Why Sudarshan Chemical Share Price is Rising

On Friday last week, share price of Sudarshan Chemical Industries spiked 20% to hit a new record high of Rs 1,216 on the BSE.

The stock ended 19% higher at Rs 1,207.

With this steep spike, the stock price has now gone up by 109% in 2024 so far, turning into a multibagger.

With various factors at play, including market dynamics and industry competition, the future performance of the company remains a topic of debate.

Let's find out what's the reason behind the company's meteoric rise and what is in store for the future...

Major Strategic Acquisition

The stock price rallied on Friday last week after Sudarshan Chemical Industries announced acquisition of Heubach's global pigment business for Rs 1,180 crore by its unit.

The combined company will be led by Rajesh Rathi, current Managing Director of Sudarshan Chemical. Due to the change in management, Sudarshan Chemical will be required to make an open offer to acquire a 26% stake in Heubach Colorants, as per regulatory norms.

Heubach is a key player within the speciality chemicals industry which consists of organicpigments, inorganic pigments, dyes, dispersions and anti-corrosion pigments.

The company became the second largest pigment player in the world after acquiring Clariant's BU pigments in 2022.

Post-acquisition of Heubach, the combined entity will have a comprehensive pigment portfolio of high-quality products and a strong presence in Europe and America.

This acquisition is expected to enhance Sudarshan's portfolio significantly. It will make Sudarshan Chemicals the preferred supplier for a wide range of products across various segments and applications.

While this acquisition gave a major boost to Sudarshan's stock price, it also boosted Heubach's parent company in India. Heubach Colorants, the Indian-listed subsidiary of Heubach Group, also gained 2%.

Big Investors on a Buying Spree

The recent acquisition is the reason behind the steep rally in Sudarshan's stock price in recent days. But the stock price has been on a roll for the past couple of months.

In the past 1 year, the stock price has gone up by 136%.

Some of the gains could be attributed to increased institutional buying in the stock.

If you look at the latest shareholding pattern of Sudarshan Chemical, mutual funds have turned extremely bullish on the company in the past two quarters.

From a 9.14% stake in December 2023, fund managers took their holding up to 13.03% in the subsequent March 2024 quarter and even higher at 20.27% in June 2024.

And it's not just mutual funds that have turned bullish on the company.

Foreign investors have also added stake consistently as can be seen in the table below -

It will be interesting to see what changes fund managers and foreign investors did to their holding in Sudarshan Chemical in the most recent September 2024 quarter.

Strong Financials Pave the Way...

Apart from increased institutional activity, the stock price has also been performing well on the back of consistent growth in sales and net profit.

During FY24, the company's revenue increased by 10% to Rs 2,539 crore on the back of a growth in pigment revenues. The growth in pigment revenues was supported by demand tailwinds in the plastics and coatings segment especially pertaining to the domestic operations.

Its operating margins also improved during the fiscal year 2024 owing to stable raw material prices and lower power costs.

Financial Snapshot

Rs m, consolidated	FY20	FY21	FY22	FY23	FY24
Net Sales	17,082	18,641	22,008	23,017	25,388
Growth (%)	7%	9%	18%	5%	10%
Operating Profit	2,532	2,970	2,830	2,180	3,355
OPM (%)	15%	16%	13%	9%	13%
Net Profit	1,445	1,411	1,300	448	3,574
Net Margin (%)	8%	8%	6%	2%	14%
ROE (%)	24.8	21	16.5	5.4	36.3
ROCE (%)	19.4	17.1	12.9	6.3	31.5
Dividend (Rs)	6.3	6	5	1.5	4.6
Debt to Equity (x)	0.8	0.8	1	1	0.4

Data Source: Ace Equity

For the first quarter of financial year 2025, the company said that demand continues to remain healthy.

The volume ramp-up from the recent completed capex on top of healthy domestic demand could further improve margins in the coming quarters.

What Next?

Going forward, the company's management has guided for achieving capacity utilization earlier, within three years instead of four.

The company does not have any capex planned, and it continues to reduce debt. In the first quarter of FY25, it reduced debt to Rs 375 crores from Rs 395 crores in Q4FY24.

The company is continuously evaluation indirect acquisitions and other opportunities in the market.

For the full year, the management is optimistic about EBITDA margins improving towards 17%-19% range as operational leverage is realized with increased capacity utilization.

The company has estimated peak revenue potential for its pigment business at Rs 1,200 crores to Rs 1,400 crores at full capacity utilization.

How Sudarshan Chemical Industries Share price has Performed Recently

In the past 5 days, Sudarshan Chemicals share price is up 12%.

In a month, the stock price has rallied 18%.

Sudarshan Chemicals has a 52-week high of Rs 1,217 touched on 11 October 2024 and a 52-week low of Rs 440 touched on 26 October 2023.

In the past 1 year, the stock price has rallied 136%.

For more on Sudarshan Chemical, check out the company's detailed financial factsheet.

Happy Investing.

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