Stock To Buy: MNC Chemicals Stock Which Saw Exports Soar, Robust Performance

Markets have rallied a good bit from lows seen in June 2022. One has to really dig deep to find value stocks. Prabhudas Lilladher has a buy call on the stock of Sumitomo Chemicals India with a price target of Rs 510 on the stock.

Good quarterly numbers

Sumitomo reported strong revenue growth of 26% YoY at Rs9.8bn (PLe Rs9.7bn) primarily on the back of 16% and 94% YoY growth in domestic and exports business. "We believe superior price realization in glyphosate (contributing to 16-17% of the 1QFY23 consolidated revenues) has in-turn resulted to strong performance of domestic business. Additionally, the company has been able to pass on the inflated cost in both the domestic and exports market," Prabhudas Lilladher has said in a report.

Superior operating leverage give boost to margins

Sumitomo's gross margins declined 100bps YoY at 35.1% largely led by inflationary RM scenario and lower volume offtake during the quarter. Despite price hikes taken in the recent past to offset the inflated cost, however lower volume off-take particularly in glyphosate has in turn impacted the margins. We are of the view that superior price realizations in generics coupled with price hikes in the recent past has in turn helped to mitigate gross margin contraction.

Growth momentum to continue

According to Prabhudas Lilladher, the superior growth momentum for the company is likely to continue. "We believe that superior growth momentum is likely to continue primarily led by a) healthy demand and price realizations in domestic market; b) new specialized/ combination molecules launches in domestic market to support margins going forward; c) robust demand in the exports markets- particularly for generic molecules in LATAM markets; d) additional capex to service exports growth; received approval to supply 5 products in LATAM markets; capex of Rs1.2bn with revenue potential of Rs2-2.5bn over the next few years (Commercialization of 1st project in 1QFY23 and 2nd project in 1QFY24)," the brokerage has said.

New product launches on track

According to Prabhudas Lilladher, new product launches- well on track. The company has launched 3 new 9(3) products in the domestic market in 1QFY23. The Company launched 3 unique proprietary 9(3) products - Sumi Blue Diamond, Pyclome and Danitol NXT in the domestic market. Going forward, the management intends to launch 6-8 new products (Specialized molecules) in the domestic market over the next 12-18 months which in turn would support the revenues and margins going forward. ITI stood at 10-12% in FY22; while the management intends to take it higher going forward supported by robust pipeline of products in the domestic market.

Price target of Rs 510

"We expect Sumitomo to post revenue/ EBITDA/PAT CAGR of 17%/22%/23% over FY22- 24E (FY18-22 CAGR of 13%/29%/31%), respectively. Maintain 'BUY' with unchanged target price Rs 510 based on 40xFY24E EPS," Prabhudas Lilladher has said in its report.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher . 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 taking any investment decision.