Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+' rating on the commercial paper programme of Sudarshan Chemical Industries Limited (SCIL).

 

Reaffirmation of the short-term rating reflects the expectation that the company will maintain a sizeable corpus of unencumbered liquidity Rs.750-850 crore over the medium term, until ramp up and integration of the recently acquired business of Heubach group is completed. This liquidity is expected to act as a financial buffer during the turnaround phase ensuring timely availability of additional funds in case of exigencies that may arise for business operations and for debt re-payment obligations. The rating also continues to reflect the extensive experience of the promoters in the pigment industry and the established market position of SCIL and Heubach. The ratings also factor in the diversified product range and end-user industry and customer profile, strong distribution network and marquee clientele, and average financial risk profile supported by healthy financial flexibility. These strengths are partially offset by the working capital requirements, exposure to risks related to volatility in commodity prices, and weak profitability of the Heubach Group.

 

On March 03, 2025, SCIL completed the acquisition of Heubach group for a purchase consideration of €151.9 million (approx. Rs.1,389.9 crore). The acquisition was completed through debt of around Rs. 1,600 crore (EURO 175 million) and equity raise of around Rs.1,000 crore by way of QIP, preferential equity issuance and by way of preferential issue of convertible warrants. Further as a result of this acquisition, Sudarshan Europe B.V., Wholly Owned Subsidiary of SCIL, has indirectly acquired 54.36% shareholding in Heubach Colorants India Limited, an entity listed on BSE Limited and National Stock Exchange of India Limited. The funds were also utilized towards initial working capital support for acquired group.

 

Revenue from legacy business was largely flat year on year at Rs.1,988 crores in first nine months of fiscal 2026 from Rs. 1,996 crore as compared to nine months of fiscal 2025, largely attributed to stable domestic demand partly offset by demand softness in Europe, North LatAm and Middle East/Africa regions. While for first nine months of fiscal 2026, acquired group reported revenue of Rs.5,045 crore, the revenues had sequentially declined over the past 3 quarters from Rs.1,882 crore in first quarter to Rs.1,683 crore in second quarter of fiscal 2026 and further declined to Rs.1,479 crore in third quarter of fiscal 2026. This sequential decline is largely owing to demand softness seen in Europe and North America coupled with destocking of inventories by key customers. Post December 2025, the company expects recovery in revenue for acquired as well as for combined entity. Going forward, while both legacy as well as acquired business are expected to grow, growth may however be restricted owing to ongoing geopolitical uncertainties and evolving global trade dynamics which remains a key monitorable.

 

Operating margins of Legacy group remained stable at 12.8% in first nine months of fiscal 2026 (nine months of fiscal 2025: 12.7%) mainly driven by favorable product mix (higher share in specialty pigments) and stable input cost. Going forward, margins of legacy business are expected to sustain at existing levels driven by higher operating leverage and stable product mix. Operating margins of acquired group witnessed a steep correction from 4.1% in first quarter of fiscal 2026 to 1.5% in second quarter of fiscal 2026 which further declined to losses in the third quarter mainly owing to lower absorption of fixed costs which was a result of steep decrease in volumes. As a result for nine months of fiscal 2026, consolidated operating margins for nine months of fiscal 2026 was subdued at 4.6% as against 12.7% in nine months of fiscal 2025 which was mainly on account of lower margin profile of acquired group. Going forward, while consolidated operating margins are expected to improve over near to medium term due to recovery in sales, the rising commodity prices and inflationary pressure amidst geopolitical uncertainties may partially offset the gains. The recovery in volumes and profitability of acquired business will therefore remain a key monitorable.

 

Ongoing geopolitical conflicts in middle east are not expected to have any material direct impact on revenue/profitability owing to nominal exposure to Middle East region.  Also, company is expected to pass on increase in raw material costs to the customers. The indirect impact on revenue and profitability due to geopolitical uncertainty will remain monitorable.

 

Capital structure continues to remain strong with adjusted networth of Rs.2,535 crore as on September 30,2025 as against total gross debt (including lease liabilities) of Rs.2,528 crore. As a result, adjusted gearing remained healthy at 0.9 times and is expected to sustain below unity over the medium term. Likewise, TOL/TNW is estimated to remain moderate below 1.5 times as on March 31,2026 and is expected to sustain below 1.5 times over medium term. Owing to sharp increase in interest expense and subdued profitability, adjusted interest cover in nine months of fiscal 2026 had moderated to 3.2 times from 9.78 times in nine months of fiscal 2025. Net debt (including lease liabilities)/EBITDA remained flat at  2.22 as on September 30, 2025 (March 31,2025: 2.22). Over the medium term, with gradual improvement in profitability, debt protection metrics are also expected to improve. However, since gross debt levels have risen, timely turning around operations and improving profitability of Heubach group will be critical to sustain the company’s credit risk profile.

