Sudarshan Chemical Heubach turnaround and legacy pigment recovery support earnings growth

Investment View and Key Thesis

ICICI Direct Research maintains a Buy view on Sudarshan Chemical Industries with a target price of Rs 1,180, compared with the CMP of Rs 910. The investment case centres on an improving recovery at Heubach, the global pigment business acquired by Sudarshan, alongside an anticipated return to growth in the legacy pigment operation.

Sudarshan Chemical is described as the world’s second-largest pigment manufacturer after the Heubach acquisition. Pigments represented about 96 per cent of FY26 business. The group serves more than 4,000 customers across over 100 countries, has a portfolio of 1,600 products and operates 19 manufacturing plants in 11 countries. Coatings are its largest end market, followed by plastics, inks, cosmetics and other applications.

Q4 FY26 Financial Performance

Q4 FY26 consolidated operating income was Rs 2,789.9 crore, up 32.7 per cent sequentially and 106.7 per cent year-on-year. Consolidated EBITDA rose 500 per cent sequentially to Rs 227.4 crore, while EBITDA margin expanded by about 640 basis points sequentially to 8.2 per cent. Reported PAT was Rs 82.5 crore.

REICO EBITDA improved to a positive Rs 10 crore from a loss of Rs 17 crore. The improvement was supported by high-value project execution, organisational restructuring, lower fixed costs and better project cost control.

Heubach Turnaround and Synergy Potential

Heubach delivered EUR 11 million of EBITDA in Q4 FY26, slightly ahead of earlier guidance, and reduced inventory by EUR 29 million against a target of EUR 15-20 million. Management attributed the turnaround to value-capture initiatives across manufacturing, procurement and organisation, supported by more than 50 per cent of manufacturing being located in Asia.

Further improvement levers include GCC-led cost optimisation, SAP harmonisation, supply-chain efficiency and manufacturing-footprint rationalisation. The GCC is expected to be operational in six to eight months, while SAP integration is targeted by year-end. Full benefits are expected across FY27-28.

• Management expects a further EUR 15-20 million inventory reduction in FY27, without discounting, through sales of existing high-quality inventory.
• Heubach FY27 revenue guidance is EUR 700 million, with EBITDA of about EUR 35 million.
• The EUR 90-100 million EBITDA objective for FY28-29 has been retained.
• Existing capacity headroom at both legacy Sudarshan and Heubach is considered sufficient to support the three-to-four-year EBITDA target without incremental capital expenditure.

Legacy Pigment Business Recovery

The legacy Sudarshan pigment business was broadly flat in FY26 because of distributor rationalisation in Europe and Latin America. Management nevertheless guides for 8-10 per cent legacy-business volume growth in FY27, with sustainable margins protected through cost pass-throughs and disciplined execution.

ICICI Direct expects normalising channel dynamics, improving demand in key end markets and distributor-restructuring benefits to restore the legacy business as a stable earnings contributor. The broker also notes the 9-10 per cent volume-growth guidance from leading Indian paint companies as supportive.

Frankfurt-site rationalisation has transferred commodity products to the Roha facility in India, while Frankfurt increasingly focuses on specialty products.

Earnings Outlook

ICICI Direct forecasts consolidated revenue of Rs 10,170.2 crore in FY27E and Rs 11,374.6 crore in FY28E, compared with Rs 9,787.2 crore in FY26. EBITDA is estimated at Rs 836.5 crore in FY27E and Rs 1,044.7 crore in FY28E, with margins expected to recover from 6.0 per cent in FY26 to 8.2 per cent in FY27E and 9.2 per cent in FY28E.

Valuation

The Rs 1,180 target price is based on a sum-of-the-parts valuation, applying 14 times FY28E EBITDA to the base business and four times FY28E EBITDA to Heubach.

Key Risks

• Delays in business integration could slow the expected recovery and synergy benefits.
• Prolonged geopolitical tensions remain a risk.
• Raw-material, energy, freight and logistics costs linked to Middle East disruptions could create supply constraints.
• The company is balancing cost pass-throughs to protect volumes rather than expand margins.