Ladies and gentlemen, good day and welcome to Sudarshan Chemical Industries Limited Q3 and FY 2026 Earnings Conference Call hosted by Anand Rathi Shares and Stock Brokers Limited. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded.
I now hand the conference over to Mr. Nitesh Dhoot from Anand Rathi Shares and Stock Brokers. Thank you and over to you, Mr. Dhoot.
Thank you. Good morning, everyone. On behalf of Anand Rathi Institutional Equities, I would like to thank the management of Sudarshan Chemical Industries for giving us the opportunity to host their Q3 and nine months FY 2026 earnings conference call. From the management team of Sudarshan, we have with us today Mr. Rajesh Rathi, Chairman and Managing Director, Mr. Nilkanth Natu, Chief Financial Officer, and Mr. Amey Athale, General Manager of Finance. Without further ado, I would like to hand over the call to the management for their opening remarks, post which we will open the forum for an interactive question and answer session.
Thank you, and over to you, team.
Thank you. This is Rajesh Rathi, and thank you, Anand Rathi and Nitesh Dhoot for hosting our call. We are looking forward to a very active participation in today's call. With this, I would like to start our presentation. I would just like to reflect on and remind everyone that we completed the acquisition of Heubach's global business, which included Clariant's pigment business. Just to remind everyone, Heubach legacy plus Clariant were among the top two global players with a legacy of more than 200 years. Sudarshan, on the other hand, was the fastest growing pigment organization with customer centricity at its heart and agility. Our goal and level is that this new Sudarshan would be a global value-adding pigment leader rooted with customer centricity and agility and innovation coming from Heubach.
We are combining this in creating a new pigment global leader. It is a very exciting journey what we are embarking on. Altogether, we have 19 manufacturing facilities in 11 countries and five continents. This is a major differentiator for us in the marketplace, and 55% of our manufacturing footprint is in Asia, which makes us quite competitive. We have the broadest product portfolio in the industry, and with this new ONE Sudarshan , we are serving new markets like cell phone markets, digital inks, personal care in a much larger way. Very exciting product portfolio and the markets we are serving. With this, I would like to give you some update on our integration. To remind everyone, we have completed 11 months into the integration. We have made very good progress. The first thing we wanted to create was customer confidence.
Customer centricity was our main theme there. We have done a lot in this region. We have gained back the trust of our customers. We have improved our customer service. For example, we have created customer service teams locally in each country. We have rebuilt our technical marketing organization. We carry high stocks for a long time to ensure that we are able to serve the customers well. We did not want them to experience any issues in supplies so that it brings back the trust. That has gone a long way with us. Second very important aspect was value capture. We have been working very intensely, and this was the second thesis where we wanted to look at how we can turn around this business. We have been working on multiple work streams across operations, procurement, organization, IT, and fixed costs. The implementation is going very well.
We already have captured INR 40 crores of this, which we have realized in our Q3 if you compare to Q1. We also have a very healthy pipeline going forward. This, in parallel, if you look to our value capture efforts, we are improving the setup of the operating model of ONE Sudarshan. One big initiative is creating a Global Capability Center where we plan to shift not only the back office but also create some capability roles here and use digital innovation to even improve our response time to customer, become more productive. This initiative is going to be very important and I am glad to tell you that we have inaugurated our GCC on February 4th, and we will now be wrapping up in the next, I would say, one year this operations.
Again, very important, creating that one culture. As you know, we are present in multiple geographies, multiple legacies, and it was very important to create this one culture of Sudarshan. We have aligned more than 90% of our colleagues on purpose mission values on living this culture. Last not the least, it was very important to harmonize processes and systems. We were working on four SAPs, and we are progressing very well to harmonize this into one SAP by December 2026. This is a very important initiative. Again, will create a lot of productivity improvement. As imagined today, we are dealing, we have to generate four different invoices to the customers. This all will, once we are on one SAP, this will all become one transaction. Again, a great deal of improvement we would see there. This, again, is progressing very well.
