Purchase Sumitomo Chemical India with a 450 rupee goal: Satyendra Lilladher

 Purchase Sumitomo Chemical India with a 450 rupee goal: Satyendra Lilladher

In a research note dated October 31, 2023, Prabhudas Lilladher, who is optimistic on Sumitomo Chemical India, advised a buy rating on the company with a target price of Rs 450.

The study report on Sumitomo Chemical India by Prabhudas Lilladher

We reduce our projections for FY24, FY25, and FY26E EPS by 17%, 16%, and 20%, respectively, noting difficult conditions in the local and export markets due to increased channel inventories and price pressures. With revenue/EBITDA/PAT down by 20%, 32%, and 29% year over year, Sumitomo Chemicals India (SUMICHEM) posted results that were below forecast. This was primarily due to a weak demand environment in both the local and export sectors, where sales were down 10% and 62% YoY, respectively. With high-cost inventory provisioning mostly in the rear, GM's increased 50bps YoY to 38.4% from 37.9% in Q2FY23. Nevertheless, during Q2FY24, the EBITDA margin contracted by 400bps YoY to 20.8% due to higher personnel costs as well as higher other expenditures, which increased by 170bps and 280bps YoY to 6.5% and 11.1%, respectively.

Prospects

Moving ahead, the management continued to exercise caution in the export market due to the greater channel inventory, which was putting pressure on both revenue growth and margins (which would probably take a few quarters to recover). Over FY24–26E (FY18–23 CAGR of 13%/25%/28%), we anticipate Revenue/EBITDA/PAT CAGRs of 12%/16%/15%. Remain "BUY" with an updated TP of Rs. 450 (formerly Rs. 500) based on 40XFY26E EPS.