Stocks to Sell Today: On 7 November 2023, the financial services firm HDFC Securities published the latest research report on Sudarshan Chemical shares, assigning a ‘Sell’ rating to the stock. The comprehensive analysis also provides valuable insights into the company’s financial health.
HDFC Securities is Bearish on Sudarshan Chemical and has recommended a ‘Sell’ rating on the stock with a target price of Rs 468. Let’s take a closer look at their recommendations for the Sudarshan Chemical share price target set by HDFC Securities.
The brokerage firm has maintained a ‘REDUCE’ recommendation on Sudarshan Chemical Industries Limited (SCIL) with a target price of INR 468, citing a weighted average cost of capital (WACC) of 11% and a terminal growth rate of 3.5%. Despite having a product range similar to global competitors, SCIL has not managed to increase its market share after the departure of major global players. The stock’s valuation, trading at 20 times the projected earnings for FY25, is considered steep given the expected return on equity (RoE) of 13% and 18% for FY24 and FY25, respectively.
In their latest financial performance review, the revenue for SCIL showed a year-on-year (YoY) growth of 14% but a slight quarter-on-quarter (QoQ) decrease of 1.2%, totaling INR 6,007 million. Domestic demand is predicted to rise in the second half of FY24, while export prospects could be subdued due to a global economic slowdown. EBITDA saw a significant YoY increase of 53% but dipped by 6% sequentially to INR 656 million, with margins affected by variable input costs and taxation.
Looking at the pigments division specifically, there was a 9.5% growth in revenue YoY but a 2.7% reduction QoQ, amounting to INR 5,216 million. This segment’s operating profit saw a significant boost YoY but a modest QoQ growth, with margins improving both YoY and QoQ.
Key takeaways from the company call include insights on exports, the performance of specialty pigments, domestic market trends in the plastics industry, and impacts from a European competitor’s plant shutdown. Furthermore, SCIL is actively engaging with customers on new products, which, although currently contributing minimally, are expected to reach full capacity within four years. Challenges in the non-pigment segment, marked by cost overruns and project delays, were also noted.
SCIL’s financials show mixed results with strong year-over-year growth but some sequential challenges. The market position and valuation reflect caution due to competitive dynamics and macroeconomic pressures, with specific segment performances providing a nuanced picture of the company’s current situation and prospects.
- Promoters: 35.82% (June 2023) and 35.82% (September 2023)
- FIs & Local MFs (Financial Institutions & Local Mutual Funds): 14.29% (June 2023) and 13.68% (September 2023)
- FPIs (Foreign Portfolio Investors): 3.48% (June 2023) and 4.64% (September 2023)
- Public & Others: 46.41% (June 2023) and 45.86% (September 2023)
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