Now jumping into the Q3 performance. I would say Q3 quarter was a very tough quarter, not just for us, for the specialty chemical industry, very tough quarter. Especially, the focus, we saw big demand issues in Europe and North America. Let me talk a little more about it. We saw a low demand from across our industry. Across all our industries which we serve. This was primarily, if you see the household market, paint market was affected, automotive market was affected, and that caused some concerns. Most of our customers had very subdued performance and they were restocking. There was a lot of restocking happening. This was the general market area, but more specifically to us, during the Heubach insolvency time, most of our customers were very dependent on Heubach and were insecure about the supply position and hence created a lot of high stocks during that period.
Once we started interacting with customers and they started gaining confidence, these stocks they wanted to deplete. Their expectation was that they would start buying from this Q4. We will talk a little bit more, when we are talking about the Q4 of what we feel will happen on Q4. The other challenge in the last quarter was also the tariffs. A lot of customers, especially our U.S.-based customers, had a big challenge. The buying was little bit muted there, but that, again, we have got good strategy going forward. Talking about a little bit on the numbers. This is a ONE Sudarshan number, including the pigment and RIECO performance. Our revenues compared to the last quarter were flattish or slight early growth in the legacy Sudarshan. Of course, compared to the last quarter, we have de-grown. This is mainly attributed to the same issues which I described.
The acquired groups saw a larger dip, mainly on account of de-stocking by our customers, as they had high stocks of Heubach-related products. As ONE Sudarshan, we did compare to Q2. The Q3 was far more subdued. I will talk a little more on the numbers later. I can continue here on AG. The EBITDA on the acquired group, we saw a loss of INR 38 crores. After this, we also due to Labour Codes, I think we had INR 46 crores approximately of-- due to the Labour Codes, we had to make improvements for ONE Sudarshan provision. This was the overall performance. The nine-month performance, if you see, Sudarshan legacy has been flattish. As ONE Sudarshan, of course, it is not a comparable thing because the corresponding nine months did not have the acquired group.
I think, as I said in the pigment, this is a deep dive into the pigment business. As I mentioned, our business was flattish compared to Q3 given the muted demand. I will speak a little more. In fact, I would want to deep dive a little more on the acquired group, given the performance. If you look at the acquired group only now, I am going to speak on the acquired group. Q1, we reported a profit of INR 78 crores. This is a bridge from INR 78 crores to how we reached to a INR -38 crores. I think there were two areas. One was the selling price variance, then a huge drop in volume and mix which cost INR 116 million.
On the positive side, we could reduce cost of employees by INR 25 crores. Other IT costs, insurance, and other fixed costs we could reduce by INR 15 crores. Hence, we ended up at INR 38 crores. If our cost reduction efforts were not there, our losses could have been INR 78 crores, right? This is a nine-month pigment performance. Again, similar area numbers.
On RIECO. A few more slides please, Natu.
Thank you, Mr. Rajesh. On the RIECO performance, the quarter consideration we see the revenue at INR 51 crore compared to INR 60 crore last quarter. On the EBITDA side, it is marginal negative. What is positive, if we see for the nine-month performance, there has been a lot of improvement in the EBITDA compared to the last year, INR -20 crore to the current year nine months performance of INR 4.2 crore. A couple of initiatives which we have started in the RIECO business. One is the transformation of the business and the fixed cost control as well as strict monitoring of the project cost is helping us to regain the EBITDA.
We expect the quarter four for this business to be good and this will be the turnaround year for RIECO. Thank you. On the financial ratios side, Earning Per S hare, EPS, before exceptional and mark annualized is INR -1.4, majorly for the nine months.
Sir, sorry to interrupt you. Can I request you to get the mic closer towards your side a little bit?
Yes. Is that better now? Is this better?
Yes, sir. Much better. Thank you.
Thanks, sir. Earning Per Share for the period under review is INR -1.4 per equity share. We see positive in terms of the net debt to equity ratio is at 0.5x, and this has been in the similar range for the couple of quarters. The net working capital is at 25.6%, and we are focusing on optimization of the net working capitals going forward in the coming quarters. Thank you.
With this, we complete the Q3 performance. Wanted to give you an outlook for the business. As we described, I think Q2 and especially Q3 were very subdued performance, but I am glad that the worst is behind us. We look forward, and it was an industry issue. One must understand that we acquired this business, the transformation was going forward, and at the same piece, subdued demand of the industry didn't help us. I am glad to tell you that that's behind us, and we are looking forward to a very positive going forward, very positive results. As I mentioned, customer trust is rebuilt.
