Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sudarshan Chemical Industries Ltd (BOM:506655, Financial) reported a robust growth in top-line with the highest ever pigment sales in Q2 FY25.
- The company achieved a 15% year-on-year increase in total income from operations, reaching INR696 crore.
- EBITDA for the quarter increased significantly to INR94 crore from INR66 crore in Q2 FY24, with margins improving to 13.6%.
- Export revenue showed strong growth, increasing by 44% year-on-year, driven by higher sales in Europe, North America, and Southeast Asia.
- The company's balance sheet strengthened with a reduction in net debt to INR359 crore, improving the leverage ratio to 2.3x.
Negative Points
- The engineering business is dragging overall margins and performance, with no immediate plans to hive it off.
- There is no new incremental CapEx planned, which may limit future growth opportunities.
- Operating leverage is not fully realized as other expenses, including manufacturing and selling costs, remain high.
- The company faces challenges in achieving consistent profitability in the engineering business, with a focus on transformation rather than immediate results.
- There are concerns about potential anti-competitive issues due to the company's significant market share domestically.
Q & A Highlights
Q: Are there any plans to hive off the engineering business given its impact on overall margins?
A: Rajesh Rathi, Managing Director, stated that the board has decided to transform the engineering business and expects it to show robust numbers within a year.
Q: Will there be any new incremental CapEx for future growth?
A: Nilkanth Natu, CFO, clarified that there will be no new incremental CapEx. The existing CapEx program, completed in FY23, will drive future growth.
Q: With the consolidation in the industry, is there any pricing power that could lead to better profitability?
A: Rajesh Rathi explained that the focus is more on cost management rather than pricing. The company aims to maintain customer centricity and a lean organization to build a profitable company.
Q: What is driving the robust export growth, and is it related to market share gains from competitors?
A: Rajesh Rathi mentioned that the growth is due to planned CapEx projects aimed at international markets, particularly in coatings and plastics, rather than market share gains from competitors.
Q: How will the acquisition of Heubach be funded, and will there be any further equity raises?
A: Nilkanth Natu stated that there are no plans for further equity raises beyond the announced QIP. The balance will be funded through debt, with no current plans to monetize assets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