 

SCIL maintained healthy unencumbered liquid surplus of Rs.1,097 crore at group level as on December 31,2025. Over medium term, expected annual net cash accrual of Rs. 250-350 crore along with expected cash surplus of Rs.750-850 crore shall be sufficient to meet yearly debt repayment obligations of Rs. 120-300 crore (ballooning structure) and annual capital expenditure spends of Rs. 150-250 crore for next two years. Also, the company has access to fund-based limits of Rs.515 crore (average 12 months drawing power is Rs. 333 crore), which on-average during the past 12 months through to January 2026 has been utilized to the tune of 69%.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of SCIL and its subsidiaries, Sudarshan Europe B.V., Sudarshan North America, Inc., Sudarshan Shanghai Trading Company Ltd, Sudarshan Mexico S de R.L.de CV, Sudarshan Japan K.K., and Heubach Group including Heubach Colour Pvt Ltd, Heubach Pigments Pvt Ltd, and other Heubach companies. All these companies are collectively referred to as the Sudarshan group and have significant managerial, operational, and financial linkages. Crisil Ratings has also consolidated the business and financial risk profiles of RIECO Industries Ltd, which is a wholly owned subsidiary of SCIL and also because of the support committed by the group and its track record demonstrated earlier. 

 

The capital reserve generated from the transaction has been adjusted from networth. 
 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths

Strengthening of global market share, geographical and product diversification post Heubach acquisition

With the acquisition of the Heubach Group (which had earlier integrated Clariant’s pigment business), SCIL has transitioned into a global value creating pigment leader. It is also now the globally second largest pigments player behind DIC. The acquisition gives Sudarshan access to coatings, plastics, and inks segments in the overseas markets with a ready customer base along with 17 manufacturing facilities in 11 countries. Product portfolio also has meaningfully widened with company now having ~1600+ products and 60+ brands. Post acquisition of the Heubach Group, the combined entity has significantly broadened and deepened its product portfolio, transforming it into a full-spectrum pigment solutions provider. The portfolio now includes an expanded range of high-performance pigments, advanced inorganic pigments and a wider range of effect pigments and dispersions supported by global brands. The acquisition has also enabled entry into higher value-added and niche segments, including digital inks, personal care and specialty coatings, while strengthening its positioning in core segments such as plastics and coatings. SCIL was earlier predominantly focused within the organic pigment segment, but the acquisition enables it to strengthen its organic pigment portfolio while also increasing its portfolio within inorganic pigments, corrosion protection, pigment dispersion, digital inks and dyes. Furthermore, its market reach will increase to around 120 countries from around 85 countries.

 

Average financial risk profile supported by healthy financial flexibility

Capital structure continues to remain strong with adjusted networth of Rs.2,535 crore as on September 30,2025 as against total debt (including lease liabilities) of Rs.2,528 crore. As a result adj gearing will be healthy at 0.9 times. Over the medium term, adjusted gearing is expected  to sustain below 1 times. Likewise, TOL/TNW is estimated to remain moderate below 1.5 times as on March 31,2026 and is expected to sustain below 1.5 times over medium term. However, the adjusted interest cover for the nine months of fiscal 2026 moderated to 3.2 times from 9.78 times in the same period of fiscal 2025, due to a sharp increase in interest expense and subdued profitability of the acquired group. The net debt/EBITDA ratio remained flat at 2.22 times as of September 30, 2025, (March 312025: 2.22 times). Over the medium term, debt protection metrics are expected to improve with gradual improvement in profitability. Going forward, the improvement in leverage and debt protection metrics will be driven by value unlocking of synergies, subsequent to the completion of the turnaround exercise. The company is nevertheless expected to maintain sufficient liquidity cover in the form of unencumbered cash and unutilized bank lines to cover business operations and support debt re-payment obligations, in the event of insufficient accruals. In addition, the company has a strong relationship with the lenders and hence shall be able to raise sufficient funds in case of exigency.

