Valuation Report SEBI ICDR Regulations 2018 Preferential Issue

SUDARSHAN CHEMICAL INDUSTRIES

LIMITED

VALUATION REPORT

VALUATION DATE: 5TH DECEMBER 2024

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Glossary of terms:

BPS - Basis Points

CAGR - Compounded Average Growth Rate

Capex - Capital Expenditure

CAPM - Capital Asset Pricing Model

DCF - Discount Cash Flow model

EBITDA - Earnings before Interest, Taxes, Depreciation and Amortization EV - Enterprise Value

FCFF - Free Cash Flows to Firms

FY - Financial year 1st April 20XX - 31st March 20XX

INR - Indian Rupee

PBT - Profit before tax

PAT - Profit after tax

PE Ratio - Price to Earnings Ratio

Projection period - 5th December 2024 - 31st March 2030 WACC - Weighted Average Cost of Capital

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VALUATION ANALYSIS

We refer to our Engagement Letter dated 9th December 2024 confirming our appointment as independent valuers of Sudarshan Chemical Industries Limited, CIN: L24119PN1951PLC008409 (the "Company"). In the following paragraphs, we have summarized our Valuation Analysis (the 'Analysis") of the business of the Company as informed by the management and detailed herein, together with the description of the methodologies used and limitations on our scope of work.

1. CONTEXT AND PURPOSE
   Based on discussion with the management, we understand that the company is in the process of undertaking preferential issue of equity shares and in this context, the Management requires our assistance in determining the fair market value of equity shares of the company for complying with the provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 ("SEBI (ICDR) Regulations, 2018").
2. CONDITION AND MAJOR ASSUMPTIONS Conditions
   The financial information about the company present in this report is included solely for the purpose to arrive at value conclusion presented in this report, and it should not be used by anyone to obtain credit or for any other unintended purpose. Because of the limited purpose as mentioned in the report, it may be incomplete and may contain departures from generally accepted accounting principles prevailing in the country. We have not audited, reviewed, or compiled the Financial Statement and express no assurance on them. The financial information about the company presented in this report includes normalization adjustment made solely for the purpose to arrive at value presented in this report. Normalization adjustments as reported are hypothetical in nature and are not intended to present restated historical financial results of forecasts of the future.
   Readers of this report should be aware that a business valuation is based on future earnings potential that may or may not be materialized. Any financial projections e.g. projected balance sheet, projected profit and loss account, projected cash flow statement as presented in this report are included solely to assist in the development of value conclusion. The actual

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results may vary from the projection given, and the variations may be material, which may change the overall value.

It should be understood that the values at which investments are made/ price paid in a transaction may differ from the values computed in this report due to factors such as the objectives of the parties, negotiation skills of the parties, the structure of the transaction (i.e. financial structure, transition of control, etc.) or other factors unique to the transaction.

This report is only to be used in its entirety, and for the purpose stated in the report. No third parties should rely on the information of data contained in this report without the advice of their lawyer, attorney or accountant.

We acknowledge that we have no present or contemplated financial interest in the company. Our fees for this valuation are based upon our normal billing rates, and not contingent upon the results or the value of the business or in any other manner. We have no responsibility to modify this report for events and circumstances occurring subsequent to the date of this report.

We have, however, used conceptually sound generally accepted methods, principles and procedures of valuation in determining the value estimate included in this report. The valuation analyst, by reason of performing this valuation and preparing this report, is not to be required to give expert testimony nor to be in attendance in court or at any government hearing with reference to the matters contained herein, prior arrangements have made with the analyst regarding such additional engagement.

Assumptions

The opinion of value given in this report is based on information provided in part by the management of the company and other sources as listed in the report. This information is assumed to be accurate and complete.

The management has shared the audited financial statements for the FY 2021-22, 2022-23 and 2023-24 as well as tentative financials of the company from 1st April 2024 till the Valuation date. The management of the Company has also shared the business plan along with the revenue and cost projections for next five years. The revenue plan and the logic behind the projections has been explained to us by the management of the Company. We believe that the Company has taken sufficient data points to project its revenue and costs for next five years.

The Company has entered into definitive agreements for acquisition of Global Pigment Business of Heubach Group on 11th October 2024. The closing of this Agreement is subject to regulatory approvals and hence the projected financials of the Global Pigment Business of Heubach Group have not been considered while preparing this Valuation Report.

We have relied upon the representations contained in the public and other documents in our possession concerning the value and useful condition of all investment in securities, and any other assets or liabilities except as specifically stated to the contrary in this report.

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We have not attempted to confirm whether or not all assets of the business are free and clear of liens and encumbrances, or that the owner has good title to all the assets.

This report presumes that the management of the company will maintain the character and integrity of the company through any sale, reorganization or reduction of any owner's/manager's participation in the existing activities of the company.

