Sumitomo Chemicals - Result Update - ICICI Securities

Sumitomo Chemical reported revenue growth of 5.7% YoY to Rs. 445.8 crore, led by 5.7% YoY growth from agrochemical segment and 5.8% YoY growth from non agrochemical segment. Better gross margins due to fall in RMAT cost led to OPM expansion by 270 bps YoY to 9.4% resulting in EBITDA growth of 49% YoY to Rs. 42 crore. Adjusting exceptional Item of integration cost, PAT was at Rs. 24.1 crore against Rs. 1.6 crore in Q4FY19. The robust bottomline growth during the quarter was aided by lower taxes along with higher other income and better operational performance.

Valuation & Outlook

We expect animal nutrition business along with CRAMS opportunity to change business mix in the medium to long term. This, in turn, could translate into improvement in the operational performance. Further, ECC's expertise into active manufacturing, should likely benefit SCI given that later largely depends on imports of key molecules. Thus, reduction in import and likely improvement in captive consumption should aid gross margins and thereby OPM. Given no major capex is lined up in the coming future, the company should likely generate decent FCF in the years to come. We value the company at 45x PER FY22E and arrive a target price of Rs. 315/share, with potential upside of 18%. We have a BUY rating on the stock.

For details, click on the link below https://www.icicidirect.com/mailimages/IDirect_SumitomoChem_Q4FY20.pdf

Source : Equity Bulls

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