They had assured us that they would start buying after January, and I am very glad to tell you that most of the global accounts have started buying to the full extent which was promised. This is what we have seen in January and early February. We also see better signs of a little bit of economic recovery. Our integration is progressing very well, and we will continue to build a solid ONE Sudarshan. Our value capture work is going very well, and that should really help our profit going forward and working capital improvements. As I described, Q1 we have come back well, but given the subdued performance of Q2 and Q3, our EBITDA has been at EUR 6.5 million. We have a very good positive momentum and outlook.
I want to kind of clarify here that we expect a EUR 9 million-EUR 10 million of a business EBITDA. However, we are in a mode now to start because we have rebuilt some of our supply chain processes and we have understood what the customer demand is. We want to start reducing our inventories now, especially the finished good inventories. That would have an impact on our EBITDA going forward, but it will have a very positive impact on cash flow, and that is the right business decision going forward. In the coming three quarters, I will talk a little bit more on this so that I clarify. What we mean is business EBITDA is the operating profit from actual sales without the impact of inventory change and especially the inventory change at manufacturing locations.
I will clarify what I mean here. The reported EBITDA, we are talking about operating profit from actual sales with the impact of inventory change at manufacturing sites. Our target in the next three quarters is to reduce our inventory in the range of EUR 30 million-EUR 40 million. This is business positive, and it will generate higher operating cash while reducing finished goods inventory. However, like I said, temporarily, we anticipate that this will lead to a reduction in reported EBITDA. The balance sheet impact, as you can imagine, this will reduce the working capital, generate operating cash flow at the current run rate of sales. This will have a positive impact on the balance sheet and net debt levels will be lower.
However, on the P&L, rationalization of production volume in the coming quarters is likely to have an impact on the reported EBITDA due to the release of capitalized overhead or inventorized overhead in the range of EUR 9 million-EUR 12 million. This could happen in the next three quarters. This will be a short-term impact. On an annualized basis, this should get normalized. I think to summarize, on the balance sheet, we will be able to reduce the inventory to the range of EUR 30 million-EUR 40 million, which will have a very significant positive impact on our balance sheet, improved position of net debt. However, on the P&L, there could be a EUR 9 million-EUR 10 million of this, mainly due to the overhead absorption having this. If you want to add anything, Natu-ji, on the call? On this?
Just to remind everyone, we took over this business, which was not doing very well, and we needed some time to transform it. Though I would have loved that we did this much faster, but there are some realities, and that is what is happening. Given the market conditions, this has been a little slower than where we wanted to reach. But we must remind ourselves that Sudarshan is now one of the largest pigment players in the world. We have the widest product portfolio. There are industry tailwinds which are supporting us. We are structurally advantaged with our global footprint.
As I mentioned, 55% of our manufacturing footprint is based out of Asia, which is a big advantage for us compared to our global competitor. Our EBITDA performance is heading the right directions as synergies are slowly coming together.
With this was our small presentation. With this, we would be open to taking any questions.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may click on the Raise Hand icon to ask your question. Kindly accept the prompt and announce your company name before proceeding with your question. Participants are requested to restrict to two questions per participant. First question is from the line of Sanjesh Jain.
Yeah, hi. Good morning. Thanks for taking my questions. I have a few of them. First on the[crosstalk].
Sanjesh, sorry to interrupt you. Before you proceed with your question, kindly-- proceed.
Yeah, sorry. This is Sanjesh Jain. I am from ICICI Securities. Thanks for reminding that. A couple of questions from my side. First, from the cost side, now that there is a sharp rise in the benzene prices and we have seen in the earlier outturn of Sudarshan, just wanted to understand how our merged entity looks like. These price hikes used to take a quarter or two before we get the full benefit on our P&L. That used to put a temporary pressure on margin. Now that there is a sharp increase from the low end of the benzene derivative now, how do you see cost pressure panning out, say, in a quarter, next quarter or a quarter after that? That's my first question.
