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Lower growth from crop care drags Sumitomo Chemical performance below our estimates

News: Sumitomo Chemical reported muted topline growth of 1% YoY to Rs.910.4 crore against our expectations of | 1016.6 crore. The revenue from agrochemical segment was down by 1.5% YoY to Rs.855 crore, while the same from other segment remained at Rs.55.4 crore (+63.7% YoY). We believe despite glyphosate prices were hovering at higher levels, crop care segment reported subdued growth for the quarter. Geographical revenue break up details are awaited. OPM for the quarter contracted by 70bps YoY to 23.6 % leading to EBITDA fall of 2% YoY to Rs.214.7 crore as against our estimates of Rs.245.9 crore. The EBITDA from agrochemical business remained at Rs.210.3 crore (-3% YoY), while the same from other segments was Rs.4.4 crore (+115% YoY).  Lower than expected operational performance dragged bottom-line below than our estimates. PAT was down by 2% YoY to Rs.154.2 crore against our estimates of Rs.178 crore.

Views: HT cotton seed usage was high during this Kharif season, which should have supported volume growth for Glyphosate. Further, higher glyphosate prices should also have aided realisation growth and thereby crop care segmental performance, however the same was missing during the quarterly performance. We believe, on the longer time frame, the story remains intake given that SCC Japan’s plans remain affirm to outsource part of their technical requirements to Sumitomo Chemical India. Further, Nufarm can also aid strong revenue visibly for Sumitomo chemical India going ahead.