Buy This Midcap Chemicals Stock, Shares Can Jump 16% In 12 Months, Says ICICI Direct

Leading brokerage firm ICICI Direct has recommended buying Sumitomo Chemical India Limited. (SCI) for a potential upside of up to 16% in 12 months from its current market price. The brokerage has given a buy rating to the stock with a target price of Rs 570 per share. Sumitomo Chemical is a mid-cap chemicals sector company. It has a market cap of Rs 24,657.80 crore.

Business Overview

Incorporated in 2000, Sumitomo Chemical India (SCI) is present in the three business verticals of agro solutions (ASD), environmental health (EHD) and animal nutrition business (AND). SCI provides solutions for insecticide, herbicide, fungicide, plant growth regulator (PGR) under agro segment. Under animal nutrition, it manufactures methionine for feed additive use. In terms of revenue contribution, insecticide constitutes ~51% while ~19% is from herbicide, 9% from fungicide and 20% from other segments like PGR, AND & EHD.

Stock Outlook & Returns

The current market price (CMP) of Sumitomo Chemical is Rs 493.80 per share on NSE. It is trading 0.71% down as compared to its previous close of Rs 497.35 per share.

The shares in the past 1 week have fallen 6.85%, whereas, in the past 1 month shares fell by 1.55%. In the past 3 months, the stock surged, giving a positive return of 9.07%. Over the past 1 year, it has given a 30.8% positive return. The stock got listed on the exchange in January 2020, and since its listing, it has given a multibagger return of 146.14%.

The stock recorded its 52 week high on 27 October 2022 at Rs 540.80 and the 52 week low on 29 November 2021 at Rs 344.25, respectively. Its dividend yield is 0.20% with a face value of Rs 10. Its ROE is 21.79%. it is a debt-free stock.

 

Q2FY23 Results

Topline numbers were slightly above our estimates led by strong growth from herbicide and insecticides while EBITDA and PAT were in line. Reported revenue was up 23.2% YoY to Rs 1121.7 crore, led by 103.4% YoY growth in herbicide along with 13.8% YoY growth in insecticides. Gross margins were down 110 bps YoY to 37.9% while EBITDA margin rose 120 bps YoY to 24.8%. EBITDA was up 30% YoY to Rs 278 crore while PAT increased 31% YoY to Rs 201.5 crore.

 

Buy with Rs 570 target price, says ICICI Direct

The stock appreciated at 20% CAGR in the last two years. "We retain BUY rating on the back of 1) Better growth outlook from outsourcing opportunity of SCC Japan, 2) management capability to tackle glyphosate situation and 3) increase in farmer's income and the company's ability to pass on the elevated cost," the brokerage said.

It added, "We value Sumitomo Chemicals at 45x FY24E EPS of Rs 38.7 to arrive at a target price of Rs 570/share (earlier Rs 565/share)."

Key triggers for future price performance

Upcoming capex for five molecules, which will be supplied to SCC Japan. Capex has been earmarked at Rs 120 crore with an asset turn of ~2-2.5x. Potential opportunity of technical manufacturing for Nufarm to improve export share meaningfully. Allocation of incremental FCF towards organic/inorganic growth likely to expand return ratios further

 

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.