Sudarshan Chemical Industries Limited (NSE: SUDARSCHEM) Q3 2026 Earnings Call dated Feb. 13, 2026
Corporate Participants:
Unidentified Speaker
Rajesh Rathi — Chairman and Managing Director
Nilkanth Natu — Chief Financial Officer
Analysts:
Unidentified Participant
Sanjay Jain — Analyst
Gagan Dixit — Analyst
Presentation:
operator
It. It’s. It. Ladies and gentlemen, good day and welcome to Sudarshan Industries Sudarshan Chemical Industries Limited Q3 and FY26 earnings conference call hosted by Anandraathi Shares and Stock Brokers Limited. As a reminder, all participant lines will be in the 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. And now hand the conference over to Mr. Nitesh Dud from Anandrati Shedan Stockbrokers. Thank you. And over to you Mr. Dud.
Unidentified Participant
Thank you. Good morning everyone. On behalf of Anandrati Institutional Equities I would like to thank the management of Sudarshan Chemical Industries for giving us the opportunity to host their Q3 and 9 months FY26 earnings conference call. From the management team of Sudarshan. We have with us today Mr. Rajesh Rathi, Chairman and Managing Director, Mr. Neel Kandnatu, Chief Financial Officer and Mr. Amaya Thale, General Manager, Finance. Without further ado, I would like to hand over the call to the management for their opening remarks post which we’ll open the forum for an interactive question and answer session. Thank you. And over to you team.
Rajesh Rathi — Chairman and Managing Director
Thank you. This is Rajesh Rati and thank you Anand Rati and Nish for hosting our call. We are looking forward to a very active participation in today’s call. And so with this I would like to start our presentation. So I would just like to reflect, reflect on and you know remind everyone that we completed the acquisition of Hoibox global business which included Clarion’s pigment business. This you know just to remind everyone hoibok 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 his heart and agility.
We, our whole endeavor is that this new Sudarshan would be a global value adding pigment leader rooted with customer centricity and agility and innovation coming from Pybox. So we are combining this in creating a new pigment global leader and it’s, it’s a very exciting journey. What we are embarking on. Altogether we have 19 manufacturing facilities in 11 countries and five continents. This is the 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 you know, cell phone market which cell phone Markets, digital links, 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’ve completed 11 months into the integration. We’ve made very good progress. The first thing we wanted to create was customer confidence and customer centricity was our main theme there. We’ve done a lot in this region. We’ve gained back the trust of customers. We’ve improved our customer service example. You know we’ve created customer service teams locally in each country. We’ve rebuilt our technical marketing organization. We carried 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 builds back the trust and that’s gone a long way, long way with us. Right? Second very important aspect was value capture, right? And we’ve been working very intensely and this was a thesis of the, the second thesis where we wanted to look at how we can turn around this business, right? So we’ve been working on multiple work streams across operations, procurement, organization, IT and fixed cost and the implementation is going very well. We already have captured 40 crores of this which we have realized in our Q3 if you compare to Q1 and we also have a very healthy pipeline going forward in parallel.
So this in parallel if you look to a value capture efforts we are improving the setup of the operating model of one solarshan. 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 you know, digital innovation to even improve our response time to customer become more productive. This is. This initiative is going to be very important and I’m 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, right? Again very important creating that one culture, right? As you, you know we are present in multiple geographies, multiple legacies and it was very, very important to kind of create this one culture of. Of Sudarshan and we’ve 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 in on four saps and we are progressing very well to harmonize this into you know one SAP by December 26th. This is a very important initiative again will create a lot of productivity improvement as imagine today we are dealing, you know we, we have to generate four different invoices to the customers. And this all will kind of, once we are on one SAP, this will all become, you know, one transaction. Right. So again, a great deal of improvement we would see there. And 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. And, and especially, you know, the focus. You know, we saw big demand issues in Europe and north america. Let me talk a little more about it. We saw a low demand across our industry. Right. And 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 that caused some concerns. Most of our customers had very subdued performance and they were destocking. There was a lot of destocking happening more. This was the general market area, but more specifically to us during the hoibok insolvency time, most of our customers were very dependent on haibok 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 we started gaining confidence, these stocks they wanted to deplete, right.
