Target: ₹1,114
CMP: ₹894.70
Sudarshan Chemical has corrected 11 per cent in the past six months, but it has outperformed the NSE Small-Cap Index, which fell 16 per cent, primarily due to the Heubach acquisition and improving demand outlook for the dyes & pigment industry. Q3 results continued to post y-o-y growth with rise in exports demand. However, it saw some impact from weak coating demand and inventory de-stocking.
Based on 9MFY26 financials, we trim FY26E and FY27E EPS by 27 per cent and 28 per cent, respectively, due to higher operating expenses and increase in interest cost, due to the Heubach acquisition. We expect a revenue CAGR at 10 per cent and an EBITDA CAGR at 16 per cent during FY24-27. Management says it is continuing to work on a transformation plan for its subsidiary, RIECO. The transformation will take place over the next 18-24 months.
We lower our TP to ₹1,114 from ₹1,186 based on a DCF method, assuming a 4 per cent (from 5 per cent) terminal growth rate and a 10.9 per cent (from 10.6 per cent) cost of capital. We reiterate Buy, as we factor in expectations of a y-o-y growth, led by new product launches, entry in new geographies, and acquisition of a major competitor, which gives access to technology, manufacturing sites in the EU, and products portfolio.
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