Buy Sumitomo Chemical India; target of Rs 590: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sumitomo Chemical India

We trim our EPS estimates for FY23/24/25E by 3%/6%/4% respectively, citing challenging environment in domestic market due to higher channel inventory and pricing pressure. Sumitomo chemicals India (SUMICHEM) reported revenue/EBITDA/PAT growth of +7%/-5%/-8% YoY lower than our and consensus estimates in 3QFY23 largely led by sluggishness in domestic market (up 4% YoY), while exports continued to post double digit growth (up 13% YoY). High cost inventory coupled with higher sales return exerted pressure on margins. Going forward, management remained cautious on the domestic market citing higher inventory exerting pressure on revenue growth as well on margins (likely to take couple of quarters to normalize). Exports segment, on the other hand, will likely sustain its double digit growth momentum (9MFY23 up 38% YoY), led by commercialization of new products (from 1QFY24).

Outlook

We expect SUMICHEM to post Revenue/ EBITDA/PAT CAGR of 15%/18%/20% over FY22-25E (FY18-22 CAGR of 13%/29%/30%). Maintain ‘BUY’ with revised TP of Rs590 (Rs610 earlier) based on 40XFY25E EPS.

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