And their expectation was that they would start buying from this Q4. And we’ll talk a little bit more when we’re talking about the Q4 what, 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, are a big challenge. And you know, the buying was a little bit muted there. But that, you know, again we’ve got good clarity going forward on this. Talking about a little bit on the numbers. This is a 1 Sudarshan number including the pigment and repo performance.
Our revenues, you know, compared to the last quarter were flattish or slight degrowth in the legacy Sudarshan. And of course compared to the last quarter we’ve degrown. This is mainly attributed to the same issues which I described. The acquired groups saw a larger dip mainly on account of destocking by our customers as they had high stocks of haiboc related products. And as one Sudarshan, you know, know we did compared to Q2 because the Q Q3 was far more subdued. I’ll talk a little more on the numbers later. You know, I can, I can continue here.
Maybe the EBITDA on the acquired group we saw a loss of 38 croch and after the. And we also due to labor code, I think we had 46 crores, 46 crores approximately. Of due to the labor code we had to make for one Sudarshan provision. Right. So this was, this was the overall performance. The nine month performance. If you see Sudarshan legacy has been flattish and the. And as one Sudarshan of course it’s not a comparable thing because you know the corresponding nine months did not have the acquired. Right. I think as I said in the pigment from this is a deep dive into the pigment business. And as I mentioned our business was flattish compared to Q3 given the muted demand. And I’ll speak a little more. In fact I would want to deep dive a little more on the acquired group given the performance.
And you know, so if you look at. If. If you look at the acquired group only now I’m going to speak on the acquired group. Q1 we reported a profit of 78 crore. And this is the bridge from 78 crores to how we reached to a negative 38. So I think there were two areas. One was a selling price variance then a huge drop in volume and mix which cost 116 million. But on the positive side we could reduce cost of employees by 25,5 crores. And other IT cost, insurance and other fixed costs we could reduce by 15 crores and hence we ended up at 38 crores.
If our cost reduction efforts were not there, you know our losses could have been 78 crores. Right. This is a nine month pigment performance. Again similar. Area. Numbers. On the RICO.
Nilkanth Natu — Chief Financial Officer
Thank you Mr. Rajesh. On the RICOH performance, the quarter venture consideration we see the revenue at 50 months here compared to 60 crore last quarter. And on the EBITDA side it is marginal negative. But 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. Negative 20 crore to the current year 9 months performance of 4.2 crore. A couple of initiatives which we have started in the repo business. One is you know, the transformation of the business and the fixed cost control as well as you know, strict monitoring of the project cost is helping us to regain the ebitda.
We expect the quarter four for this business to be full and this will be the turnaround year for the. Thank you. On the financial ratio side, earning per share EPS before exceptional not annualized is negative 1.4 majorly for the nine months.
operator
Sir, sorry to interrupt you. Can I request you to get the mic closer towards your side a little bit. Yes sir. Yes sir. Much better. Thank you.
Nilkanth Natu — Chief Financial Officer
Thank you. Earning per share for the period in the review is negative 1.4 rupees per equity share. We see positive in terms of the net debt to equity ratio is at 0.5 and this has been in the similar range for the couple of quarters and the networking Capital is at 20.2 5.6% and we are focusing on optimization of the networking capitals in going forward in the coming quarters.
operator
Thank you.
Nilkanth Natu — Chief Financial Officer
With this we complete the Q3 performance. Wanted to give you an outlook for the business as we described. I think Q2 and Q and especially Q3 were very subdued performance but I’m glad that the worst is behind us and we look forward, you know, and you know that it was an industry issue and one must understand that, you know, we acquired this business, the transformation was going forward and at the same, you know, these subdued demand and of the industry didn’t help us. So that’s but I’m glad to tell you that that’s behind us and we are looking forward to a very positive, you know, going forward, very positive results.
