Sudarshan Chemical sees Heubach integration value capture drive profitability and margin recovery

Investment View and Heubach Integration

In its August 14, 2026 result update, ICICI Direct Research maintained its BUY view on Sudarshan Chemical Industries with a target price of Rs 1,295, versus a CMP of Rs 1,100. The brokerage believes that value capture from the Heubach integration should drive a material improvement in profitability.

Sudarshan Chemical became the world’s second-largest pigment manufacturer after acquiring Heubach. Pigments represented about 99 per cent of business in Q1 FY27. The company serves more than 4,000 customers across over 100 countries, offers more than 1,600 products and operates 19 manufacturing plants in 11 countries. Coatings are its largest end-use market, followed by plastics, inks, cosmetics and other applications.

Q1 FY27 Financial Performance

Consolidated revenue in Q1 FY27 was Rs 2,642 crore, up 5.4 per cent year-on-year. The legacy pigment business, representing 96 per cent of revenue, grew 6 per cent to Rs 2,604 crore. Base Sudarshan pigment revenue rose 26 per cent year-on-year to Rs 730 crore, while Heubach revenue was flat at Rs 1,874 crore. REICO revenue declined 25 per cent to Rs 37.7 crore owing to execution issues.

ICICI Direct characterised the quarter as a decent performance with an evident focus on margins. The report does not provide a comparison with broker estimates.

Heubach Integration and Profitability Outlook

Management said Heubach is showing tangible improvement in revenue and profitability despite Middle East-related disruption, high energy and raw-material costs, delayed customer purchases and older legacy issues. More than 12 months after the acquisition, management considers the acquired business largely transitioned into a growing unit, with few lingering issues.

Management expects a substantial portion of integration value capture in FY27 and FY28, with some FY28 initiatives benefiting FY29. It sees scope to recover business lost during operational disruption and insolvency-related issues, and aims to restore acquired-business EBITDA margins towards the high-single-digit to low-double-digit range.

• Heubach FY27 revenue guidance remains 700 million euros.
• Heubach FY27 EBITDA guidance remains 35 million euros.
• Management aspires to achieve Heubach EBITDA of 90 million to 100 million euros over three to four years.

Company Guidance and Legacy Business Growth

Management guided for FY27 revenue of about Rs 10,000 crore, EBITDA of about Rs 800 crore and net debt of about Rs 500 crore. Its FY29 aspiration is about Rs 13,000 crore of revenue, Rs 1,450 crore of EBITDA and a net-cash-positive position.

The legacy Sudarshan pigment business is expected to grow 12-13 per cent in FY27 after a flattish FY26 affected by distributor rationalisation in Europe and Latin America. ICICI Direct also expects support from 9-10 per cent volume-growth guidance from leading Indian paint companies. The legacy business has stable margins, established customer relationships and capacity to grow without major capital expenditure.

Demand Environment and Capital Expenditure

Management cautioned that coatings demand remains subdued in the US and Europe across decorative paints and automotive coatings. Higher polymer prices linked to geopolitical conditions have made plastics customers cautious on inventory. In contrast, special applications including agrochemicals and digital applications continue to grow healthily.

Management does not expect significant capacity-led capital expenditure over the next 12-18 months, although it may consider moderate, return-led spending on backward integration, special initiatives and product opportunities.

REICO execution constraints, including customer-site readiness delays and subcontracted manpower shortages, are expected to normalise from Q2 FY27. Management expects the business to turn positive before FY27-end.

ICICI Direct Financial Forecasts

Valuation and Key Risks

ICICI Direct’s Rs 1,295 target price is based on a sum-of-the-parts valuation applying 13 times FY28E EBITDA to the Sudarshan base business and five times FY28E EBITDA to Heubach.

The key risks identified are delayed integration across geographies and prolonged geopolitical tensions.