LKP Research has given a “Hold” rating for Sudarshan Chemical Industries (SCIL) with a target price of ₹1117, as per their report on October 11, 2024.
SCIL Expands Globally with Major Acquisition
SCIL’s global subsidiary, Sudarshan Europe B.V., has signed an agreement to buy the Global Pigment Business of the Heubach Group for around ₹11.8 billion. This deal is expected to be completed in 3-4 months. It is a big move for SCIL as it looks to grow its presence in the global specialty chemicals industry. The acquisition will give SCIL access to Heubach’s operations across 19 locations worldwide, helping the company strengthen its product offerings and enter new markets in Europe, the Americas, and the Asia-Pacific region.
SCIL is already a leader in the Indian market with a 35% share and is now aiming to grow internationally. This acquisition will significantly increase SCIL’s revenue from ₹2.5 billion to ₹10.6 billion, a huge jump of over four times. Heubach, with a history of 200 years, became the second-largest pigment company in the world after buying Clariant’s pigment business in 2022.
Challenges Ahead
While the acquisition looks promising, SCIL still needs to clarify how it plans to handle Heubach’s loss-making operations and how it will fund the deal. SCIL will be acquiring a company that is 3.5 times its current revenue, and it’s important to know how they will turn things around. Despite clear synergies between the two companies, SCIL’s management will need to outline its plans for leveraging Heubach’s global presence.
Global Pigment Industry Trends
The global organic pigments market, valued at $5.6 billion in 2023, is expected to grow at 4.4% annually, reaching $8.9 billion by 2034. The wider pigment industry is also forecasted to grow by 5%, driven by factors like the expansion of the construction and automotive industries, advancements in pigment technology, and rising demand from sectors like plastics and paints.
Valuation and Outlook
LKP first initiated coverage on SCIL in October 2023 when the stock price was ₹478, driven by trends like consolidation in the pigment industry, high inflation in developed markets, geopolitical tensions, and supply chain disruptions. The acquisition of Heubach, which recently declared bankruptcy, shows SCIL’s ambition to become a leading player in the global pigment industry. The acquisition will give SCIL a comprehensive pigment portfolio and a strong foothold in major markets like Europe and the Americas.
Even after a 15% rise in stock price, SCIL currently trades at 34 times its estimated FY26 earnings per share (EPS) of ₹35. LKP expects the company’s revenue, EBITDA, and net profit to grow at rates of 13%, 36%, and 75%, respectively, driven by strong domestic and export sales in its specialty portfolio. For now, LKP maintains a “Hold” rating on the stock with a target price of ₹1117.
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