Second question on the inventory that we are trying to liquidate now, generate more cash and have a better or a lighter position. I thought this should have started immediately post the merger, at least at our end. I can understand customer being a little skeptic on the continuity part. But from the Sudarshan perspective, we should have embarked on this earlier. Why now? Why two quarter of delay? We were looking to completely acquire, stabilize operation, and only then go for a liquidation of inventory from a BCP perspective, and now we are more confident in doing that. Is that the right way to see? These are my initial two questions. Thank you.
Thank you. Thank you so much. Great questions. I think the first one is on the benzene side. On certain raw materials, we do see increases, but I think we are very well covered on the raw materials, and we should not see any impact on Q4. Secondly, with our larger portfolio, our dependency, the impact which could have, especially if you refer to benzene, would be quite minuscule. In general, we don't see this. The number two question is very important strategically. As you may recall, our most important aspect was to build customer trust. At the same time, all our supply chain processes were broken. We had to implement a common supply chain planning tool across the three legacies, and that has progressed well. We had to create a good supply chain organization.
Until we had that confidence that we will be able to deliver as per customers' expectation, we did not want to start reducing inventories because that would have disrupted our building the customer confidence. One of the most pain area for them in the last three years was a complete disruption on supplies. I am very glad to tell you that our strategies worked well. The first nine months has created a very good confidence with the customers. We have built some of our processes, though we have to do some more work, but we now feel confident that we can start reducing inventories.
That's okay. Follow-up question on the demand side. Now that this quarter has been quite subdued and we appear to be more confident for Q4, from the time we started on the EBITDA side, we started with EUR 38 million on the anticipation, and now we are three quarters down the line, staring at $16 million. How do we remain confident of profitability being maintained and improved from here? Number two, on the demand side, what is giving you the confidence? Is there an order backlog[audio distortion] or order book which we are sitting on, which[crosstalk].
Sanjesh, sorry to interrupt you. We are losing your audio.
Now much better, Q4. Can I get my question or you want me to repeat it?
I got your question. I think your first question was on what is our confidence on the demand. Our confidence on the demand is, as I mentioned, the customers promised that they would start buying after January, and we are seeing that already in January and early February, as I mentioned. That gives us the confidence that Q4 demand is coming back. Basically, structurally, why we are confident about delivering our long-term target is now our thesis remains strong. We are working on the value capture. We build customer trust. If we didn't have as much of market issues, we would have been able to deliver a better number. That gives us the confidence of the long-term.
Thank you very much. Sanjesh, I will request you to come back for a follow-up question. Next question. Before that, I request all the participants, kindly restrict it to two questions per participant. The next question is from the line of Chetan Cholera. Kindly introduce yourself and proceed with your question.
Yeah, I am Chetan Cholera from Pragya Equities. Thanks for the opportunity. See, as a promoter, your current stake stands approximately 8.19%, which is notably low. Could you share your thoughts on this holding level? Any plans to increase it or how it aligns with your company's long-term strategy?
We have transformed Sudarshan into more of a, I would say, a professionally driven organization and our shareholding is quite substantial. The Rathi family owns a substantial shareholding, and they will continue supporting us. We have several good strategic investors, I would say general investors, who are long-term. I have already, I think from my perspective, I have warrants which will come and that will help to increase my shareholding.
Yeah. My second question is, what is your long-term strategy of whole Heubach operation? Is there any plan to merge or hire for some of the operation or divest some of the operation?
Whatever manufacturing footprint changes we wanted to bring in, we have already brought those changes. Some, Frankfurt was to be right-sized, which has been done. That production is already transferred into India. We do not see any need to further. There will be tactical but no major product changes in manufacturing.
Your thought on U.S. trade deals and what kind of advantages we will have because of it. Thanks for this. That is all from my side.
In the short term, there will not be any immediate impact, given that it would take at least 10- 12 months until the agreement gets ratified by EU and India before the actual enforcement. We will continue to closely track developments to assess the implications, and accordingly, reevaluate our approach as required. Our global production footprints allows flexibility to respond as the market and policy conditions evolve, and that is where I think we are very keenly looking at how this India-EU FTA shapes up.
Thank you very much. Next question is from the line of Jignesh Kamani. Jignesh Kamani, introduce yourself and proceed with your question.
