Sample  write-ups  
 Sunshield Chemicals   
Vol. No. : 27    Issue No. : 23                             Friday, April 16, 2021

Rising sun

Product and cost rationalization initiatives are helping this MNC associate to post a strong turnaround in a favourable industry scenario

Idea

Sunshield Chemicals

BSE Code

530845

BSE Group

X

NSE Code

NA

ISIN Demat

INE199E01014

Bloomberg

SNCH .IN

Reuters

SUCH.BO

Par Value

Rs 10

52-week High/Low

Rs 255 / Rs 78

Current Price

Rs 206 on BSE (as on 16April 2021)



Sunshield Chemicals (SCL) was incorporated in India on 19 November 1986. SCL manufactures specialty chemicals which find extensive use in diverse range of industries such as wire insulation enamel, PVC stabilizers, inks, colours, coatings, textiles, agro-chemicals, plastics, rubber and latex, tyre and tubes, lubricant and additives, and many more. The manufacturing site, located in Rasal (Maharashtra) is located 100 km south-east of Mumbai of Mumbai and employs about 94 people.

The company’s main products belong to:

  • Specialty Surfactant applications, which are predominantly Ethylene Oxide (EO) based products. The technologies developed involve surfactants, Esters, Amides, and other complementary processes.

  • Specialty Anti-Oxidants for Lubricants, Polymers, Rubber, Tyre& Latex and other Industries involving Aminic & Phenolic technologies and

  • Other Non-EO technologies & customized blends for various applications.

MNC Parentage

SCL is a constituent of Solvay’s Novecare segment business of surfactants. The company operates as a 62% subsidiary of Rhodia Amines Chemicals Pte. Limited ("RACPL"), Solvay group entity.

After acquiring Rhodia Specialty Chemicals in 2010, Solvay consolidated its position in the Indian specialty surfactants market by acquiring a controlling stake in SCL in 2012 from its Indian promoters. This has given SCL improved technical skills and a global distribution channel to export its products.

Solvay is a science company whose technologies bring benefits to many aspects of daily life. With more than 23,000 employees in 64 countries, Solvay bonds people, ideas and elements to reinvent progress. Founded in 1863, Solvay today ranks among the world’s top three companies for the vast majority of its activities and delivered net sales of €9 billion in 2020. As a global leader in materials, chemicals and solutions, Solvay brings advancements in planes, cars, batteries, smart and medical devices, water and air treatment, to solve critical industrial, social and environmental challenges.

Specialty chemicals finding application in multiple end-use industries

The company manufactures a wide range of specially formulated and customized products such as wire insulation enamels, colours, textiles, polymers, home care products, soaps and detergents. The major end-use industries are

  • Agrochemicals – The company provides solutions based on specialty surfactants that help increase the efficacy of pesticides

  • Coatings – The company offers surfactants that reduce the interface between liquid resin solutions and solid particles such as pigments and extenders; and

  • Home and personal care - SCL provides multifunctional surfactants used in skincare products, detergents, etc

Chemical Industry is a crucial constituent of the growing Indian economy

The chemical Industry is a key enabler for other industries. As chemicals are consumed in varying proportions by every industry (rightly from electronics to paints, from pharmaceuticals to cosmetics), without chemicals, sustainable development of other sectors is not possible.

The chemical Industry is a crucial constituent of the growing Indian economy, providing the key material for several industries. Specialty Chemicals are particular chemical products which provide a wide variety of effects on which many other industry sectors rely. Specialty chemicals, which comprise of low volume, high value chemicals with specific applications, constitute a significant part of the Indian chemical industry and are targeted towards specific end-use applications.

Specialty chemicals sector will sustain growth momentum

The long-term outlook of GDP growth is still in the higher single digit despite economic challenges that caused GDP growth rate to drop to negative while it is still lower than pre-COVID level.

This bodes well for the Indian chemical industry and it is expected to grow at the rate of 1.5 times of GDP growth rate. The catalyst for this is rising income, China Plus One Policy of MNCs and government policy of ‘AatmaNirbhar Bharat’.