Right. As I mentioned, customer trust is rebuilt and they had assured us that they will start buying after January. And I’m very glad to tell you that most of the global accounts have started buying to the full extent which was promised. And this is what we’ve seen in January and early Feb. We also see a good, you know, 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. Right. Our value capture work is going very well and that should really help our profit going forward. And working capital improvements. As I described due to you know, Q1 we were, we had come back well. But given the subdued performance of Q2 and Q3, our EBITDA has been at 6.5 million. But we have a very good positive momentum and outlook. And I want to ex, I want to kind of clarify here that we expect a 9 to 10 million of a business EBITDA. Right. However, we are in a mode now to start because we’ve rebuilt some of our supply chain processes and we’ve understood what the customer demand is. We want to start reducing our inventories now, especially the finished good inventories and that would have an impact on, on, on our, on our EBITDA going forward. But it will have a very positive impact on cash flow and you know, and that’s the right business decision going forward. Right. In the coming three. I’ll 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 inventory change and especially the inventory change at manufacturing locations. And I. And I’ll clarify what I mean here. Right. The reported EBITDA we are talking about operating profit from actual sales with the impact of inventory change at manufacturing sites. Right. Our target in the next three quarters is to reduce our inventory in the range of 30 to 40 million. Right. This is a business positive as it will generate higher operating cash while reducing finished goods inventory. However, like I said, temporary. 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 level 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 9 to 12 million.
And this will happen in the next three quarters. This will be a short term impact on an analyzed patient. This should get normalized. So I think to summarize, on the balance sheet we will be able to reduce the inventory to the range of 30 to 40 million which will have a very significant positive impact on our balance sheet. Improved position of net debt. However, on the P L we, you know there would. There could be a 9 to 10 million of this mainly due to, you know, the. Or overhead absorption. Right. The overhead absorption. Having this. Right. You want to add anything? Yeah. On this? Right. We. Just to remind everyone and kind of we, you know, we, we took over this business which we were. Which was not doing very well and we needed some time to transform it though. I would have loved that we did this faster. But there are some realities and that’s what’s 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 advantage 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 any of. To our global competitor. And our EBITDA performance is heading the right directions as synergies are slowly coming together. Right. With this, with this I would like to, you know, this was our small presentations and with this we would be open to taking any Questions.
Questions and Answers:
operator
Thank you very much. We’ll 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 Sanjay Chain.
Unidentified Participant
Yeah, hi, good morning. Thanks for taking my questions. I got a few of them.
Rajesh Rathi
First on the Sanjesh, sorry to interrupt you. Before you proceed with your question, kindly.
Unidentified Participant
Yeah, sorry. So this is Sanjay Jain. I am from ICIC Securities. Thanks for reminding that.
Rajesh Rathi
So. So a couple of questions from my side. First on the cost side. Now that there is a sharp rise in the benzene prices and we have seen in the earlier avatar of Sudarshan, just wanted to understand how a merged entity looks like. The price act used to take a quarter or two before we get the full benefit on our P and L and 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 the hour. And 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, or we are 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.
Unidentified Participant
Thank you. Thank you. Thank you so much.
Nilkanth Natu
Jen. Great questions. I think the first one is on the benzene side. We do, you know, on certain raw materials we do see increases but I think we are very well, we are 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. Right. So in general we don’t see this. Right. 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. And until we had that confidence that we will be able to deliver deliver as per customers expectation, we did not want our customer, you know, 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 disruption on supplies. And I’m very glad to tell you that our strategies work 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 in inventories.
Sanjay Jain
That’s clear. 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 38 million Euro on the anticipation and now we are 3 quarters down the line stating at 16 million dollars how do we remain confident of profitability being maintained and improved from here. And number two on the demand side, what is giving us the confidence? Is there a order backlog or a order book which we are sitting.
operator
Sorry to interrupt you, we are losing.
Sanjay Jain
Your audio for the confidence on a much better cube. Thank you. But can get my question or do you want me to repeat it?
Nilkanth Natu
So I think the first thing, 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. So that gives us the confidence that Q4, you know, demand is coming back, right? Basically structurally why we are confident about delivering our long term target is none of our. Our thesis remains strong. We are working on the value capture. We build customer trust and if you know, if the market, we didn’t have as much of market issues we would have been able to deliver a better number and that gives us the confidence of the long term.
operator
Thank you very much Sanjay. Shall request to come back for a follow up question. Next question. Before that a request to all the participants kindly restricted to questions per participant. The next question is from the line of Chetan Kolera Rani. Reduce yourself and proceed with your question.
Unidentified Participant
I’m 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 leverage, any plans to increase it or how it aligned with your company’s long term strategy. We’ve, we’ve transformed Sudarshan into more of a I would say professionally driven organization. And you know our shareholding is you know quite substantial. The Rakhi family owns substantial shareholding and they’ll continue supporting us. We have several good strategic investors I would suggest investors who are the long term. I have already, I think from my perspective I have, I have warrants which will come and that will help to increase my shareholders.
