Pratik Tholiya • [email protected] • +91 22 6164 8518
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Elara Securities (India) Private Limited
Japanese mojo
Strong parent: focus on innovative products, distribution network
Sumitomo Chemicals (SUMICHEM IN) is part of Japan-based, USD 20bn
Sumitomo Chemical Company (SCC). SCC is the seventh largest
agrochemicals company globally, but it is the third largest in terms of
patents underscoring its focus on R&D and innovation. As per SCC’s FY20
annual report, South America and India are two rapidly growing markets.
India sales of USD 323mn made up 12% of SCC’s FY20 sales. SCC has set
FY25 revenue target of USD 500mn for SUMICHEM, which is modest, as
we expect it to reach that target by FY23E. Through its strong R&D, SCC
has developed a healthy pipeline of innovative products with aggregate
revenue potential of USD 1.4-1.8bn, which will benefit SUMICHEM.
Focus on local: cementing leadership in the domestic market
SCC’s acquisition of Excel Cropcare (ECC) and subsequent merger with
SUMICHEM has propelled SUMICHEM to become one of India’s top
three agrochemicals company by revenue. ECC’s key strengths lie in its
pan-India distribution network, extensive product offerings in generics
and low-cost manufacturing base while SUMICHEM specializes in
innovative molecules procured from the parent. The combined entity
would enjoy a balanced portfolio of generics and specialty products
with 20+ mega brands, pan-India network of 13,000+ distributors and
access to SCC’s pipeline of innovative molecules, which will sustain
leadership in the domestic market.
Higher contribution: earnings CAGR of 26% over FY20-23E
The company has posted an earnings CAGR of 20% over FY11-19 on
the back of new product introduction in the specialty segment despite
having a concentrated distribution network. Over FY20-23E, we
expect a 14% revenue CAGR, led by a 13% domestic revenue CAGR
and an 18% exports revenue CAGR. EBITDA margin is likely to expand
480bp over FY20-23E, led by merger synergies, higher contribution
from innovative products and process innovation. We expect an
earnings CAGR of 26% over the same period.
Valuation We initiate on Sumitomo Chemicals with an Accumulate rating and
a 12-month target price of INR 330, implying 10% upside. Our TP is
based on 35x FY23E EPS of INR 9.4. Current valuation at 30x FY23E
EPS of INR 9.4 factors in near-term earnings visibility. However, we
remain positive in the medium to long term on balanced business
model of domestic and exports. SCC’s rich product pipeline is likely
to increase technicals outsourcing opportunity for SUMICHEM and
access to distribution network would provide significant visibility on
medium-term growth.
Price performance
Source: Bloomberg
Key Financials YE March
Revenue (INR mn)
YoY (%)
EBITDA (INR mn)
EBITDA Margin (%)
Adj PAT (INR mn)
YoY (%)
Fully DEPS (INR)
RoE (%)
RoCE (%)
P/E (x)
EV/EBITDA (x)
FY20 24,247 8.8 3,332 13.7 2,356 48.3 4.1 21.8 23.1 73.2 44.7
FY21E 26,527 9.4 4,508 17.0 3,121 17.1 6.3 22.1 27.6 48.0 33.1
FY22E 30,785 16.1 5,535 18.0 3,897 24.8 7.8 23.6 29.5 38.4 27.0
FY23E 35,737 16.1 6,629 18.5 4,708 20.8 9.4 24.2 30.4 31.8 22.5
Note: pricing as on 15 December 2020; Source: Company, Elara Securities Estimate
India | Agrochemicals 16 December 2020
Initiating Coverage
Sumitomo Chemicals
Rating: Accumulate Target Price: INR 330
Upside: 10%
CMP: INR 300 (as on 15 December 2020)
Key data
Bloomberg /Reuters Code SUMICHEM IN/SUMH BO
Current /Dil Shares O/S (mn) 499/499
Mkt Cap (INR bn/USD mn) 150/2,035
Daily Volume (3M NSE Avg) 841,671
Face Value (INR) 10
1 USD= INR 73.6
Note: *as on 15 December 2020; Source: Bloomberg
Price & Volume
Source: Bloomberg
Shareholding (%) Q4FY20 Q1FY21 Q2FY21
Promoter 80.3 78.3 75.0
Institutional Investor 4.7 5.7 6.0
Other Investor 4.9 5.7 8.3
General Public 10.2 10.3 10.7
Source: BSE India
Price performance (%) 3M 6M 12M
Sensex 18.5 39.2 12.8
Sumitomo Chemicals 6.2 1.0 NA
UPL (15.3) 10.8 (20.6)
PI Industries 16.7 48.5 58.7
Source: Bloomberg
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Sumitomo Chemical Sensex
0
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200
