Prabhudas Lilladher has given Buy recommendation for Sumitomo Chemical India with a target price of Rs. 369 in its research report issued on Jun 01, 2021
Prabhudas Lilladher’s research report on Sumitomo Chemical India
The company reported better than expected set of results driven by higher than anticipated demand. Gross margins expansion was lower than expected, but operating leverage benefit drove 393bps (PLe237 bps) improvement in EBITDA margin to 13.4%. Lower effective tax rate @ 12% aided PAT growth. The management plans to invest Rs 1.0-1.1 bn between FY22-FY23 for manufacturing 5 proprietary technical grade AIs for SCC. The revenue potential from these molecules is Rs 2.0-2.5 bn p.a. however these products have growing global demand and potential to add further capacities in the medium term. Molecule-wise commercialisation should commence FY23 onwards. SUMICHEM also plans to buy 2 land parcels of 70 acres in total for its future expansion plans. We increase topline/EBITDA/PAT estimates by 3%/6%/5% for FY22E and by 3%/11%/10% for FY23E to factor in proprietary molecule commercialisation FY23 onwards.
We upgrade the stock of SUMICHEM to ‘BUY’ from Accumulate with revised target price of Rs 369 (Previous 336) based on 38x FY23E EPS of Rs 9.7.