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Sharekhan's research report on Sudarshan Chemical Industries : target of Rs 510


Sharekhan's research report on Sudarshan Chemical Industries

Q1FY23 performance was subdued with a 12% q-o-q decline in revenues, due to pressure on volumes/pricing and asharp contraction of 625 bps q-o-q in OPM to 7.5% as company was not able to pass on high energy/logistics cost. Operating profit/PAT of Rs. 41 crore/Rs. 7 crore, down 52%/84% q-o-q missed our estimate by 38%/75%. Domestic/export revenues declined by 6%/5% q-o-q to Rs. 268 crore/Rs. 258 crore given the deferment of purchase decisions by domestic customer due to volatility in polymer prices and subdued global demand. Specialty segment’s revenue decline by 9% q-o-q to Rs. 352 crore due to weak demand for plastics. Q2FY23 would not see major recovery due to weak global demand and high supply, purchase deferment given fall in polymer price and continued elevated energy/logistics cost. Capex is nearing completion but commissioned projects seeing low yield and high manufacturing. We thus cut our FY23-24 earnings estimate by 35%/6% to factor lower revenue growth/margin.

We downgrade Sudarshan Chemical Industries Limited (SCIL) to Hold with a revised PT of Rs. 510 ( to reflect cut in earnings estimate) given subdued earnings outlook (expect FY23 PAT to decline by 25%) and see limited upside from CMP.Stock trades at 32.5x/16.8x its FY2023E/FY2024E EPS.

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