Buy Sumitomo Chemical India; target of Rs 550: Sharekhan

Sharekhan's research report on Sumitomo Chemical India

Company reported a revenue of Rs. 674 crore (up 3.5% y-o-y and 24.4% q-o-q), in line with expectations. Operating margin at 20.8% (up 840 bps y-o-y) was far ahead than expectations of 16.2%. The margin beat was led by high gross margins as the company had liquidated all the high cost inventory by Q2. PAT of Rs. 110 crore was up 52% y-o-y. This year’s domestic performance was affected by below normal monsoons and low reservoir levels. Export sales were impacted due to the low demand, pricing pressure and inventory de-stocking.Management expects domestic demand to start normalizing in the coming year, which would improve product realization and support domestic sales. Overall, company expects volume growth of 12-15% in FY25.

Outlook

Improvement in the domestic demand on the back of normal monsoon forecast, ramp-up of already completed capex and increase in margins bodes well for the ompany. We have increased both our FY25/26 earnings estimates by 17%. Hence, we revise our rating to Buy from Hold on SCIL with a PT of Rs. 550.