Sharekhan's research report on Sumitomo Chemical India
Q1 numbers were weak with a 25%/392 bps/43% miss in consolidated revenues to Rs. 724 crore/11%/Rs. 62 crore, down 27%/789 bps/55% y-o-y due to the pressure on domestic/export business amid challenging environment of higher channel inventory and pricing pressure for key products like Glyphosate. Domestic revenues fell by 21% y-o-y to Rs. 623 crore due to delayed monsoons, high channel inventories, and deferred purchasing decisions by trade partners. Export revenues fell 49% y-o-y to Rs. 101 crore given a decline from Africa/ Europe /South America; but the share of Japan revenue in exports was up sharply to 14% (vs. 5% in Q1FY23). High channel inventory remains a concern on demand for agri-inputs and pressure on glyphosate prices (as cited by global agrochem players) makes near-term earnings uncertain. We thus sharply cut our FY24/FY25 earnings estimate by 26%/13%.
Outlook
We downgrade SCIL to Hold (from Buy) with a revised PT of Rs. 430 given near-term earnings concern due to challenging demand environment and high valuation of 33x FY25E EPS limits upside from CMP.
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