Sumitomo Chemical India Ltd

Pesticides & Agrochemicals

Sumitomo Chemical India Ltd

Pesticides & Agrochemicals

Stocks on The Move

CMP
Rs. 321.80
Rating:
Buy
Target
Rs. 390.00
May 27, 2021

Stock Info

BSE
542920
NSE
SUMICHEM
Bloomberg
SUMICHEM:IN
Reuters
SUMH.NS
Sector
Pesticides & Agrochemicals
Face Value (Rs)
10
Equity Capital (Rs cr)
499
Mkt Cap (Rs cr)
15905.28
52w H/L (Rs)
338.50 - 237.20
Avg Daily Vol (BSE+NSE)
504,875

Shareholding Pattern

(as on 31-Mar)
%
Promoter
75
FIIs
1.12
DIIs
6.29
Public & Others
17.59
Source: Ace equity, StockAxis Research

Price performance

Return (%)
1m
3m
12m
Absolute
4.17
6.41
29.72
Sensex
4.44
2.54
61.73
Source: Ace equity, StockAxis Research

Indexed Stock Performance

Sumitomo Chemical India Ltd Sensex
Sumitomo Chemical India Ltd
Source: Ace equity, StockAxis Research

Solid Chemistry and Strong Parentage

Company Profile
Sumitomo Chemical India Limited (SCIL) is a leading agrochemicals player in India, primarily engaged in manufacture and sale of speciality and generic products under Agrosolutions Division (ASD), Environmental Health Division (EHD) and Animal Nutrition Division (AND). The company was incorporated in 2000 as a wholly owned subsidiary of Tokyo listed Sumitomo Chemical Company, Japan to drive expansion of its Health & Crop Sciences business in India.

The company has 5 strategically located manufacturing facilities in Bhavnagar, Gajod, Tarapur, Vapi and Silvassa. SCIL has strong R&D capabilities with 25+ patents granted across various geographies and a dedicated pool of 75+ engineers and scientists capable of creating new combinations process developments and improvements. Further, the company has a strong brand and well-entrenched distribution network spread across 23 states, 68 depots, 13,000+ distributors and 40,000+ dealers.

Investment Rationale

Strong Parentage
The key factor that makes SCIL different from other Agrochemical players is its strong parentage of Sumitomo Chemical Company (SCC). SCC is a leader in the chemical space across the globe. Sumitomo Group operates businesses in various sectors viz. Petrochemicals & plastics, Energy, IT related chemicals, Health & Crop sciences, and Pharmaceuticals. SCC’s parentage will help SCIL to leverage the advanced technology, world class portfolio, greener chemistries, superior innovative capabilities, and wider access to global markets. For SCC, India has remained a key market and we believe that in future, SCIL will launch numerous molecules of its parent in India. Additionally, SCC has mandated SCIL to run independent operations and choose its own growth path. SCC has committed that full support will be given from parent to support SCIL’s operations in India.

Rich Product Pipeline to Deliver Growth in Future
SCIL has a rich pipeline of new products consisting of proprietary molecules, combination products, off-patent generics, etc. Currently, SCIL has 9 new combination products (5 insecticides, 2 fungicides, 2 PGR) under development for domestic and exports and 5 technical products for manufacturing and exports. These products would be targeting crops such as Soya bean, Cotton, Wheat, etc. SCIL will also launch one proprietary product every year from its parent company, SCC. After the merger with Excel Crop Care (ECC); the company will work on technical and off-patent molecules which are in development stages.

Merger with Excel Crop Care to Unlock New Synergies
SCIL is formed by merger of Sumitomo Chemical India and Excel Crop Care which is focused on developing crop protection products (94%), Environmental health division (EHD) and Animal Nutrition division (AND) (6%) in India. With the help of this merger, SCIL has become the 3rd largest domestic player in the Agrochemicals Sector. After the merger, SCIL will have access to 5 plants, 13,000+ distributors, 40,000+ dealers and widespread reach in 23 states across the nation.

Exports to Increase in Future
After the merger with ECC, SCIL now has dealer network exceeding 40,000 and more than 13,000 distributors across the globe. SCIL is focused on penetrating in the African and European regions. SCIL will use ECC’s exclusive dealer network already present in these two regions to cross-sell its own products. SCIL also has a good brand recall globally due to wide presence of its parent SCC. Now SCIL will leverage SCC’s global supply chain and marketing network to drive exports.

Balanced Portfolio Will Lead to Steady Growth
SCIL has the most balanced product portfolio among its peers. It has presence across all segments viz. Insecticides (49%), Herbicides (18%), Fungicides (8%), and PGRs (11%). SCIL has strong focus on Herbicides and Fungicides as they are high margin segments and high growth businesses. SCIL has a larger market share in insecticides segment and this segment ensures stability in business. SCIL has PGRs for both Kharif and Rabi crops, which reduces the seasonality risk of business.

Outlook and Valuation

After the merger with ECC, SCIL is the 3rd largest player in the Indian Agrochemicals Industry. We believe strong parentage of Sumitomo Chemical Company and well managed business will help boost revenues going forward. We expect the merger to unlock synergies that could improve profitability. SCIL’s technical expertise, financial strength, strong parentage, and wide distribution reach will allow the company to trade at premium as compared to its peers. At current market price, the stock trades at 37x of FY23E earnings estimates.

Technical

Sumitomo Chemical India Ltd

Price: SUMITOMO CHEMICAL gained more than 2.71% over weekly basis. On daily charts, the stock is trading with higher bottom formation. The accumulation has been seen in the range of Rs.300 – Rs.315 levels where supports is placed, indicating bullish view for the stock. The overall chart structure suggests the stock is expected to extend gains in the short terms.

Indicator: The stock is trading above its short-term moving averages like 21SMA at Rs.307 and it 50SMA at Rs.294. The RSI on daily chart is pegged at 64, pointing toward the northward direction. The Parabolic–Sar is placed below the price on the daily chart, re-iterating our positive stance in the counter. Even the MACD is trading above the buy signal in daily chart, indicating positive momentum in the stock in the near term.

Volume: Price and volume analysis plays an important part in determining overall strength or weakness in the stock. Price and volume pattern are moving in the same direction which reflects the true movements in the stock. SUMITO CHEMICAL stock has seen the increase in delivery volume, which shows the movement of this stock is on bullish side.

Conclusion: Considering all the above data facts, we recommend buying for medium term. Investor may go long on the stock around Rs.326 levels keeping a stop loss below Rs.290 for the targets of Rs.390 levels.