Yeah. Hi, Jignesh Kamani from Nippon Mutual Fund. Hope I'm audible. Yeah. Just on the seasonality part in Heubach. We have only just three quarter number of the Heubach. Just can you help understand about the seasonality part? Like if you take it from first quarter to third quarter, it looks like revenue is declined by 20%. Out of that, how much is because of the seasonality element and how much is because of the peak demand? Out of, say, if you take about 100 as a base for full year, generally how the seasonality pattern happen between Q1, Q2, Q3 and Q4?
Jignesh-ji, thank you. I think when you see the subdued performance today compared to Q1 to Q3, it is primarily driven that of destocking. We won't see such a strong going forward. This is not a seasonality effect. Of course, as we've now become more global, the seasonality, generally December is a last, I would say at least last 10 days of the month, everything is closed. That's the impact we see the 10 days in the 120 days where we see that demand, especially in Europe and LATAM. But the current performance which you are seeing, it won't be that drastic. Though Q3 would be our weakest quarter, it won't be that drastic.
Following of the middle there.
Understood. Second question on the fixed cost structure. If I assume that 45% is the gross margin, if you take in first quarter where we be close to around INR 78 crore kind of EBITDA on the revenue base of INR 1,880 crore, roughly around excess of raw material, our overhead cost, including fixed and variable, was roughly around INR 950 crore to INR 1,000 crore odd at the Heubach level. When you mention that INR 40 crore kind of saving you achieve in last two quarter, it's just 4% of the total overhead cost, both fixed and variable. It looks slightly on the lower side considering you mentioned that there's a large amount of the overhead cost and everything and which there is a opportunity available on the reduction part.
Jignesh-ji, if you look at our cost, if you look at our pipeline of value capture, that is very strong. However, for it to hit the EBITDA, it is a timing effect, right? Please remember that it is not even 10 months that we have taken over this asset, right? For us to start looking at some areas, it does take time. Of course, we are dealing with very stringent countries where the labor law is difficult, some of the other costs which takes time. From that perspective, the pipeline is larger, but the impact on P&L takes some time to come in.
Sure. My last question on, say, if you take about this INR 4,000-odd crore annual cost, except the raw material, how much proportion is the fixed cost and how much is variable? Even a slight drop in revenue, if fixed cost component is very high, then volatility in EBITDA will be much sharper because of the higher element of fixed cost, at least till the time our cost saving benefit will flow to the P&L.
One of the challenges, and that is where I think we are focusing on fixed cost reduction. The acquired group, the manufacturing fixed cost is very high compared to the variable cost, right? If you look at legacy Sudarshan, the variable cost is high, the fixed cost is low. That is why any p erform-- any dip in demand causes a much larger impact on the EBITDA on the acquired, and that is the area of view.
Thank you. Jignesh, I will request you to come back for a follow-up question. A kind request to all the participants, please limit your questions to two per participant. Next question is from the line of Gagan Dixit. Kindly introduce yourself and proceed with your question.
Yeah. Thanks for taking my question. This is Gagan Dixit from Elara Securities. Sir, so now you have achieved INR 40 crore quarterly rate of the cost saving from the synergy. So, what is your target at the end of the FY 2027 quarter, the synergy that you want to achieve from? Is there any restructuring cost further need to be incurred in this whole process? That is my first question, sir.
Gagan-ji, the entire thesis of what we are looking at the long-term three to four-year target, where we are looking to deliver 90 million to 100 million, comes a lot from assuming that there is normal sales going on, comes from cost reduction. I can tell you that our funnel of cost reduction is going in the right direction. So far, the impact was also of the timing so far, and given the volume was much lower, we could not see that impact on the year.
Okay, sir. My second question is, sir, your net debt is at a group level is INR 1,153 crore , while your finance cost is around INR 40 crore or so. It looks like that the rate is well more than 13% annualized rate looks like. Do you have any plan for the refinancing also? That is my second question.
Gagan, thanks for the question. I think I can answer here. In terms of the interest part, it has two elements. One is the interest cost on the borrowing, and also as per the Ind AS accounting standard, we also need to account for the finance cost of the leases, et cetera. If I see only the normal run rate of the bank finance which we have taken for this acquisition and overall debt level, we are in the range of 5.75%-6% as the interest cost. Balance effect is because of the Ind AS accounting on the lease and the fair valuation of the land bank. Thank you.