The rising disposable income will lead to a shift in consumer preferences towards premier products. There will be a shift in consumption from commoditised products towards premier products across all industries. Imports meet a large part of the domestic demand for speciality and downstream chemicals, offering much headroom for growth in local production

The company has been recognized as a reputable and dependable supplier to many Indian and global consumers

The company manufactures a wide range of specially formulated and customized products for various Industrial applications. The company’s customers are well recognized and located notonly in India but all over the world especially in America, Europe, and Far-East.

Its customers represent a wide range of Industries such as metal treatment, wire insulation enamel, PVC stabilizers, inks, colours, coatings, textiles, agrochemicals, polymers, plastics, rubber, latex, tyre and tubes, conveyor belts, lubricants, additives, home care, cosmetic, soaps detergents, Fertilizers and many more

Its customers are always seeking innovative products formulations for their current process needs, which are fulfilled by company’s product development, knowledge & experience. Solvay Group which represents this worldwide, in specialty chemicals supports the Sunshield team.

The company’s products continue to be well received by world’s leading users of specialty chemicals for a diverse range of industrial applications. The company has been recognized as a reputable and dependable supplier to many Indian and global consumers of specialty products developed in-house.

Demand for disinfectants, multipurpose cleaners, floor cleaners, and liquid dish wash is expected to remain strong even in the post-COVID era.

The Indian home and personal care industry experienced a broad-based slowdown in 2019-20 which got exacerbated in the last quarter of the financial year. While, Home care as a category saw growth driven by volumes, beauty and personal care growth was on account of value driven by premiumisation.

Laundry care, which makes up for 70% of the home care category in India grew 6% in value terms in FY20 driven by 3% volumes growth.

Dishwashing, Toilet Care, and Surface Care are the other major categories that are part of the Home Care Segment. While these are relatively small as on date, the growing consciousness forhygiene in the post-COVID world can act as a strong trigger for demand going ahead. Demand for disinfectants, multipurpose cleaners, floor cleaners, and liquid dish wash is expected toremain strong even in the post-COVID era.

Turnaround in financial performance in Q3FY21 and 9MFY21

Net sales of Sunshield Chemicals increased 29% to Rs 53.97 crore in Q3FY21 compared to Q3FY20. Operating profit margin has jumped from 8% to 16%, leading to 158% rise in operating profit to Rs 8.61 crore. Provision for depreciation was down 6% to Rs 1.46 crore. PBT was Rs 5.44 crore compared to loss of Rs 44 lakh. The company reported nil EO items during the quarter compared to EO expense of Rs 73 lakh in Q3FY20. PBT after EO was Rs 5.44 crore compared to loss of Rs 1.17 crore. Tax expense during the quarter was Rs 1.5 crore compared to credit of Rs 5 lakh. Net profit during the quarter was Rs 3.94 crore compared to loss of Rs 1.12 crore.

Sunshield Chemicals net sales increased 8% in 9MFY21 to Rs 146.95 crore. Operating profit margin has jumped from 9% to 15%, leading to 85% rise in operating profit to Rs 22.04 crore. Other income fell 66% to Rs 0.24 crore. Provision for interest fell 21% to Rs 5.95 crore. Provision for depreciation was down 1% to Rs 4.38 crore. Profit before tax rose to Rs 11.95 crore compared to Rs 70 lakh. The company reported nil EO items compared to EO expense of Rs 90 lakh in 9MFY20. PBT after EO was Rs 11.95 crore compared to loss of Rs 20 lakh. Tax expense during 9MFY21 was Rs 1.07 crore compared to nil in 9MFY20. Net profit was Rs 10.88 crore compared to loss of Rs 20 lakh.

Product and cost rationalization efforts are paying off boosting its outlook

Over the past couple of years the company has been focusing on reducing dependence on low margin products and increasing sales of higher margin products. It has also been rationalizing various costs. The benefits of these initiatives have started reflecting in the financials from the current year.

