Buy Sumitomo Chemical India; target of Rs 550: Sharekhan

Sharekhan is bullish on Sumitomo Chemical India has recommended buy rating on the stock with a target price of Rs 550 in its research report dated February 06, 2023.

Broker Research

February 10, 2023 / 17:17 IST

Sharekhan's research report on Sumitomo Chemical India

Q3FY23 results were weak as consolidated revenue missed the mark by 4% at Rs. 754 crore (up 7% y-o-y) and OPM of 16% was 228 bps below our estimate. Subdued revenue growth reflects decline in export revenue while miss in OPM was due to gross margin contraction. Operating profit/PAT of Rs. 120 crore/Rs. 90, down/up 5%/2% was 16%11% below our estimate. Domestic revenue grew by 21% y-o-y led by price hike offsetting muted volume while export revenue declined steeply by 29% y-o-y due to de-growth in key export region of LatAm given high channel inventories. Capacity expansions, new product registrations, five proprietary products for the parent to drive a recovery in export revenue growth while market share gain in domestic market would result in industry leading growth for SCIL. Focus on high-margin herbicides/PGR bodes well for margin improvement.

Outlook

A sharp correction of 20% in the stock price from 52-week highs provides good entry opportunity for investors as earnings growth outlook is intact (expect 21% PAT CAGR over FY22-25E) led by leveraging technological capabilities of the parent and a massive opportunity in the CRAMS space. We maintain a Buy on SCIL with a revised PT of Rs. 550. Any strict domestic/foreign regulation on usage of key products could affect growth and valuation.

For all recommendations report, click here