Buy Sumitomo Chemicals; target of Rs 630: Anand Rathi

buy

Anand Rathi's research report on Sumitomo Chemicals

Below consensus and as we estimated, Sumitomo’s Q2 was weak; revenue/EBITDA/PAT fell 6/11/8% y/y. Key highlights: a) Domestic revenue down 4% y/y to Rs7.7bn; exports down 13% y/y to Rs1.6bn. b) Exports subdued due to Europe, Japan and LATAM revenues down 53/13/38% y/y. c) Asia/Africa revenues were Rs186m/279m, up 64/31% y/y. d) The GM expanded 60bps y/y to 43.1% on the stable pricing environment, offset by lower volumes. e) higher GMs were fully offset by inferior operating leverage (employee cost up 80bps y/y; opex up 110bps y/y) leading to the EBITDA margin contracting 140bps y/y to 23.4%. f) Specialty/generics contributed 30/70% (vs 31/69% a year ago. g) Sep'25 WC: seven days fewer y/y to 55 (vs 89 in Mar’25, 43 the prior quarter) on better receivables management, with sharper reduction in receivable days relative to the decrease in payable days. h) Cash collections during H1 26 were Rs22.8bn (Rs19.9bn last year).

Outlook

Factoring in the H1 FY26 results, we trim our FY26e/27e/28e EPS 9/9/10% respectively. We expect the company to clock 12/18% revenue/PAT CAGRs over FY25-28. We retain a Buy rating, with a revised TP of Rs 630 (earlier Rs690), 40x H1 FY28e EPS.

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Sumitomo Chemicals - 30102025 - anand