We have been informed by the management that there are no environmental or toxic contamination problems, any significant lawsuits, or any other undisclosed contingent liabilities which may potentially affect the business, except as may be disclosed elsewhere in this report. We have assumed that no costs or expenses will be incurred in connection with such liabilities, except as explicitly mentioned in this report.

1. BACKGROUND OF THE COMPANY
   The Company is engaged in manufacture and sale of high-end pigments with a diverse range of products ranging from organic, inorganic and effect pigments to performance colorants, pearlescent pigments and speciality chemicals. The company is incorporated in India under Companies Act 1913 with CIN: L24119PN1951PLC008409.
   The equity shares of the Company are listed on BSE Limited (BSE: 506655) and National
   Stock Exchange of India Limited (NSE: SUDARSCHEM). The unsecured non-convertible
   debentures of the Company are listed on BSE Limited (BSE: 974058). The Company's shares are frequently traded in accordance with Regulation 164(5) of the SEBI (lCDR) Regulation, 2018.
   The Company's registered office is located at 7th Floor, Eleven West Panchshil, Survey no 25, Near PAN Card Club road, Baner, Pune. Maharashtra, India - 411 069.
2. TERMS OF ISSUES OF EQUITY SHARES
   The Company shall issue and allot in aggregate, up to 18,69,020 (Eighteen Lakhs Sixty-Nine Thousand and Twenty) fully paid up equity shares of the Company of face value of Rs. 2/- each ("Equity Shares") at a price of Rs. 1,043.33 (Rupees One Thousand Forty-Three and Thirty-Three Paise only) each including premium of Rs. 1,041.33 (Rupees One Thousand Forty-One and Thirty-Three Paise only) per equity share, payable in cash.
   Terms and conditions of the issue:
3. 1. The allotment of Equity Shares shall only be made in dematerialized form;
   2. Each of the proposed allottees shall be required to bring in 100% of the consideration for the relevant equity shares on or before the date of allotment hereof;
   3. The equity shares so offered and issued to the proposed allottees, are being issued for a cash consideration. The consideration for allotment of the relevant equity shares shall be paid to the Company from the respective bank accounts of the proposed allottees;

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1. 1. The equity shares so offered, issued and allotted shall not exceed the number of equity shares as approved hereinabove;
   2. The equity shares to be issued and allotted shall be fully paid up and shall rank pari passu with the existing equity shares of the Company in all respects from the date of allotment thereof and shall be subject to the Memorandum of Association and Articles of Association of the Company;
   3. The equity shares to be issued and allotted shall be subject to lock-in for such period as specified in the provisions of Chapter V of the SEBI ICDR Regulations;
   4. The equity shares shall be issued and allotted by the Company to the proposed allottees within a period of 15 (fifteen) days from the date of this special resolution approving the preferential allotment or such other extended period as may be permitted in accordance with the SEBI ICDR Regulations. Where the allotment of the Equity Shares is pending on account of pendency of any approval for the Preferential Allotment / for such allotment by any regulatory / statutory authority (including but not limited to the in-principle approval of the stock exchanges for the issuance of the equity shares to proposed allottees on a preferential basis), the allotment shall be completed within a period of 15 (fifteen) days from the date of such approval;
   5. The equity shares so offered, issued and allotted will be listed on the BSE and NSE, subject to the receipt of necessary regulatory permissions and approvals as the case may be.
   6. Without prejudice to the generality of the above, the preferential allotment of the equity shares shall be subject to the terms and conditions as contained in the Explanatory Statement under Section 102 of the Act and Chapter V of the SEBI ICDR Regulations annexed hereto, which shall be deemed to form part hereof.
2. VALUATION DATE
   The Analysis of the Fair value of the equity of the company has been carried out as on 5th
   December 2024.
3. VALUATION STANDARDS
   The Report has been prepared in compliance with the International Valuation Standards issued by International Valuation Standards Council (IVSC) and Indian Valuation Standards issued by the Institute of Chartered Accountants of India (ICAI).
4. BASIS OF VALUATION
   The guidance for the pricing of the equity shares of a company for the purpose of preferential allotment is provided under the SEBI (ICDR) Regulations, 2018, as follows:

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164. (1) If the equity shares of the issuer have been listed on a recognised stock exchange for a period of 90 trading days or more as on the relevant date, the price of the equity shares to be allotted pursuant to the preferential issue shall be not less than higher of the following:

1. the 90 trading days' volume weighted average price of the related equity shares quoted on the recognised stock exchange preceding the relevant date; or
2. the 10 trading days' volume weighted average prices of the related equity shares quoted on a recognised stock exchange preceding the relevant date.

Provided that if the Articles of Association of the issuer provide for a method of determination which results in a floor price higher than that determined under these regulations, then the same shall be considered as the floor price for equity shares to be allotted pursuant to the preferential issue.

