Buy Sumitomo Chemical India; target of Rs 500: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sumitomo Chemical India

We trim our FY24/25E EPS estimates by 12%/9%, citing challenging environment both in domestic and exports markets in terms of higher channel inventory and pricing pressures. Sumitomo Chemicals India (SUMICHEM) reported lower than estimated results with Revenue/EBITDA/PAT decline of 27%/57%/55% YoY (PLe decline of 1%/13%/16% YoY) largely led by subdued demand environment in both domestic and export markets (down 21% and 49% YoY respectively). Provisions on high cost inventory coupled with sheer pressure on realizations in key molecules and lower absorption of fixed cost exerted pressure on margins (Gross margins and EBITDA margins down 400bps/790bps YoY respectively). Going forward, management remains cautious on the exports market citing higher channel inventory exerting pressure on revenue growth as well on margins (likely to take couple of quarters to normalize).

Outlook

However, pick-up in monsoon activities over last fortnight has in-turn improved ground sentiments in the domestic market. We expect Revenue/EBITDA/PAT CAGR of 9%/12%/11% over FY23-25E (FY18-23 CAGR of 13%/25%/28%). Maintain ‘BUY’ with revised TP of Rs500 (Rs550 earlier) based on 40XFY25E EPS.