Sumitomo Chemical - Nirmal Bang Upgrades To A Buy On Revival In Crop Protection Chemicals

Nirmal Bang Report

We are raising Sumitomo Chemicals India Ltd. to Buy from Accumulate, based on revised estimates and target price. This is based on likely revival in Sumitomo Chemicals’ fortunes by FY26E. This could offset the pressure on margins in FY25E, much as we expect YoY growth in revenue/margins and earnings from a beaten down FY24E base.

We have raised FY26E by 2.8% based on improved revenue growth/margins, after cutting FY25E by 6.3%. The FY24E-FY26E earnings per share compound annual growth rate looks healthy at 41.8%, albeit after a 32% decline in FY24E.

We have raised our target price for Sumitomo Chemicals by 13.4% to Rs 440 on estimates rolled over to FY26E based on 32 times price-to-earning, versus old PE of 31 times. Our new PE is at a discount of 5% to Sumitomo Chemicals’ SD-1 PE.

We expect Sumitomo Chemicals to be a key beneficiary from the likely revival in the prospects for Indian CPC sector’s revenue growth. This above revival is based on expectations of a healthy monsoon/Kharif crop predicated on the more benign LA Nina replacing El Nino in H1 FY25.

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