Key Rating Drivers - Weaknesses

Return metrics and operating margins to be temporarily impacted owing to the acquisition of stressed Heubach Group

During nine months of fiscal 2026, consolidated operating margins contracted to 4.6% as against 12.7% in nine months of fiscal 2025 which was mainly on account of lower margin profile of acquired group which has been consolidated from March 2025 onwards. Going forward, while margins are expected to improve with ramp up in operations of acquired business, it will likely remain below SCIL’s legacy margin profile. Likewise return on capital employed (ROCE) is also expected to remain at subdued at mid single digits over medium term on account of subdued profitability and high debt levels. The successful execution of the turnaround strategy shall be critical to ensure operating margins and return on capital employed (RoCE) return to healthy levels of 9-10% and over 10-12% respectively.

 

Large working capital requirement and susceptibility to volatility in raw material prices

Post acquisition of Heubach group in March 2025, SCIL continued to maintain high inventory levels to ensure uninterrupted supply and rebuild customer confidence following Heubach insolvency phase. As a result, inventory days increased to 100-110 days as against 70-100 days prior to acquisition. SCIL’s net working capital (NWC) as a percentage of revenue came in at around 25.6% in nine months of fiscal 2026 (20-22% prior to acquisition). Going forward, With expected inventory rationalization efforts underway, NWC as a percentage of sales is likely to reduce. However, working capital intensity is likely to be higher than the pre-acquisition levels given the large scale of operations. SCIL’s operating profitability margins remain susceptible to volatility in raw material prices such as benzene, toluene, naphthalene, and liner low density polyethylene, which are essentially crude linked.

Liquidity Strong

SCIL maintained healthy unencumbered liquid surplus of Rs.1,097 crore as on December 31,2025. Over medium term, expected annual net cash accrual of Rs. 250-350 crore along with expected cash surplus of Rs.750-850 crore shall be sufficient to meet yearly debt repayment obligations of Rs. 120-300 crore (ballooning structure) and annual capital expenditure spends of Rs. 150-250 crore over next 2 years. Also, the company has access to fund-based limits of Rs.515 crore (average 12 months drawing power is Rs. 333 crore), which on-average during the past 12 months through to January 2026 has been utilized to the tune of 69%.

ESG Profile

Crisil Ratings believes that the Environment, Social, and Governance (ESG) profile of SCIL supports its existing strong credit risk profile.

 

The chemical sector has a high impact on the environment because of the high greenhouse gas (GHG) emissions, high hazardous waste generation by its core operations. The sector has a social impact because of its large workforce, the impact on the health and wellbeing of its workers and the local community on account of its nature of operations.

 

Sudarshan Chemical Industries Ltd has continuously focused on mitigating its environmental and social impact. 

 

SCIL’s Key ESG highlights:

• SCIL has set a target to reduce Green House Gases (GHG) emissions by 42% by fiscal 2032 from its fiscal 2021 baseline. Also, the company plans to attain zero waste to landfill by fiscal 2032.
• Further it has set a target to decrease specific water consumption by 20% by fiscal 2026 from its 2021 baseline. In fiscal 2024, its specific water intensity reduced by around 40% to 32.54 KL per crore of revenue, in line with its target.
• SCIL’s lost time injury frequency rate (LTIFR) stood at nil for employees and 0.58x for workers in fiscal 2024, higher than the previous fiscal (reported nil LTIFR for workforce).

 

There is growing importance of ESG among investors and lenders. SCIL’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its share of overseas borrowings in its overall debt and access to both domestic and foreign capital markets.

Rating sensitivity factors

Downward factors

• Lower-than-expected revenue growth and operating profitability on sustained basis, thereby impacting cash generation and return on capital employed
• Substantial increase in working capital requirement or debt-funded capex, leading to delay in expected correction of key debt protection metrics i.e. net debt (excl lease liabilities) -to-EBITDA remaining above 3.75 times on a sustained basis.
• Faster than expected depletion in unencumbered liquidity due to large dividend payout or higher-than-expected post-acquisition expenses if expected to be incurred over the near to medium term

About the Company

SCIL is a globally renowned pigment player and the largest in India, manufacturing a wide range of organic and inorganic pigments and mica-based effect pigments. The company, which was established in 1951, remained focused on the domestic market till 2006. The joint venture with Dainippon Ink Corporation (DIC) was operational between 1990 and 2006, post which SCIL went global, establishing its footprint in North America Europe and other geographies. The company has two manufacturing facilities in Roha and Mahad (both in Maharashtra).  Post acquisition of Heubach group, SCILnow now has 19 manufacturing sites in 11 countries.
 

During nine months of fiscal 2026, SCIL reported revenue of Rs 6,997 crore (from Rs 1,996 crore in the first nine months of fiscal 2025); PAT during the first nine months of fiscal 2026 was loss of Rs 42 crore as against profit of Rs.60 crore in the corresponding period of the previous fiscal.

Any other information: Not applicable