Sharekhan's research report on Sumitomo Chemical India
Q2FY23 PAT of Rs. 201 crore (up 31% y-o-y) was 11% above our estimate led by superior revenue growth of 23%, a 157-bps margin beat and higher other income. Strong revenue growth was driven by volume growth (except for glyphosate) and price hikes. Domestic/export revenue saw a 21%/34% y-o-y to Rs. 918 crore/Rs. 203 crore. Although, LatAm revenue growth slowed to 8% y-o-y but has received two registrations for formulation products in Brazil which would support exports in FY24. Management addressed concerns on government notification on Glyphosate use through PCO and indicated some impact but the company has time to build infrastructure as domestic Glyphosate sales is in Kharif season, while H2 is period of exports.
Outlook
We maintain a Buy on SCIL with a revised PT of Rs. 570, given superior earnings growth outlook (expect 22% PAT CAGR over FY22-25E) by leveraging technological capabilities of the parent and a massive opportunity in the CRAMS space. We expect SCIL to enjoy a premium valuation over domestic peers. Any strict domestic/foreign regulation on usage of key products could impact growth and valuation.
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