Q3FY21 Result Update - Sumitomo Chemicals - ICICI Direct

Sumitomo Chemical reported topline growth of 7.2% YoY to Rs. 561 crore largely led by herbicide (+21% YoY), PGR (+57% YoY), animal nutrition & environmental health segments (+41% YoY). On the other hand, revenue from insecticide (-4.3% YoY, ~39% of revenue) and metal phosphides (-4% YoY, ~10% of revenue) stayed subdued, denting the topline performance to that extent. OPM for the quarter expanded 514 bps YoY to 13.9% owing to improvement in gross margins due to a change in the product mix, leading to EBITDA growth of 70% YoY to Rs. 78 crore. OPM from agrochemical business expanded 565 bps YoY to 14.5% while the same from other segments was up 277 bps YoY to 7.9%. PAT was at Rs. 54.1 crore (+2274% YoY) against our estimate of Rs. 58.7 crore. The bottomline growth was led by a better operational performance and lower tax outgo (24% vs. 94%).

Valuation & Outlook

We believe the strategy of the company would improve margins through changes in the product mix. The speciality business revenue share increased to 34% for 9MFY21 vs. 31% in 9MFY20. This led an improvement in the OPM (up 497 bps YoY to 18.8%) for 9MFY21. This was partly due to a favourable pricing scenario along with higher share of speciality business. Going ahead, we expect increasing share towards CRAMS, PGR, AND & EHD would aid this mix further and thereby group operational performance. This should support group return ratios, FCF and thereby valuations. We introduce FY23E and roll over our valuations on that. We value the company at 40x PER FY23E and arrive at a target price of Rs. 360 (vs. Rs. 335 earlier). We maintain our BUY recommendation on the stock.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_SumitomoChemicals_Q3FY21.pdf

Source : Equity Bulls

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