Buy Sumitomo Chemical India; target of Rs 510: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sumitomo Chemical India

Sumitomo Chemical India (Sumitomo) reported robust set of numbers with revenue/EBITDA/PAT growth of 26%/25%/30% YoY during 1QFY23. Results were broadly in line with our and consensus estimate. Key highlights are: (a) Domestic and export revenue up +16% and +94% YoY in 1QFY23 respectively; (b) Specialty/generic contributed 25%/75%; (c) higher RM cost coupled with inability to fully pass on the entire inflated cost resulted into gross margins contraction by 100 bps YoY;(d) better operating leverage restricted EBITDA margin contraction by 20bps YoY to 19% ;(e) WC down 7days YoY to 96 days despite higher inventory built up; (f) launched 3 9(3) molecules in 1QFY23; (g) cash stood at Rs6.4bn in June’22. 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.

Outlook

We broadly maintain our FY23/24E estimates. We expect Sumitomo to post revenue/ EBITDA/PAT CAGR of 17%/22%/23% over FY22- 24E (FY18- 22 CAGR of 13%/29%/31%), respectively. Maintain ‘BUY’ with unchanged TP of Rs510 based on 40xFY24E EPS.

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