SUDARSCHEM - Sudarshan Chemical Indus. Ltd. Share Price

The management of Sudarshan Chemical Industries Limited provided an optimistic outlook during the conference call post their Q4 FY25 financial results. The Chairman, Rajesh Rathi, emphasized their commitment to integrating the recently acquired Heubach business to enhance operational efficiencies and product offerings.

Key forward-looking points from the management include:

1. EBITDA Projections: The management expects to achieve an EBITDA of EUR 35 million for the acquired Heubach group in FY26, with a target of EUR 90 million to EUR 100 million over the next three to four years, contingent upon stable market conditions.

2. Sales Growth: Management indicated that the combined turnover from Sudarshan and Heubach will amount to approximately EUR 1 billion.

3. Cost Reduction Initiatives: They announced a rigorous cost reduction program aimed at enhancing profitability. The strategies include operational integration, optimizing procurement processes, and improving manufacturing yields.

4. Customer Focus: A strong emphasis was placed on revamping customer service operations, with plans to enhance direct communication between sales teams and customers to bolster relationships and trust.

5. Market Environment: The company concedes challenges posed by geopolitical uncertainties and inventory destocking but notes that many customers seek reliable, long-term partnerships, which the management views as a positive foundation for growth.

6. Working Capital: There is a clear commitment to managing working capital effectively, with some room anticipated for improvement in the coming years.

7. Operational Footprint: The management expressed confidence in leveraging their global footprint, including 19 manufacturing sites across 11 countries, to respond flexibly to market demands.

Overall, the management's outlook reflects strong optimism about capitalizing on the merger while navigating market challenges.

Here are the major questions and their detailed answers from the Q&A section of the earnings transcript:

1. Question: What is the total addressable market and its growth rate approximately? Answer: The organic pigment market is about USD 5 billion, with a growth rate of approximately 3%.

2. Question: What are the expected integration-related costs for FY '26 and FY '27 after the Heubach acquisition? Answer: We anticipate about EUR 10 million in integration costs for FY '26. We haven't planned for any further costs in FY '27 at this time.

3. Question: Are you considering cost-cutting measures, optimizing costs, and facilities now? Answer: We do not plan to optimize any manufacturing or close facilities, as the rightsizing at the Frankfurt site was completed prior to acquisition. We are driving a substantial cost reduction initiative throughout the organization.

4. Question: What led to the revenue decline in RIECO and how do you plan to regain that revenue? Answer: The revenue drop at RIECO was due to lower orders and project execution challenges. We're rebuilding the organization with experienced talent to restore project execution capabilities and have implemented strict cost controls.

5. Question: What margin range should we expect at RIECO in the future? Answer: Currently, RIECO operates at the lower end of the EBITDA percentage, and we expect it to deliver between 7% to 8% as a starting point, with plans to increase it to double-digit margins over time.

6. Question: How do you see the cost competitiveness of your European operations compared to emerging markets? Answer: Manufacturing in Europe incurs higher costs. However, our strategy is to produce only specialty products that benefit from higher gross margins and customer reliability, making it strategically viable despite the costs.

7. Question: What drivers do you foresee for EBITDA margin expansion in your operations? Answer: Key drivers for EBITDA margin expansion will be ongoing cost reduction initiatives and efforts to win back lost business, alongside improved operational efficiencies as we integrate our systems.

8. Question: Over what time frame do you expect inventory to normalize after the acquisition? Answer: It will likely take the entire financial year for inventory levels to normalize as we work on resolving our planning processes and supply chain issues.

9. Question: Are there any remaining payments due for the acquisition of Heubach? Answer: There are no remaining payments for the acquisition; the entire amount of EUR 151 million has been settled.

10. Question: What will drive the EBITDA margin expansion beyond cost initiatives post-acquisition? Answer: Apart from cost initiatives, we expect to see improvements through winning back customers, optimizing product offerings, and enhancing the technical capabilities across our operations.