Yeah. Thanks, sir. Thanks.
Thank you. Next question is from the line of Rohit Kothari. Kindly introduce yourself and proceed with your question.
Yes. Thank you, Mr. Rathi, for a very elaborate explanation. I would have two questions principally. I saw somewhere in the slide and you saying that the business EBITDA would be roughly EUR 10 million in the quarter to come, and probably a little higher in the quarter next. However, there would be a one-time inventory loss, which would take down the reported EBITDA. But is it fair to understand that over the next two quarters, the business EBITDA would be EUR 10 million and say EUR 12 million or EUR 13 million, about EUR 25 million, and there would be a one-time stock impact which would take it down to about EUR 7 million or EUR 8 million over the next two quarters.
Second, due to this liquidation, will the entire EUR 40 million lead to a debt reduction? Just as a question, January has already gone by and we are probably in the middle of February. What is the confidence of the management to hit EUR 160 million to EUR 165 million of sales from our European acquisition?
Rohit-ji, great question. First of all, I think, the confidence level of Q4 is quite high based on our performance so far from that perspective. Rohit-ji, what we are looking at is what you described going forward on the business EBITDA, that is correct. We are looking to reduce EUR 30 million to EUR 40 million of inventory, which would translate into cash and reduction in net debt as time progresses. The impact of that in the short term could be EUR 9 million to EUR 12 million, and we must understand that this is only because of the overhead allocation. This is not bad inventory, this is all good inventory. The only thing what is going to happen is my production volumes are going to be much lower than my sales volume, and that is where it gets its high impact. Did I answer your question, Rohit-ji?
Yes. What you are saying is once the EUR 30 million, EUR 40 million of stock is sold, probably from Q2 financial year next, you would normalize your production and sales levels to a little higher than what we have seen or what we are seeing in this quarter and the next. Correspondingly, both the business EBITDA would go up and there would be pretty less inventory losses from Q2 onwards.
Very well said, Rohit-ji. Very well captured.
Thank you.
Thank you very much. Next question is from the line of Atishray Malhan. Kindly introduce yourself and proceed with your question. Atishray , may I request you unmute your line and proceed with your question? No response. We move on to the next participant. Next question is on the line of Rohit Nagraj. Kindly introduce yourself and proceed with your question.
Thanks for the opportunity. Rohit Nagraj from 360 ONE Capital . First question is again in terms of the inventory liquidation. Is it that we will be selling this inventory at a discount just to make sure that it gets adjusted over the next three quarters? A similar, adjacent question to that, this quarter on the acquired group, we did about INR 1,479 crores of sales. So for the next three quarters, would it be just marginal increase, given that these inventories will be liquidated and there will not be consequent growth from the current levels? For the next three quarters, is it safe to assume that there will be only marginal growth in terms of the acquired group revenues? Thank you.
I think, answering your second question, there will be sales growth, but we are saying that the sales will be from inventory rather than fresh production. Right? What we are saying is the production volumes will not be in line with what our sales is going to be. Right? Again, to clarify, this is all good inventory. We are not selling this at any discount or anything. This is all good inventory. We are adjusting our supply chain parameters, our planning parameters that we can do this. Right? Did I answer your question, Rohit-ji?
Yes. The second question is in terms of the inventory aligned with the customers. Two elements to it. Last quarter, we had stated that on a sequential basis, we will be having more or less a similar kind of performance. But we have seen that performance has materially deteriorated. Did we not have any inkling in terms of how the customer offtake has been?
The second question is that, is there any challenge in terms of the user segments where the demand is getting hit, and that is why these inventories at the customer levels, they are not being liquidated or not being used up? Two parts of the question. One is that whether our understanding of the customer inventories was not in line. Second, in terms of industry landscape, are there any headwinds in terms of demand or consumption? Thank you.
The first question. Second question, I may need more clarity, but the first question is, we did expect, and that is what we said, that Q3 demand would be subdued, but we did not expect this to be at that level. The amount of stocks which our customers carried, it was very difficult to estimate how much stock they have and when they will start buying. Right? So that is where we thought Q3. We thought it would be more subdued than Q3, but not to the level which it fell. Right? From that perspective, that was a learning for us to see what it is. But I think most of this is behind us now, right? Because customers have started buying.
