Recommendation from Chemicals company

This column gives you a scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

SUKHJIT STARCH AND CHEMICALS: GROWTH TRIGGERED BY DEMAND

HERE IS WHY
✓Commanding presence in its segment
✓Wide product portfolio
✓Ambitious expansion plans

The starch and chemical industry is an important sector that produces a variety of products and services used in many industries worldwide. This industry is focused on the production and processing of natural and modified starches, sweeteners and other chemicals. Starch, obtained from various sources like corn, potato, wheat and rice, is a primary raw material used in the industry. It is used as a thickener, stabiliser and binder in many industries, including food, paper, textiles, etc. The industrial starch market share is expected to increase to USD 31.30 billion from 2021 to 2026, and the market’s growth momentum will accelerate at a CAGR of 5.7 per cent. 

The growth of maize starch industry in India has almost doubled in terms of grinding capacity of maize in the last five years. Looking at these growth opportunities, our pick for choice scrip is from this sector. One such company is Sukhjit Starch and Chemicals (SSCL). It was incorporated in 1943 as an agroprocessing industry manufacturing starch and its derivatives i.e. liquidglucose, sorbitol, modified starches and by-products. SSCL is the only multilocational group in India as of now with a maize grinding capacity of 1,600 tonnes per day (TPD) and around 12 per cet share in the domestic market based on installed capacity. 

The facilities are strategically located across North, South and East India in proximity to the key raw material i.e. maize. It has products like native starch, modified starches, dextrines, liquid glucose, HMS, malto-dextrin, mono-hydrate dextrose, anyhydrose dextrose, sorbitol-70 per cent solution and various by-products, catering to a wide spectrum of industries. The products of the company are used in diverse industrial and commercial applications such as food and drink, paper and board, personal care and pharmaceuticals, textile, FMCG, animal and pet foods, etc. In Q3FY23, on a consolidated basis the company’s net revenue grew 8.87 per cent YoY to ₹346.60 crore from ₹318.65 crore in the corresponding quarter last year. 

The PBIDT excluding other income declined by 29.78 per cent YoY to ₹32.09 crore from ₹45.70 crore in Q3FY22 due to steeper growth in expenditure. The profit after tax (PAT) declined by 43.26 per cent YoY to ₹13.35 crore. Segment-wise, in FY22 starches, starch derivatives and byproducts contributed 37, 32 and 30 per cent of the total revenue, respectively. 

The company wants to investigate new opportunities such as working with alternative commodities like wheat and rice and expanding its line-up of products with added value based on things like alcohol, feeds, pet food, bio fuel, etc. The customer profile of company includes reputed brands such as Dabur India, Heinz India, Nestle India and Marico. The company strengths are strong market position in the domestic maize processing industry and diversified and reputed clients. The company is currently trading at a TTM PE of 8.87 times as against the industry PE of 23.4 times. In the last three years the company delivered average ROE of 19.4 per cent and ROCE of 18.6 per cent. It currently offers dividend yield of 2.49 per cent. Taking into account these factors, we recommend BUY.