Yeah. My second question is what’s your long term strategy of all UBAC operation? Is there any plan to merge or. High for or some of the operation or divest some of the operation?
Nilkanth Natu
Whatever manufacturing footprint changes, whatever manufacturing footprint changes we wanted to bring in, we have already brought those. We have brought those changes. Some you know Frankfurt was to be right sized which has been done and that’s you know that production is already transferred into India. We don’t see any need to further. I mean there will be tactical but no major kind of changes in manufacturing.
Unidentified Participant
Yeah. Your thought on you USA trade deals.
Nilkanth Natu
And what kind of advantages we will.
Unidentified Participant
Have because of it. Thanks for this. That’s all from my side.
Nilkanth Natu
In, in the short term there will not be any immediate impact given that it would take at least 10 to 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 re evaluate our approach as required. Our global production footprints allows flexibility to respond as the market and policy conditions evolve. And that’s where I think you know it’s. We are very keenly looking at how this eu, India, EU FTA shapes up.
operator
Thank you very much. Next question is from the line of Jignesh Kamani Kani, introduce yourself and proceed with your question.
Unidentified Participant
Yeah hi Jish Kamani from Nepal Mission Fund. Hope I’m audible. Yeah, just on the seasonality part in Huber. So we have only just 3/4 number of the Huba. So 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%. So out of that how much is because of the seasonality element and how much is because of the peak demand. And so out of say if you take about 100 as a base for full year generally how the seasonality pattern happen between 1q2, q3q and 4q.
Nilkanth Natu
So Ji, thank you. I think most of you know when you see the subdued performance Today compared to Q1 to Q3, it is primarily driven that of Destocking and they will, you know, so we won’t see such a strong, you know, going forward. This is not a seasonal effect of course as we’ve now become more global. The seasonality December generally, you know, generally December is a last, I would say at least last 10 days of the month. Everything is closed. And so that’s the impact we see the 10 days in the 120 days where we see that demand, especially in Europe and Latam.
Unidentified Participant
Yeah.
Nilkanth Natu
So but the current performance which you’re seeing is largely, you know, it won’t be that drastic though Q3 would be our weakest quarter. It won’t be that drastic.
Unidentified Participant
Understood. And second question on the fiscal cost structure. So if I assume that 45 is a gross margin. So if you take on first quarter very close to around 78 crore kind of EBITDA on the revenue base of 1880 crore, roughly around X operative our overhead cost including fish and variable was roughly around 952,000 odd crore at the hube level. So when you mentioned that 45 crore kind of saving, 40 crore kind of saving you achieve in last two quarter is just 4% of the total overhead cost, both fixed and variable. So look 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 optionality available on the reduction part.
Nilkanth Natu
So Jigneshji, 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 right we need, you know, it’s a timing effect, right. Because please remember that it’s not even 10 months that we’ve taken over this asset. Right. And for us to start looking at some areas it does take time. And of course we are, we are dealing with a very stringent countries where the labor law is difficult. Some of the other costs which takes time. So from that perspective the pipeline may pipeline is larger but the impact on PNL takes some time to come in.
Unidentified Participant
Sure. And my last question on say if you take about this 4000 odd crore annual fixed annual cost X of the raw material, how much proportion is the fixed cost and how much is variable? Because even a slight drop in revenue will. If a fixed cost component is very high then what volatility in EBITDA will be much sharper because of the higher element of fixed cost. At least till the time our cost saving I can say benefit will flow to the P L.
Nilkanth Natu
So one of the challenges, and that’s where I think we are focusing on fixed Cost reduction, the acquired group, the manufacturing cost, fixed cost is very high compared to the variable cost. Right. And if you look at legacy Sudarshan it’s quite. You know the variable cost is high, the fixed cost is low and that’s why any perform any dip in demand causes a much larger impact on the ebitda on the acquired. And that’s the area we are working.
Unidentified Participant
Thank you Jignesh. I’ll request 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 land of Gagan Dixit. Kindly introduce yourself and proceed with the question. Yeah. Yeah.
Gagan Dixit
Thanks. Thanks for taking my question. This is Gagan Dixit from LR Securities. So. So till now you have achieved 40 crore quarterly rate of the cost saving from the synergy. So. So what is the your target I mean at the end of the apply 27 quarter the. I mean the synergy that you want to achieve from. And. And is there any restructuring costs further need to be incurred in this whole process? That’s my first question sir.
