Buy Sudarshan Chemical Industries; target of Rs 550: ICICI Direct

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ICICI Direct's research report on Sudarshan Chemical Industries

Q2FY21 revenues grew 1% YoY, 21.7% QoQ to Rs 428.9 crore. 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. EBITDA margins improved mere 18 bps YoY to 15.8% (I-direct estimate: 15.5%), 111 bps improvement in gross margins was largely offset by higher employee cost and other expenditure. EBITDA grew 2.1% YoY, 27.8% QoQ to Rs 67.7 crore vs. I-direct estimate of Rs 63.3 crore. PAT declined 34.4% YoY (up 66.7% YoY) to Rs 30.3 crore (I-direct estimate: Rs 27.3 crore) due to increase in depreciation, interest cost and tax outgo.

Outlook

Margins are also likely to improve due to backward integration, change in product mix towards margin accretive products. We have a BUY rating with a target price of Rs 550 (22x FY23E EPS of Rs 25).

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