by Suhani Adilabadkar

Pigments company Sudarshan Chemical Industries is a leading player in the production of performance colorants, organic, inorganic, pearlescent, effect pigments and dispersions. It dominates the pigment manufacturing market in India with 35% market share and ranks fourth globally.

It's been around for a while - Sudarshan Chem started in 1951 with the manufacture of inorganic pigments, and currently exports to more than 85 countries. It's a family firm, with the patriarch Pradeep Rathi still at the helm as Chairman, and his son Rajesh Rathi serving as the Managing Director.

The firm has two manufacturing plants at Roha and Mahad, a dedicated R&D site at Ambadwet near Pune with robust technological processes, which conduct over 800 tests in order to guarantee over 4,000 specifications for product consistency. The stock is on an uptrend gaining 30%+ from its 52-week low it struck last year. 

Quick Takes:

• Sudarshan Chemicals is the largest pigment manufacturer in India with a 35% market share and fourth globally. 

• Operating revenues of Rs. 400 crore rose 10% YoY and operating profit grew by 36% YoY.

• PAT was reported at Rs. 46 crore in Q2FY20 rising 88% YoY and 8% sequentially.

• The company launched its high-performance yellow pigment with the product’s market estimated to be around Rs. 250 crore. 

• The company has initiated Rs. 1000 crore capex in 2016 out of which Rs. 250 crore has been completed and for the current financial year, the target stands at Rs. 300-325 crore.

A stable September Quarter FY20

Sudarshan Chemicals reported strong September quarter numbers with revenue, PAT and operating profit moving in double digits. Total operating revenues stood at Rs. 400 crore compared to Rs. 363 crore, the same period last year, rising 10% YoY, driven by both specialty and non-specialty portfolio growing 6%. Operating profit grew by 36% YoY at Rs. 63 crores against Rs. 46 crore corresponding quarter previous year.

Operating profit margin stood at 15.75% rising in Q2 FY20. Net profit or PAT was reported at Rs. 46 crore in Q2 FY20 against Rs. 25 crore same period previous year rising 88% YoY and 8% sequentially. The company has incurred a capex of Rs. 55 crore in the September quarter with another Rs. 50 crore capex being pushed to Q3 FY20 due to heavy monsoons. Commenting on the September quarter FY20, Mr. Amey Athalye, Deputy General Manager (finance), of Sudarshan Chemical Industries said, “The quarter saw some impact on account of uncertainties around the government ban on single-use or disposable plastic. As a result, we saw a lot of indecision in September due to lack of clarity around the ban. It led to rescheduling of some of the orders from Q2 to Q3 from masterbatch customers. This, coupled with the general economic slowdown, resulted in lower volumes for the quarter. However, we expect growth to continue in coming quarters”.

Expanding the product portfolio

In layman terms, pigments are substances that impart colour to an underlying substance. Organic pigments have high colour strength and low toxicity whereas inorganic pigments made up of mineral compounds are cheaper and more durable than organic pigments but are dull in colour and toxic.

In addition to organic/inorganics segmentation, there are effect pigments imparting shimmer and glow to substances, and high margin  high-performance pigments (HPP). Sudarshan Chemicals entered the top global quartile as a result of its journey over the past sixty years. In the first phase, it started out as a domestically focussed entity with its manufacturing base in Pune. 

The company leapt into a phase of superior technology in 1989 by initiating its manufacturing plant in Mahad for pthalos and effect pigments and by 2006 had crossed the Rs. 400 crore revenue mark. The firm has emerged as a global player - expanding its footprints in the USA and Europe, enhancing its portfolio with effects for cosmetics and HPPs, and crossing Rs. 1000 crore revenue threshold in FY14. Currently at the number 4 position worldwide, the company aims to break into the top 3 pigment manufacturers in the world in the next five years.  

For Sudarshan Chemicals, growth has been driven by its strong product portfolio, comprising of organic pigments (azo, phthalos, HPPs and dispersions), inorganic (chromes, cadmiums and iron oxides) and effect pigments (mica base for industrial and cosmetics). This wide range of pigments find application across industries like coatings, plastics, inks and cosmetics.

Coatings is the major revenue contributor and the company expects significant growth in its automotive and decorative segments. Plastics is next in line, where the company stands as the market leader, manufacturing a wide range of high-performance pigments for plastic applications. With respect to inks, Sudarshan focusses on niche applications for offset and liquid ink and for cosmetics, a niche specialty segment, the company continues to build capabilities in personal care applications. 

Along with a robust product portfolio, the company has initiated Rs. 1000 crore capex in 2016 out of which Rs. 250 crore has been completed. For the current financial year, the target stands at Rs. 300-325 crore with an aim to launch two large new products, investments in backward integration, infrastructure related investments and debottlenecking.

But even with a robust product portfolio, a healthy export engine contributing 48% of total revenues and strong capex plan, it is going to be quite challenging for Sudarshan Chemicals with $200 mn sales to break into the top three slots of the global $10 bn pigment market. But the company has outlined its future course of action, firstly, by enhancing product portfolio equivalent to top two global players, and secondly focussing on the technical marketing of specialty products, to increase product penetration and strengthen a ‘go to market’ strategy globally. The firm also intends to focus on 4 to 5 molecules which would provide cost leadership and help in gaining a larger market share. 

The process has already begun, as the company launched its high-performance yellow pigment with applications across coatings, plastics and digital inks. The product’s market is estimated to be around Rs. 250 crore and Sudarshan Chemicals is the only second serious player in the world to launch this product.  In addition to that, Mr Rajesh Rathi, Deputy MD, Sudarshan Chemicals said, “We would be launching another high performance in organic pigment by March end and then we expect to launch one larger molecule by June quarter next year. So that is the trajectory going forward”. The management appears sure-footed about future plans, and Mr Rathi in the June earnings call had said, “Within a year, I think our product portfolio would be as strong as Clariant or BASF”. Now that would be really interesting to follow.