Rajesh Rathi
Ganganji, the entire thesis of what we are looking at the long term three to four year target right where we are going to deliver, where we are looking to deliver 90 to 100 million comes a lot from. You know assuming that there is normal sales going on comes from cost reduction. And I can tell you that our funnel of cost reduction is going in the right direction. Right. You know the. You know 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. On the pnl.
Gagan Dixit
Okay sir, my.
Rajesh Rathi
Yeah.
Gagan Dixit
My second question is. Sir, your net debt is at the consumer group level is 1123 crore while your finance cost is around 40 crore. So. So. So it looks like that rate is very high. More than 13% annualized rate looks like. So do you have any plan for the refinancing of your. This. That’s. That’s my second question.
Nilkanth Natu
Thanks for the question. Look at here. So. In terms of the interest cost it has two element. One is the interest cost on the borrowings and also as for the indes accounting standard we also need to account for the finance cost on the leases etc. So if I see only the normal run rate of the bank finance which we have taken for this acquisition and overall date level we are in the range of 5.75 to 6% as a interest cost balance effect is because of the India’s accounting on the lease and the other fair Valuation of the landings.
Gagan Dixit
Thank you. Yeah, that’s. Thanks sir.
operator
Lines. Thank you. Next question is from the line of Rohit Patari. Kindly introduce yourself and proceed with your question.
Unidentified Participant
Yes, thank you. Mr. Rati, for a very elaborate explanation I would have two questions. Principally I saw somewhere in the slide and you saying that the business EBIDDA would be roughly 10 million euros 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 quarter the business EBITDA would be 10 and say 12 or 13, about 25 million euros. And there would be a one time stock impact which would take it down to about 7 or 8 million euros over the next two quarters.
Second, due to this liquidation, will the entire 40 million euros lead to a debt reduction? And just as a question, January has already gone by and we are probably in the middle, middle of February. What is the confidence of the management to hit 160 to 165 million euros of sales from our European acquisition?
Rajesh Rathi
Rohit? Great, great question. So first of all I think the confidence level of Q4 is quite high based on our performance so far. Right. From that perspective, what we are looking at is. Rochi, what we are looking at is what you described going forward on the business EBITDA. That’s correct. And we are looking to reduce 30 to 40 million of inventory which would translate into, you know, translate into cash and reduction in net debt as time progresses. And the impact of that in the short term could be 9 to 12 million. And we must understand that this is only because of the overhead allocation, the inventory.
This is not bad inventory. This is all good inventory. Right. The only thing what’s going to happen is my production volumes are going to be much lower than my sales volume. And that’s where it gets high impact. Did I answer your question, Rohi?
Unidentified Speaker
Yes. So what you are saying is once the 30, 40 million euros of stock. Is. Sold probably from Q2 financial year next, you would normalize your production and sales levels to a little higher. Higher than what we’ve seen or what we are seeing in this quarter and next, and correspondingly both the business EBITDA would go up and there would be pretty less inventory losses from Q2 onwards.
Rajesh Rathi
Very well said, Roach. Very well captured.
Unidentified Speaker
Thank you.
operator
Thank you very much. Next question is from the line of Atishre Malan. Kindly introduce yourself and proceed with your question. Atishrai, may I request unmute your Line and proceed with your question. Did you know? Response? We move on to the next participant. Next question is from the line of Rohit Nagaraj. Kindly introduce yourself and proceed with your question.
Unidentified Participant
Thanks for the opportunity. From 361 Capital. So 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? And a similar, I mean adjacent question to that. This quarter on the acquired group, we did about 1479 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. So for next three quarters, is it safe to assume that there’ll be only marginal growth in terms of the acquired group revenues? Thank you.
Rajesh Rathi
So 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? So what we are saying is the production volumes will not be in line with what our sales is going to be, right? This is again to clarify, this is all good inventory, right? So we are not, 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 kind of do this, right? What is the first? Did I answer your question, Rohi?
Unidentified Participant
Yes. Yes. The second question is in terms of the inventory aligned with the customers. So two elements to it. Now last quarter we had stated that on a sequential basis, we will be having more or less a similar kind of performance. But we’ve seen that performance has materially deteriorated. So did we not have any inkling in terms of how the customer uptake has been? And second question is that is there any challenge in terms of the user segment where the demand is getting hit? And that’s why these inventories at the customer levels, they are not being liquidated or not being used up.
