilities located at Roha and Mahad in Raigad district of Maharashtra. It has also set up an ultra-modern R&D facility at Sutarwadi in Pune. The combined installed capacity is 37,000 tonnes per annum. While the Roha plant manufactures AZOS HPPS, effect pigments and dispersions, the Mahad facility is engaged in the manufacture of blue and green pigments, HPPS and effect pigments. The company’s product offerings include recognized brands such as Sudaperm, Sudafine, Sudafast, Sudatex, Sudacolour, Sumica, Sudadur and Sumicos. It was the first chemical company in India to be awarded the ISO 9001 certification in 1993. By now it has also been a accredited with ISO 14001 OHSAS, 118001 and ISO 1705 International quality standard. The company has done well on the financial front, with sales during the last 10 years growing at a CAGR of 11 per cent and profit at a rate of 14 per cent. What is more, its prospects going ahead are all the more promising. Consider:

• The pigment industry worldwide is one of the dominant industries with collective revenues of over $ 5 billion. The growth of the pigment industry has more or less moved in tandem with the growth of the global economy. Growth in per capita income leading to growth in per capita spending fuels demand for pigments ranging from paints to plastics to polymer, ink to cosmetics and more, encompassing every sphere of life. Pigment is the largest raw material for paints. The Indian Paint Association has estimated that the country’s paint industry will achieve a CAGR of 12 per cent. Thus, demand for pigments is expected to shoot up going ahead.

PIGMENT PALETTE

• Growth prospects for the pigment industry are highly encouraging as it is applicable across several areas. It covers a range of heavy metal-free organic pigments and offers exceptional choice to formulate bright solid colours. Its transparent and semitransparent colours are easily combined with Sudarshan’s pearlescent pigments, or with metallic pigments, to produce durable special effect colours for the automotive industry and the engineering segment. In the field of plastics, pigments provide a palette with a wide spectrum of colours and performance for plastic applications. Sudarshan is the only pigment producer with the capability of offering this breadth of options, with a leading range of heavy metal-free organic pigments. The company also produces a high-quality range of classical organic pigments for the colouration of publications and commercial printing inks for magazines, direct mail and other commercial printing. In the field of cosmetics, its range of pigments brings brilliance and shimmer to distinguish products in the personal care and colour cosmetics space.
• Besides being an undisputed leader in the domestic pigment market with a 35% marketshare, the company’s pigments are also exported to most markets in Europe, America and Asia. The company entered the global markets in 2008 through its wholly-owned subsidiaries in North America and Europe and currently has an extensive presence in the global organic pigments market, with sales in over 85 countries worldwide. During the last decade, the company has been aggressively expanding into international markets to make it a leading brand worldwide. It’s subsidiaries in Europe and North America continue to aggressively tap new markets and key potential customers. It markets its product portfolio via its own sales channels in India and the Indian sub-continent, the Middle East, Turkey, Africa, Latin America and Russia, serviced from the head office in Pune. Today, the company has 16 sales offices, 50+ sales members and 60 channel partners. It has offices in North America, Europe, China, Mexico and Japan. Its share of exports has risen in the last three years from 49 per cent to 52 per cent. The company started a laboratory in Germany over a year ago.
• With the rising demand for its products at home as well as abroad, Sudarshan is growing steadily on the financial front with sales turnover on a consolidated basis during the last 12 years more than trebling from Rs 715 crore in fiscal 2011 to Rs 2,201 crore in fiscal 2022, operating profit also more than trebling from Rs 78 crore to Rs 278 crore, and the profit at net level inching up from Rs 48 crore to Rs 130 crore. The company’s financial position is very strong, with reserves at the end of the March 2022 standing at Rs 788 crore — over 56 times its equity capital of Rs 14 crore. All these numbers are expected to go up going ahead, in view of the following three developments.
• The union government has imposed an anti-dumping duty on natural mica-based pearl industrial pigments in the range of Rs 150-210 per kg ($ 2-3/kg.) for a period of five years from August 2021. This duty will help Sudarshan boost its profitability. At the same time, this duty imposition will encourage Sudarshan to increase its production of mica-based pigments which in turn will improve the company’s sales and earnings.