166A. (1) Any preferential issue, which may result in a change in control or allotment of more than five per cent. of the post issue fully diluted share capital of the issuer, to an allottee or to allottees acting in concert, shall require a valuation report from an independent registered valuer and consider the same for determining the price:

Provided that the floor price, in such cases, shall be higher of the floor price determined under sub-regulation (1), (2) or (4) of regulation 164, as the case may be, or the price determined under the valuation report from the independent registered valuer or the price determined in accordance with the provisions of the Articles of Association of the issuer, if applicable:

Clause 12 - 'Further Issue of Shares' in the Articles of Association of the Company states -

Where at any time it is proposed to increase the subscribed capital of the Company by allotment of further shares, either out of unissued capital or out of increased share capital, then such further shares shall be offered:

1. ….(Not applicable)….
2. ….(Not applicable)….
3. To any persons, if it is authorized by a special resolution, whether or not those persons include the persons referred to in clause (i) or clause (ii), either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of the registered valuer, subject to such conditions as may be prescribed.

In light of above SEBI (ICDR) Regulations 2018, the floor price shall be not less than higher of the following -

1. the 90 trading days' volume weighted average price of the related equity shares quoted on the recognized stock exchange preceding the relevant date; or
2. the 10 trading days' volume weighted average prices of the related equity shares quoted on a recognised stock exchange preceding the relevant date.
3. Fair value determined by a Registered Valuer.

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8. VALUATION METHODOLOGY AND APPROACH

The standard of value used in the Analysis is "Fair Value", which is often defined as the price in terms of cash or equivalent, that a buyer could reasonably be expected to pay, and a seller could reasonably be expected to accept, if the business were exposed for sale in the open market for a reasonable period of time, with both buyer and seller being in possession of the pertinent fact and neither being under any compulsion to act.

Valuation of a business is not an exact science and ultimately depends upon what is worth to a serious investor or buyer who may be prepared to pay substantial goodwill. This exercise may be carried out using various methodologies, the relative emphasis of each often varying with:

• Whether the entity is listed on a stock exchange
• Industry to which the company belongs
• Past track of the business and the ease with which the growth rate in cash flows to perpetuity can be estimated
• Extent to which industry and comparable company information is available.

The results of this exercise could vary significantly depending upon the basis used, the specific circumstances and professional judgment of the value. In respect of going concerns, certain valuation techniques have evolved over time and are commonly in vogue. These can be broadly categorized as follows:

A. Asset Approach

Net asset value Method ('NAV')

The value arrived at under this approach is based on the audited financial statement of the business and may be defined as Shareholders' Funds or Net Assets owned by the business. The balance sheet values are adjusted for any contingent liabilities that are likely to materialize.

The Net Asset value is generally used as the minimum break value for the transaction, since this methodology ignores the future returns the assets can produce and is calculated using historical accounting data that does not reflect how much the business is worth as going concern.

The company plans to continue its business in the future and the current NAV would not be reflective of its growth potential going forward. However, the Company owns substantial land and building and plant & machinery on its books and hence we have allocated only 10% weightage to this valuation method.

Fair value of the equity shares of the Company using the above method comes to Rs 1,223.24 crores as on the valuation date.

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B. Market Approach:

Market Price Method

Under this method the trade price from active market is to be considered for valuation. As per ICAI Valuation standard - 103, the market where the trading volume of the Company's shares is the highest when such shares are traded in more than one active market is to be considered for valuation.

A valuer shall use average price of the asset over a reasonable period. The valuer should consider using weighted average or volume weighted average to reduce the impact of volatility or any one-time event in the asset.

The equity shares of the Company are listed on BSE as well as NSE. We have considered period of 10 days prior to the valuation date for determining the volume weighted average market price. Since the number of shares traded on NSE during the 10 day period is more than the number of shares traded on BSE, we have considered the 10 day volume weighted average market price on NSE as the fair value (Refer Annexure 1).

As the Company's equity shares are listed in the market and are frequently traded, thereby ensuring availability of observable traded price amongst willing buyers and willing seller in the principal market (in this case NSE), we have used this method of valuation and allocated 70% weightage to it.

Comparable Company Market Multiple Method

Under this methodology, market multiples of comparable listed companies are computed and applied to the business being valued in order to arrive at a multiple based valuation. The multiples approach is a valuation theory based on the idea that similar assets sell at similar prices. The difficulty here is in the selection of a comparable company since it is rare to find two or more companies with the same product portfolio, size, capital structure, business strategy, profitable and accounting practices.

Whereas no publicly traded company provides an identical match to the operations of a given company, important information can be drawn from the way comparable enterprises are valued by public markets.

We have not used this methodology in the Analysis as we understand that there are no comparable listed companies in the sector and of the size to which the company belongs. The Management of the Company has identified the following companies as comparable, however due to size issue we have not used them for valuation analysis.

1. Heubach Colorants India Limited
2. Meghmani Organics Limited
3. Pidilite Industries Limited

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