Sumitomo Chemical reported revenue growth of 3.6% YoY to Rs. 647.7 crore, largely impacted by lockdown leading to a fall in production volumes and thereby sales.
The agrochemical segment posted growth of 5.2% YoY to Rs. 615.3 crore while non-agrochemical segment fell 20% YoY to Rs. 32.4 crore. Better gross margins (+224bps YoY) due to a change in product mix and hike in few crop protection chemical prices along with lower other cost resulted into OPM expansion by 477 bps YoY to 18.3% leading to EBITDA growth of 40% YoY to Rs. 119 crore. PAT remained at Rs. 79.4 crore (+47% YoY), aided by higher other income and a better operational performance.
Valuation & Outlook:
We expect the company to end up with liquid cash & investments of Rs. 400 crore by FY22E. This could help them to use proceeds either for organic (backward integration) or inorganic (value added products), leading to further expansion of return ratios. We value the company at 45x PER FY22E and arrive a target price of Rs. 335/share, potential upside of 18%. We maintain BUY rating on the stock. (Share Manthan, 7th August 2020)
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