Towards focusing more and more on value added products, the company is in the process of selling off its some low value added products for a consideration of Rs 17.82 crore. This will release its manufacturing capacities for producing higher value added products, which will fetch higher margins.

It initiatives on cost rationalization front will also continue.

The benefits of the above initiatives along with favourable industry scenario will mean the recent strong turnaround will sustain and gather further steam in future.

Higher profits and realization from the disposal of low value products will help the company to wipe out all the accumulated losses and help gradually reduce its high debt levels.

Valuation

In FY 2021 we expect the company to register sales and net profit of Rs 200.7 crore and Rs 12.74 crore respectively. The sales and net profit are expected to increase to Rs 230.80 crore and Rs 16.73 crore in FY2022. EPS works out to Rs 22.8 for FY2022, up from expected level of Rs 17.3 in FY2021. The scrip trades at Rs 205. P/E on FY 2022 projected EPS works out to 9 times.

Sunshield Chemicals: Financials

Particulars

1703 (12)

1803 (12)

1903 (12)

2003(12)

2103 (12P)

2203 (12P)

Net Sales

165.72

166.26

189.69

181.08

200.70

230.80

OPM (%)

4.3

9.4

7.6

9.4

15.1

15.1

OP

7.15

15.63

14.5

17.08

30.37

34.85

Other Inc.

0.22

1.53

2.28

1.24

0.66

0.80

PBIDT

7.37

17.16

16.78

18.32

31.03

35.65

Interest

9.32

9.69

10.7

10

8.05

7.24

PBDT

-1.95

7.47

6.08

8.32

22.99

28.40

Depreciation

5.98

5.96

5.86

6.09

5.99

6.10

PBT before EO

-7.93

1.51

0.22

2.23

16.99

22.30

EO Income

0

0

0

-1.04

0

0

PBT after EO

-7.93

1.51

0.22

1.19

16.99

22.30

Taxation

-1.26

0.31

0

0.55

4.25

5.58

PAT

-6.67

1.2

0.22

0.64

12.74

16.73

EPS (Rs)*

-

1.6

0.3

1.6

17.3

22.8

* EPS is on current equity of Rs 7.35 crore, Face value of Rs 10, Excluding extraordinary items and relevant tax

# EPS is not annualised

bps : Basis points

Figures in Rs crore

Source: Capitaline Corporate Database



Sunshield Chemicals: Results

Particulars

2012 (03)

1912 (03)

Var.(%)

2012 (09)

1912 (09)

Var.(%)

2003 (12)

1903 (12)

Var(%)

Net Sales

53.97

41.77

29

146.95

136.29

8

181.08

189.69

-5

OPM (%)

16.0

8.0

 

15.0

8.8

 

9.4

7.6

 

OP

8.61

3.34

158

22.04

11.93

85

17.08

14.5

18

Other Inc.

0.08

0.09

-11

0.24

0.71

-66

1.24

2.28

-46

PBIDT

8.69

3.43

153

22.28

12.64

76

18.32

16.78

9

Interest

1.79

2.32

-23

5.95

7.53

-21

10

10.7

-7

PBDT

6.9

1.11

522

16.33

5.11

220

8.32

6.08

37

Depreciation

1.46

1.55

-6

4.38

4.41

-1

6.09

5.86

4

PBT before EO

5.44

-0.44

LP

11.95

0.7

999

2.23

0.22

914

EO Income

0

-0.73

-

0

-0.9

-

-1.04

0

-

PBT after EO

5.44

-1.17

LP

11.95

-0.2

LP

1.19

0.22

441

Taxation

1.5

-0.05

PL

1.07

0

-

0.55

0

-

PAT

3.94

-1.12

LP

10.88

-0.2

LP

0.64

0.22

191

EPS (Rs)*

#

#

 

#

#

 

1.63

0.30

 

* EPS is on current equity of Rs 7.35 crore, Face value of Rs 10, Excluding extraordinary items.

# EPS is not annualized due to seasonality in business

bps : Basis points

Figures in Rs crore

Source: Capitaline Corporate Database


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