This Vijay Kedia-owned stock surges 19% on heavy volumes, nears record high

Sudarshan Chemical Industries share price update: The stock of dyes and pigments company was trading at its highest level since August 2021.

Shares of Sudarshan Chemical Industries hit a two-year high of Rs 748.75, as they surged 19 per cent on the BSE in Tuesday’s intra-day trade on the back of over 10-fold jump in trading volumes on expectation of earnings improvement.

The stock of dyes and pigments company was trading at its highest level since August 2021. It had hit a record high of Rs 791.95 on July 2, 2021.  At 02:28 pm; Sudarshan Chemicals was trading 18 per cent higher at Rs 744.60, as compared to 0.26 per cent gain in the S&P BSE Sensex.

The average trading volumes at the counter jumped 12 times, with a combined 3.76 million shares representing 5.43 per cent equity of the company changing hands on the NSE and BSE.

Investor Vijay Kishanlal Kedia held 1 million or 1.44 per cent stake in Sudarshan Chemical Industries at the end of March 2024 quarter. Akash Bhanshali held 5.61 million or 8.1 per cent holding in the company, the shareholding pattern data shows.

Heubach GmbH, a Germany-based chemical company and the second-largest global pigments player filed for bankruptcy in April 2024. Existing creditors provided a loan of around $70 million to the company to help it restructure its debt, on the back of this news Sudarshan Chemicals stands to gain meaningful market share in the export as well as domestic markets since it is currently the third largest global pigment player with newly commissioned capacities in FY23 with an industry-leading 35 per cent market share in the domestic market, according to analyst at LKP Securities.

The brokerage firm continues to believe that challenges like consolidation in the pigment industry,(Permanent shutdowns in capacities in Europe), high inflation in developed economies, weak geopolitical scenario, sharp volatility in commodity prices, and supply chain disruptions are expected to hit mid-sized and small pigment players resulting in benefit to major players like Sudarshan Chemicals.

Catering to diverse sectors such as coatings, plastics, inks, and cosmetics, Sudarshan Chemical’s comprehensive range of offerings includes organic, inorganic, and effect pigments, along with dispersions with speciality pigment at its core.

The management in the Q3 earnings conference call said the company sees the impact of destocking is nearing the closure and expects the demand revival from the international geography.

The management believes the Indian pigment industry will benefit from continuing India's growth story in a global volatile environment, China plus one global customer derisking theme and consolidation of the leading industry player. However, the management remains attentive and continues to be cautious to the geopolitical developments and global macroeconomic situation.

Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins are hovering around 11-12 per cent level for the last four quarters, indicating issues regarding slowdown in export pigments business even as the GPM kept on improving due to benign raw material prices.

The export slowdown was attributable to the slowdown in Europe. On the other hand, for the US, the management expects destocking activity to be over by Q4 and good recovery from thereon. The company has announced the launch of 4 new pigments in the domestic market and 2 new pigments in the exports market. Analyst at ICICI Securities expect a better margin trajectory on the back of improving operating leverage.

The brokerage firm have BUY rating on the back of sustained focus on margin accretive Specialty pigments (2/3rd of the portfolio and improving) for which the company has incurred significant capex, resilient domestic growth story for pigments with 10-12 per cent trending growth rate, visible green shoots in the exports market especially the US and opportunities brewing from global consolidations and exits of larger players and recovery expected in the ROCE on the back of improved profitability and Asset Turnover. The stock, however, is trading above analyst’s target price of Rs 705 per share.