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400
Jan-20 May-20 Aug-20 Dec-20
Vol. in mn (RHS) Sumitomo Chemicals (LHS)
Sumitomo Chemicals
2 Elara Securities (India) Private Limited
Valuation trigger
Source: Bloomberg, Elara Securities Estimate
Valuation overview
Year FY23E
EPS (INR) 9.4
Current market cap (INR mn) 142,250
No of shares (mn) 499
Target multiple (x) 30
TP (INR) 330
CMP (INR) 300
Upside (%) 10
Note: pricing as on 15 December 2020; Source: Elara Securities Estimate
Valuation driver: gross and EBITDA margin to improve
Source: Company, Elara Securities Estimate
Investment summary
Access to parent SCC’s innovative
product pipeline, which will be
launched in India for the first time, and
its extensive distribution network
Synergistic benefits from merger with
Excel Cropcare on revenue as well as
cost side and focus on the domestic
market will help it sustain leadership
Volume ramp-up in exports by
leveraging SCC’s global distribution
network and brand recall
Valuation trigger
1. Margin expansion of 480bp over FY20-
23E on operating leverage and higher
contribution of innovative products
2. Launch of new innovate patented
molecules
Key risks
Deficient Monsoon would lower
consumption of pesticides
Increased competition from domestic
peers as well as other MNC brands
Our assumptions
Domestic revenue CAGR of 13% over
FY20-23E, led by scaling up of existing
molecules, synergistic benefits post-
merger with ECC and launch of new
molecules
Exports CAGR of 18% over FY20-23E
by leveraging SCC’s supply chain and
marketing network
Earnings CAGR of 26% over FY20-23E
given merger synergy and higher
contribution from innovative products
12
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Launch of new innovate patented molecules
Margin expansion of 480bp over FY20-23E on operating
leverage and higher contribution of innovative
products
0%
5%
10%
15%
20%
25%
30%
35%
40%
FY18 FY19 FY20 FY21E FY22E FY23E
(%)
Gross Margins EBITDA Margin
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Financials (YE March) Income Statement (INR mn) FY20 FY21E FY22E FY23E
Net Revenues 24,247 26,527 30,785 35,737
EBITDA 3,332 4,508 5,535 6,629
Less :- Depreciation & Amortization 410 480 530 600
EBIT 2,922 4,028 5,005 6,029
Less:- Interest Expenses 55 55 45 35
Add:- Non operating Income 107 200 250 300
PBT 2,974 4,173 5,210 6,294
Less :- Taxes 618 1,052 1,313 1,586
Adjusted PAT 2,356 3,121 3,897 4,708
Add/Less: - Extra-ordinaries 309 - - -
Reported PAT 2,665 3,121 3,897 4,708
Balance Sheet (INR mn) FY20 FY21E FY22E FY23E
Share Capital 4,991 4,991 4,991 4,991
Reserves 7,226 9,140 11,526 14,422
Deferred Tax (Net) 445 445 445 445
Total Liabilities 12,663 14,576 16,963 19,859
Gross Block 3,690 3,755 4,155 4,555
Less:- Accumulated Depreciation 861 1,341 1,871 2,471
Net Block 2,829 2,414 2,284 2,084
Add:- Capital work in progress 65 400 400 400
Investments 712 3,211 4,211 5,461
Inventories 5,880 6,541 7,591 8,812
Cash & Bank Balances 935 450 451 533
Trade Receivables 8,498 7,268 8,434 9,791
Trade Payables 4,909 4,361 5,060 5,875
Other Assets (1,346) (1,346) (1,346) (1,346)
Total Assets 12,663 14,576 16,963 19,859
Cash Flow Statement (INR mn) FY20 FY21E FY22E FY23E
Cash profit adjusted for non cash items 3,122 4,708 5,785 6,929
Add/Less : Working Capital Changes (908) (1,031) (2,829) (3,350)
Operating Cash Flow 2,214 3,677 2,955 3,579
Less:- Capex (380) (400) (400) (400)
Free Cash Flow 1,834 3,277 2,555 3,179
Financing Cash Flow (613) (1,263) (1,555) (1,847)
Investing Cash Flow (1,179) (2,899) (1,400) (1,650)
Net change in Cash 422 (485) - 82
Ratio Analysis FY20 FY21E FY22E FY23E
Income Statement Ratio (%)
Revenue Growth 8.8 9.4 16.1 16.1
EBITDA Growth 14.6 35.3 22.8 19.8
PAT Growth 48.3 17.1 24.8 20.8
EBITDA Margin 13.7 17.0 18.0 18.5
Net Margin 11.0 11.8 12.7 13.2
Return & Liquidity Ratio
Net Debt/Equity (x) (0.1) (0.0) (0.0) (0.0)
ROE (%) 21.8 22.1 23.6 24.2
ROCE (%) 23.1 27.6 29.5 30.4
Per Share data & Valuation Ratio
Diluted EPS (INR/Share) 4.1 6.3 7.8 9.4
EPS Growth (%) 24.3 52.5 24.8 20.8
DPS (INR/Share) 0.6 2.0 2.5 3.0
P/E Ratio (x) 73.2 48.0 38.4 31.8