Could you clarify on the second question? I did not get the--
The consumption at the customer end, which remains subdued and because of which we are not able to sell the products, is it due to the reason that the user industry consumption, where the pigments are being used, is there any demand challenge or consumption challenge? The industry on a large, whether it is stagnated and there has been some challenge, because of which the material is not being consumed by the customers.
Yes. The demand has been challenging, but this is a short term. This is not a long term shift, right? People will not stop painting their houses or people will not stop buying cars. But I think this was a temporary challenge, and all our customers are facing this temporary challenge. As the economy improves, I am sure. But the amount of the customer's demand is not to the level of our performance. This was mainly destocking, right? So customers' demand is not down by 20%, right? Customer's demand would be from our perspective. That is the big change. That is the big difference.
Sure. Got that. Thank you so much, and all the best.
Thank you. Next question is from the line of Kashyap Pujara. Kindly introduce yourself and proceed with your question.
Hi. Thank you so much for taking my question. I am Kashyap from Thelme India . I had a couple of questions, and pardon me if it is repetitive. I just had a bad network, so it might have slipped out. Firstly, on the legacy Sudarshan business, the revenue has been flat in the first nine months. Historically, this business has grown at close to 11% CAGR over long periods of time, bearing a few exceptions in between, though. Just one question was that, after the Heubach integration, the thought process was that some commodity products could be kind of put to India and that could have in fact bumped up the India growth.
Just curious to understand from you how one should think about the legacy Sudarshan business growth rates for the remainder part of FY 2026, that is Q4. Do you think the softness continues or do you think that you are seeing turnaround here? What are the long-term sustainable growth rates for the legacy Sudarshan business?
Kashyap-ji, I think the fundamentals of the Sudarshan business remain strong. What we saw is one of the exceptional quarters which we've seen in legacy Sudarshan in the past, where the industry went through a very bad patch. Right? That's where even the Sudarshan legacy growth was subdued. That caused this. Second clarification I would like to give you, the Frankfurt products were not transferred to Sudarshan legacy, but to the Clariant legacy plant. That impact wasn't to be seen in Sudarshan legacy. Sudarshan legacy, we have transformed the portfolio and most pieces of our CapEx still remain intact and we should see growth returning back.
From Q4 FY 2026, you think we'll be back on that 10%, 11% growth rates of Sudarshan legacy business?
I would not like to give, but I'm saying in the long term, we should be back to 10%, 11%.
Sure. Just on the Heubach piece, while lot has been discussed there, the demand that we are seeing right now, on which you are basing your guidance of say, EUR 9 million, EUR-10 million in FY 2026 Q4, is it a function of restocking at the customer level that's coming back or is it that the demand environment has actually picked up? Because I'm just trying to understand whether this is more like a one-time uptick in Q4 as restocking happens, or is the end demand environment gradually turning better?
Like I discussed, sir, the demand is subdued, but not to the level we saw our performance, right. So, the customers finished their restocking and they are buying because there is normal demand there, right. It's not going to be just a Q4 effect, but we are saying that demand is coming back, right? Because the restocking is over and people will start buying normally.
Understood. I'm sorry, just one more question. This 10% margin guidance or on a billion dollar close to say EUR 90 m illion or EUR 100 million of EBITDA that you're kind of guiding. Just how are your thoughts on this? Is it more like a back-ended number or do you think that you will be able to build it more linearly in terms of cost optimization, working capital initiatives? Would it be like some creeping in in 2027, 2028 or everything kind of accrues in more towards the end? Just trying to think about how one should build a bridge to 10% or EUR 100 million EBITDA that you're kind of implying.
No, absolutely, Kashyap-ji. I think we would see a gradual improvement in performance and a ramp-up. Then there would be a little bit of a beat because all our initiatives will be completed on cost reduction for the next year. The full year benefit you will see towards the end, but you will see a gradual improvement. It's not going to happen that the last year you will see a beat.
Understood. Understood. And can[crosstalk].
Thank you.
Okay. Do I have room for one more question? Sorry.
Sir, I may request you to come back for the follow-up question.
Sure, no problem. No problem. Thank you.
