BackHDFC Securities recommends this chemical stock to buy
The chemical manufacturer's Q3FY22 EBITDA/PAT was above the brokerage firm HDFC Securities' estimates
PremiumDomestic brokerage house HDFC Securities believes that Sudarshan Chemical is in a sweet spot to seize the opportunity of two major global players shifting away from the pigment business which could act as a tailwind for Indian pigment manufacturers, by offering products similar to those of global players.
It has maintained a Buy recommendation on the chemical stock with a target price of ₹790 per share. The chemical manufacturer's Q3 EBITDA/PAT was above the brokerage's estimates, owing to an 8% higher revenue, lower-than-expected raw material cost and other expenses, lower- than-expected depreciation, and lower-than-expected tax outgo.
“Demand momentum continued from the domestic market. EBIT margin for the segment came in at 10%, -222/+345 bps YoY/QoQ. The pass-through of intermediate price increase to customers continued through Q3, which led to a sequential increase in the margins. Capacity utilisation in the third quarter was at around 80% of the operating capacity," the brokerage and research firm's note highlighted.
The company's exports accounted for 45% of revenue for the pigment segment and have grown by 22% sequentially over Q2FY22. Speciality pigments constituted 67% of the revenue for the pigment segment in Q3. Margins in speciality pigments are 1.5x of non-speciality pigments. The management has kept capex target for FY22 at ₹3 billion.
HDFC Securities expects Sudarshan Chemical's net profit to grow at a 45% CAGR (compound annual growth rate) over FY22-24E, led by a 33% CAGR in EBITDA.
Sudarshan Chemical is a leading color & effect pigment manufacturer in India. Its shares are up just 15% in a year's period.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