So two parts of the question. One is that whether our understanding of the customer inventories was not in line and second, in terms of industry landscape, are there any headwinds in terms of demand or consumption?
Rajesh Rathi
Thank you. So the first question, second question, I may need more clarity. But the first question is we did expect, and that’s 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, we, you know, are. We did not have the. It was very difficult to estimate how much stock they have. And when they start buying. Right. So that was, that’s where we thought Q3, you know, though we thought it’ll be More subdued than Q3, but not to the level which it fell. Right. So 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 didn’t get the.
Unidentified Participant
So 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? So the industry on a large. Whether it is stagnated and there has been some challenge because of which the material is not being consumed the customers.
Rajesh Rathi
Yes. So the demand has been challenging. But this is a short term, this is not a long term shift. Right. I mean people will not stop painting their houses or you know, people will not stop buying cars. But I think this was a temporary challenge and all our customers are facing this temporary challenge. And as the economy improves, I’m sure. But the amount of dip, it’s not, you know, the customers demand is not to the level of our performance. This was mainly destocking. Right. So customers demand is not down by 20%. Right. Customers demand would be, you know, from a perspective. So that’s, that’s the big, that’s the big change, that’s the big difference.
Unidentified Participant
Got that. Thank you so much and all the best.
operator
Thank you. Next question is from the line of Kashya Pujara. Kindly introduce yourself and proceed with your question.
Unidentified Participant
Hi, thank you so much for taking my question. I’m Kashya from Telm India. I had a couple of questions and pardon me if it’s repetitive, I just had a bad network so might have slipped out. So firstly on the legacy Sudarshan business, the revenue has been flat in the first nine months and historically this business has grown at close to 11% CAGR over long periods of time. Bearing a few exceptions in between though. So just one question was that you know, having, you know, after the Hoiback 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.
So just curious to understand from you how one should think about the legacy Sudarshan business growth rates for the remainder part of FY26. That is Q4. Do you think the softness continues or do you think that you are seeing turnaround here? And what are the long term sustainable growth rates for the legacy Sudarshan business.
Rajesh Rathi
I think the fundamentals of the Sularsan business remains strong. What we saw is one of the, you know, like one of the exceptional quarters which we’ve seen in legacy Sudarshan in the past where the industry went through a very bad batch, right? And that’s where our, even the Sudarshan Legacy growth was subdued. And that that caused this second clarification I would like to give you. The Frankfurt products were not transferred to Sudarshan Legacy but to the the Clarion Legacy right plant. So, so that impact was wasn’t to be seen in Sudarshan Legacy but Sudarshan Legacy we had transformed the portfolio and those thesis of our capex still remain intact and we should see you know, growth returning back, returning back.
Unidentified Participant
So from Q4FY26, you think we’ll be back on that 10, 11% growth rates of Sudarshan Legacy business?
Rajesh Rathi
I would not like to give but I’m saying in the long term we should be back to 10, 11%.
Nilkanth Natu
Sure. And just on the high back piece, while lot has been discussed there, the demand that we are seeing right now on which you are basing your guidance of say 910 million in FY26 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.
Rajesh Rathi
Better like I described, sir, the demand is subdued but not to the level we saw our performance. So the customers finished their destocking and they are buying because there is normal, you know, probably demand there. Right. And so it’s not going to be just a Q4 effect. But this is. We are saying that demand is coming back, right? Because the destocking is over and people will start buying normally.
Unidentified Participant
Understood. And I’m sorry, just. Just one more question. So this 10% margin guidance or on a billion dollar close to say 90 or 100 billion of euro 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 know you will be able to kind of build it more linearly in terms of cost optimization, working capital initiatives? Would it be like you know, some trickling in in 27, 28 or. Everything kind of tickles in more towards the end. Just trying to think about how one should build a bridge to 10% or 100 million EBITDA that you’re kind of implying.
Rajesh Rathi
No, absolutely. So I think we would see a gradual improvement in performance and a ramp up and then you know, there would be a little bit of a upbeat because all our initiatives will be completed on cost reduction for the next year. So the full year benefit you will see towards the end, but you will see a gradual improvement. It’s not going to happen that it’s, you know, the last year. You will see everything.