Thank you. Next question is from the line of Atishray Malhan . Kindly introduce yourself and proceed with your question.
Yeah, good morning. I am Atishray from Abakkus Mutual Fund. Just two questions from my side. Firstly, on a consolidated basis, what percentage of your employee cost is currently coming from outside of Asia and specifically from Europe?
See, difficult to answer just offhand, this number. But I think if you can ask what is your intention, I am more than happy to answer where we were headed.
No, I am just trying to ascertain, because you had mentioned that about 55% of your manufacturing footprint is coming from Asia, right? I am just trying to get a sense of the employee cost, because obviously that is a big percentage of your overall cost profile now.
Yeah. I think our aim is to kind of get to a 12%-13% of the employee cost in the long run, right? That is where we are targeting towards gaining a lot of. Other than manufacturing, there is a big setup even outside of India in terms of innovation, the entire technology, and a lot of support to the business, right?
Okay. Just to that point, since Q1, we have been seeing obviously there has been sequential reduction in the total employee cost. If you could just probably mention how you have achieved that.
As I stated, our org structure design is very lean, and it is a functional organization. Earlier there were few organizations, there was a lot more management out of Europe, which has been streamlined.
Understood. Okay. Thank you, and good luck for the forthcoming quarters.
Thank you, sir.
Thank you very much. Next question is from the line of Dhruv Muchhal. Kindly introduce yourself and proceed with your question. Dhruv, may I request you unmute your line and proceed with your question?
Hello?
Yes, you are audible. Go ahead.
Thank you so much. Dhruv from HDFC MF. Sir, question on the legacy business. Sir, there is some weakness in terms of probably the growth has slowed a bit. The legacy business and the acquired business, I am not sure the portfolio is exactly the same. There is not significant overlap. The weakness that you are seeing in demand, is it a very broad-based industry weakness? Because the acquired business, we understand the customers had also acquired a lot of inventory and all those. But, the weakness that we see in the India business, the legacy business, I am just trying to understand what can we attribute that to, because probably it is not the inventory. But is it the general demand weakness across all industries?
Hi, Dhruv. Thank you. Thank you for your question. Great question, Dhruv. As I mentioned, if you see what Sudarshan legacy represents, how the industry has performed, right? And in the acquired group, you see the destocking impact, right? What we saw is the first seven to eight months of very subdued demand, even in the India subcontinent, right? Which was really growing, but we have seen that completely change after November. Right? The legacy business is completely attributed to the demand slowdown from our customers. And this will come back as we go forward.
Got it. Sure. And, secondly, again continuing, we had invested meaningfully in new products, new segments in the legacy business. If you can provide some comments, how are those performing, probably in terms of approvals? And also, the margin trend that you are expecting, at gross level, probably because at operating level, you will be suffering a bit. But at the gross margin level, are these products performing as you had expected, or there is scope further to improve on margins on those products also?
I think the products on the newly invested are performing very well. However, given the slowness in demand, we have not seen the volume. That part is working. In fact, we see a demand much better for that compared to some of our regular products, right? From that perspective. And going forward, we see a great synergy between the acquired group and Sudarshan legacy products, where we could make some of the base products here, and kind of look at finishing them in Europe too, right?
Got it. Just to follow up on this, the industry weakness that you are seeing, focusing on the legacy business, the industry weakness that you are seeing is not causing a price. This is not probably because of the price action or because of oversupply and causing a price action on your products. It is more of genuine demand, volume uptick. It is not a mix of volume and price. It is purely volume as of now. You do not see it moving to price because the volumes are coming back.
Yes, absolutely.
Sure. Okay. Perfect. Thank you so much.
Thank you, Dhruv.
Thank you very much. Ladies and gentlemen, we will take that as the last question. I will now hand the conference over to the management for closing comments.
Thank you. Thank you, Nitesh and Anand Rathi Research. Thanks a lot participants, for joining our industry call. As Mr. Rathi mentioned, this has been a subdued quarter, but we see the green shoot, and we see the improvement in the coming quarters to come, and we are seeing the uptick. We remain confident in our journey going forward, and we thank you for your continued support. Thank you so much.
Thank you very much. On behalf of Sudarshan Chemical Industries Limited and Anand Rathi Shares and Stock Brokers Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.