‘CHINA+1’ FACTOR

The breakout of the Covid-19 pandemic throughout the world has led to a consolidation of the pigment industry. The growing concern over the global economic environment in the wake of the epidemic prompted global importers to depend on supplies from China, which used to account for more than 45 per cent of the global share in chemical raw material supplies. Most of the global MNCs resorted to a ‘China +1’ policy reduce their dependence on China and this has automatically helped India as it is capable of supplying quality chemicals at competitive prices. This trend induced China to cut its production, which again has helped Indian companies like Sudarshan, as on account of lower wage rates and experienced manpower India was able to supply chemical products at highly competitive prices. European manufacturers also preferred to reduce their production. Two European giants in the chemical field, Clariant AG and BASF SE, have decided to move away from the pigment business and this has come as a bonanza to Indian companies like Sudarshan.

In order to take advantage of these favourable developments, Sudarshan has gone into expansion mode. After spending Rs 700 crore in 2020-21, it has embarked upon a Rs 750 crore capex programme spread over three years till 2025.

Shares of the company are quoted around Rs 390. An increased exports footprint, new additions to product lines, capex nearing completion, plants getting back to normalcy post the second wave of the pandemic, and a lower debt level – all these provide a stable future outlook. Besides, imposition of the ADD on mica-based pigments, consolidation in the pigment industry and upgradation of the company’s rating by India Ratings will have a positive impact on the marketshare of Sudarshan. Discerning investors can certainly invest in this scrip with a long-term perspective.

PERFORMANCE INDICATORS (Rs. in crore)

MADRAS FERTILISERS

Riding farmers’ agri-demand

A joint venture between the Government of India (59.50 per cent equity stake), National Iranian Oil Company (25.77 per cent) and the public (14.73 per cent), Madras Fertilisers is a leading fertiliser producer with an annual installed capacity of 3,46,500 tonnes of ammonia, 4,86,750 tonnes of urea and 2,80,000 tonnes of NDK.

The company was in the red from fiscal 2015 when it incurred a loss of Rs 135 crore, which went up the next year (2016) to Rs 190 crore. The loss was curtailed to Rs 125 crore in fiscal 2020. Finally, in fiscal 2021, the company turned the corner and earned a net profit of Rs 3 crore, which shot up to Rs 162 crore in the last fiscal year ended March 2022. This spurt in profit followed a bumper rise in production of urea of 5.39 lakh tonnes, with capacity utilization reaching 103.5 per cent – the highest since inception, and that too with energy consumption of 7.371 Gcal/tonne – the lowest annual energy consumption ever achieved since inception. As a result, its market capitalization shot up to Rs 796.65 crore for the first time since listing in 1997 and the company found a place in the top 1,000 listed companies in fiscal 2022.

Prospects for the company going ahead are also quite promising. Consider:

• Fertiliser stocks are in the limelight of late as the domestic agri-input industry holds immense growth potential, given rising domestic demand and a tighter global supply scenario from China. On the back of a healthy outlook and several positive triggers, shares of fertiliser companies are on a roll of late. In line with other fertliser companies, the prospects for Madras Fertilisers have improved considerably. Russia’s move to impose export duty on fertilisers is an important trigger. Again, there are strong reports that the Union budget for 2023 is most likely to increase the subsidy on urea, which is manufactured by Madras Fertilisers in a large quantity. Stunned by the widespread farmers’ agitation, the government would like to take all possible steps to appease the farmers. Says an expert, “The domestic fertiliser industry is poised for structural growth, led by a renewed emphasis on food security in the current time of shortages and the global supply chain upheaval. This all goes in favours of Madras Fertilisers.”
• The Indian fertiliser market is primarily driven by the rising food demand across the country. As a result of increasing population levels, more and more farmlands are being cultivated to increase yields to meet the food demand. In addition, rising crop prices are also providing a positive outlook to the Indian fertiliser market. Some of the other factors, including considerable growth in the biotech industry, product innovations, profitable government initiatives and subsidies, extensive research and development (R&D) activities along with the growing demand for nitrogen, phosphorus, potassium and micronutrient fertilisers, are further driving the market growth.
• Madras Fertilisers in one of the largest manuafcturers of urea in south India with a reputed brand (Vijay), an established dealer network and a leading marketshare (50 per cent) in Tamil Nadu. The company also has a logistical advantage, being in the vicinity of the Chennai Petrochemicals Corporation refinery from where naptha is sourced. The company is also in the vicinity of Ennore Port which has been developed for Indian Oil Corporation (IOC) where R-LNG will be imported to support feedstock conversion from naptha to gas. This locational advantage is one of the biggest plus points for the company.

Of course, the share price has shot up from the 52- week low of Rs 26 to Rs 78, but it is still available at a PE ratio of 5.41, which is quite attractive.

PERFORMANCE INDICATORS (Rs. in crore)