Prabhudas Lilladher's research report on Sumitomo Chemical India
Sumitomo Chemical India (Sumitomo) reported robust set of numbers with revenue/EBITDA/PAT growth of 23%/30%/30% YoY during 2QFY23. Results were ahead of our and consensus estimate. Key highlights are: (a) Domestic and export revenue up +17% and +56% YoY in 1HFY23 respectively; (b) Specialty/generic contributed 30%/70%; (c) despite price hikes taken in the recent past to fully offset the inflated cost, however lower volume off-take particularly in glyphosate (volumes down ~40% YoY in 1HFY23) has in turn impacted the margins;(d) better operating leverage resulted into EBITDA margin expansion of 120bps YoY to 24.8% ;(e) WC up 22days YoY to 94 days led by higher inventory; (f) cash stood at Rs8.0bn in September’22; (g) Management hinted for Rs2.5bn capex in FY24; to provide better earnings visibility going forward We believe, Sumitomo will likely take a big leap given its (a) Comprehensive distribution network; (b) branded portfolio; (c) rising share of exports to overall revenues; (d) innovative product launches and (e) Parent's R&D capabilities that effectively anchor Sumitomo to outpace Indian agrochemical markets. Factoring in better 1HFY23 performance, we increase our FY23/24E estimates by 5%/3% respectively.
Outlook
We expect Sumitomo to post revenue/ EBITDA/PAT CAGR of 18%/21%/22% over FY22-25E (FY18-22 CAGR of 13%/29%/31%), respectively. We introduce and roll forward our valuations to FY25E. Maintain ‘BUY’ with revised TP of Rs610 (Rs510 earlier) based on 40xFY25E EPS.
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