Buy Sumitomo Chemicals; target of Rs 690: Anand Rathi

Anand Rathi's research report on Sumitomo Chemicals

Ahead of consensus & our estimates, Sumitomo’s Q1 was robust; revenue/ EBITDA/PAT grew 26/36/41% y/y. Key highlights: a) Domestic revenue up 29% y/y; exports 9% y/y. b) Exports subdued due to Europe, Africa, Asia, LATAM revenue down 37/6/16/37% y/y. c) Japan/NAFTA revenues were Rs317m/106m (nil a year back. d) The GM contracted 80bps y/y to 38.1% on pricing pressure in exports. e) The lower GM was fully absorbed by better operating leverage (employee cost down 110bps y/y; opex down 130bps y/y) leading to the EBITDA margin expanding 150bps y/y to 20.7%. f) Specialty/generics contributed 25%/75% (vs 24%/76% a year ago. g) Jun'25 WC:17 days fewer y/y to 43 (vs 60 a year ago, 89 the prior quarter) on 14 inventory days fewer y/y to 90. h) Cash collections were Rs13.3bn (Rs10.3bn last year).

Outlook

Factoring in Q1 FY26 results, we raise our FY26e/27e EPS 2/3%. We expect the company to clock 17/23% revenue/PAT CAGRs over FY25-28. We introduce FY28e and roll forward valuations to H1 FY28. We retain a Buy rating, with a higher TP of Rs690 (earlier Rs620), 40x H1 FY28e EPS.

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Sumitomo Chemicals - 06082025 - anand