Sumitomo Chemical India Shares Jump To A Record As Analysts Stay Bullish After Q4

A worker sprays weed killer on plants in Dewas, Madhya Pradesh, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

Sumitomo Chemical India Shares Jump To A Record As Analysts Stay Bullish After Q4

Shares of Sumitomo Chemical India Ltd. jumped to a record high as analysts either upgraded ratings or raised price targets after the fourth-quarter earnings.

The stock jumped as much as 17% on Wednesday to trade at an all-time high of Rs 373.25 apiece, making it the best performer among agrochemical firms. It, however, pared some of its gains and ended the day's trading at Rs 365 apiece, up 14.26%.

Shares of the Mumbai-based company that went public in January last year have jumped 26% year-to-date.

Q4 Highlights (YoY)

  • Revenue up 20% at Rs 534 crore.

  • Ebitda jumped nearly 70% to Rs 71 crore.

  • Net profit rose 136% to Rs 54 crore

Of the 10 analysts tracking Sumitomo Chemical, eight have a ‘buy’ rating and two suggest a ‘hold’, according to Bloomberg data.

Here's what analysts had to say about Sumitomo Chemical India's Q4 results:

Prabhudas Lilladher

  • Upgraded the company to a 'buy' from 'accumulate'; raised the 12-month target price to Rs 369--around the current levels.

  • The company reported better-than-expected results, driven by higher-than-anticipated demand.

  • Gross margin expansion was lower than expected but operating leverage benefit drove 393 basis-point improvement in Ebitda margin to 13.4%

  • It is targeting molecule-wise commercialisation from five products in the next two years and the revenue potential is between Rs 200-250 crore per annum. These products have growing global demand.

  • Global specialty proprietary products to be brought to India, with a target of two-three launches every year.

  • Increased top line, Ebitda, and net profit estimates by 3%, 6% and 5%, respectively, for FY22.

Also read: Sumitomo Chemical Q4 Review - On The Cusp Of New Growth Cycle: Prabhudas Lilladher

Nirmal Bang

  • Upgraded the stock from 'accumulate' to a 'buy' with a target price of Rs 405, implying an upside of 27.4%.

  • Increased FY22/FY23 earnings per share estimates by 10.5% and 16.1%, respectively, driven by new revenue from the expansion of Tebuconazole fungicide and the new order win worth at least Rs 200 crore from Japanese parent Sumitomo Chemical Co. for five proprietary molecules.

  • The company plans to add four to five new formulations in FY22 and aims to focus on plant growth regulators/herbicides that offer higher growth and margins than other products and are in demand throughout the year

  • The management said the company is free to develop its growth strategy and aims to invest its free cash in acquisitions, apart from registration of new products and organic growth capex of Rs 75 crore per annum.

ICICI Securities

  • Maintained 'add' rating on the stock with a revised target price of Rs 350. The stock has surpassed this level.

  • It has focussed on improving product and segment mix in FY21.

  • The company is continuously focusing on reducing its working capital, which declined to 98 days in FY21 from 112 in FY20.

  • On track to gain market share in FY21-23 from smaller players. Synergy benefits will help to further gain market shares.

  • The company also plans to supply five products to its parent and global affiliates, generating revenues of Rs 200-250 crore with similar margins.

  • Outsourcing of products to global group companies offers a huge value creation opportunity to Sumitomo India in the medium to long term.

  • It will also benefit from its parent’s R&D support and distribution expansion in India.

Antique Stock Broking

  • Maintains ‘buy’ rating with a revised target price of Rs 350 from Rs 340 earlier. The stock has surpassed this level.

  • The company is likely to take a big leap on the back of comprehensive distribution network, branded portfolio and rising share of exports to the overall revenues.

  • Its innovative product launches and parent Sumitomo Chemical Company’s R&D capabilities effectively anchor it to outpace the Indian agrochemical markets.

ShareKhan (BNP Paribas)

  • Maintain ‘buy’ rating with a revised price target of Rs 370 apiece.

  • Reported robust revenue growth was significantly above the brokerage's estimate of Rs 474 crore.

  • Management indicated that the recent sharp improvement in margin is expected to sustain and the endeavor is to further expand margins with ramp-up of existing/new capacities.

  • Massive revenue opportunity from contract manufacturing for the parent, strong balance sheet (Rs 532 crore of cash and cash equivalents), and asset-light business model are likely to keep valuation at a premium to domestic peers.

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