Unidentified Participant
Understood, understood. And, and generally. Okay. Do I have room for one more question?
operator
Sorry, I’m a requested to come back for a follow up question.
Unidentified Participant
No problem, no problem. Thank you.
operator
Thank you. Next question is from the line of Atishtrai Milan. Can introduce yourself and proceed with your question?
Unidentified Participant
Yeah, good morning, I’m Atishe from Abacus 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? Difficult to answer just offhand this number, but I think if you can ask what’s your intention, you know, more than happy to answer. You know what where you are headed? No, I’m just trying to ascertain because you also, you had mentioned that about 55% of your manufacturing footprint is coming from Asia.
Rajesh Rathi
Right. I’m just trying to get a sense. Of the employee cost because obviously that’s. A big percentage of your overall cost profile now. Yeah.
Rajesh Rathi
So I think our, you know, our aim is to kind of get to 12 to 13% of employee cost in the long run. Right. And that’s where we are targeting towards gaining a lot of, you know, there is, other than manufacturing, there’s a big setup even you know, outside of India in terms of innovation. You know, the entire technology, this and a support and a lot of support to the business. Right. Okay. So just to that point, since Q1 we’ve been seeing obviously there’s been reductions, sequential reduction in the total employee cost. So if you could just probably mention how you’ve achieved that.
As I stated, we have, you know, you know, our org structure design is very lean and it’s a functional organization. Earlier there were. There were bu. Organization. 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.
operator
Thank you very much. Next question is from the land of Dhruv Muchar. Kindly introduce yourself and proceed with your question. Dhruv, may I request to unmute your line and proceed with your question.
Unidentified Participant
Hello.
operator
Yes, you’re audible, go ahead.
Unidentified Participant
Thank you so much. Dhruv from HDFC MF sir, question on the legacy business. So there’s some weakness in terms probably the growth has slowed a bit. I’m not sure if so the legacy business and the acquired business, I’m not sure the portfolio is exactly the same. I mean there’s not significant overlap. So the weakness that you’re seeing in demand is, is it a very broad based industry weakness? Because the acquired business, we understand the customers also acquired a lot of inventory and all those. But the weakness that we see in the India business, I mean the legacy business, I’m just trying to understand what can we attribute that to because probably it’s not the inventory but is it the general demand weakness across all industries?
Rajesh Rathi
Hi Dhruv, thank you. Thank you for your question. Great question. As I mentioned, you know the, if you see the. 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 a very subdued demand even in the India subcontinent. Right. Which was fairly growing. But we’ve seen that completely change after November. Right. And so the, the legacy business is being is completely attributed to the demand slowdown from our customers. And this will come back, you know, as we go forward.
Unidentified Participant
Got it, sure. And secondly again continuing we had invested meaningfully in new products, new segments in the legacy business. So if you can provide some comments, how are those performing? Probably in terms of approvals and also the margin trend that you were expecting, is it continue? I mean a 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 were expected, as you had expected or there is scope further to improve on margins on those products? Also.
Rajesh Rathi
I think the, the products on the newly invested are performing very well. And however, alright, given the slow slowness in demand, we’ve not seen the volume but the, but we are still, you know, so that that part has worked. In fact we see a demand much better for that compared to the, 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.
Unidentified Participant
Right, got it. And so just to follow up on this, so the industry weakness that you’re seeing, focusing on the legacy business, the industry weakness that you’re seeing is not causing a price. I mean, 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. I mean, volume uptick. It is. It is what we. So it’s not a mix of volume and price. It’s purely volume as of now.
Rajesh Rathi
Yeah.
Unidentified Participant
And you don’t see it moving to price because the volumes are coming back?
Rajesh Rathi
Yes, absolutely.
Unidentified Participant
Sure. Okay, Perfect. Thank you so much.
Rajesh Rathi
Thank you.
operator
Thank you very much, ladies and gentlemen. We’ll take that as a last question. I’ll now hand the conference over to the management for closing comments.
Rajesh Rathi
Thank you.
Unidentified Speaker
Thank you. Nitesh and Anandra Research. Thanks a lot, participant for joining our investor call. As. As Mr. Rathi mentioned, this has been the 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.
operator
Thank you very much. On behalf of Sudarshan Chemical Industries Limited and Anurati Shares and Stock Brokers Limited. That concludes this conference. Thank you for joining us. And you may now disconnect your hands. Thank you.