EV/EBITDA (x) 44.7 33.1 27.0 22.5
EV/Sales (x) 6.1 5.6 4.8 4.2
BVPS (INR) 24.5 28.3 33.1 38.9
Price/Book (x) 12.3 10.6 9.1 7.7
Dividend Yield (%) 0.2 0.7 0.8 1.0
Note: pricing as on 15 December 2020; Source: Company, Elara Securities Estimate
Revenue & margin growth trend
Source: Company, Elara Securities Estimate
Adjusted profit growth trend
Source: Company, Elara Securities Estimate
Return ratios
Source: Company, Elara Securities Estimate
13.7
17.0 18.0
18.5
10
12
14
16
18
20
10,000
15,000
20,000
25,000
30,000
35,000
40,000
FY20 FY21E FY22E FY23E
(%)
(IN
R m
n)
Net Revenues EBITDA Margin
48.3
17.1
24.8 20.8
10
20
30
40
50
60
0
1,000
2,000
3,000
4,000
5,000
FY20 FY21E FY22E FY23E
(%)
(IN
R m
n)
Adjusted PAT PAT Growth
21.8 22.1
23.6 24.2
23.1
27.6
29.5 30.4
18
20
22
24
26
28
30
32
FY20 FY21E FY22E FY23E
ROE (%) ROCE (%)
Sumitomo Chemicals
4 Elara Securities (India) Private Limited
SCC: R&D hub and innovator
Sumitomo Chemical Company (SCC) is a leading Japan-
based, research-driven, diversified chemicals firm listed
on the Tokyo Stock Exchange with consolidated sales
revenue of USD 20.8bn for FY19 and Health Crop
Sciences Sector of USD 3.4bn. Currently, the Sumitomo
Chemical Group operates businesses in five sectors:
petrochemicals & plastics, energy & functional materials,
IT-related chemicals, health & crop sciences, and
pharmaceuticals. It provides products worldwide that
support a variety of industries.
SCC is a pioneer in R&D, working on everything from
discovery of novel lead compounds to product
development for end-users from a long-term perspective
to provide new solutions. These efforts enable SCC to
obtain proprietary products and technologies, which is
the foundation of its competitive advantages. Currently,
SCC holds 2,248 patents globally and is the third-highest
only behind Bayer (3,792) and BASF (2,627).
Exhibit 1: SCC with third-highest patents globally
Source: Company, Elara Securities Research
In CY18, SCC established the Chemistry Research Center,
a synthesis research building at the Health & Crop
Sciences Research Laboratory in Japan, integrating
research functions ranging from novel compound
discovery to commercial manufacturing process
development. In the US, a new biorational R&D facility
started operations, thereby promoting more efficient and
accelerated development. In addition, the company
established a research center in Brazil in CY16, a field
testing station in Western US in CY17, and a new test
facility at Makabe Agriculture Research Center in Japan
in CY18, where a wide range of tests are conducted,
thereby accelerating development of new products.
Through these initiatives in R&D, the company is well
poised to deliver new generation molecules faster than
the industry, thereby maintaining its competitive
advantage.
Exhibit 2: SCC’s annual R&D spend 7-9% of revenue
Source: Company, Elara Securities Research
12
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0
10
,11
8
7,1
28
6,2
56
4,5
28
3,6
11
2,5
75
2,5
17
3,7
92
1,9
78
2,6
27
2,1
70
27
8
12
3
2,2
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37
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2,000
4,000
6,000
8,000
10,000
12,000
14,000
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Revenue (USD mn) No of Patents
6
7
8
9
200
250
300
350
400
FY
12
FY
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FY
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FY
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FY
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FY
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(%)
(YE
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Revenue R&D as % of Revenue
Strong parent: competitive edge
Lends comfort: SCC, R&D hub and innovator
Boon for SUMICHEM: parent’s increased domestic focus
Ahead of peers: access to parent’s extensive portfolio and reach
Exhibit 3: SCC’s corporate business plan – 18% revenue CAGR over FY19-21
Action plan Major issues Financial targets
Strengthen and expand biorationals
business
Develop and launch new crop
protection chemicals steadily
Expand methionine sales and
strengthen earnings power
Accelerate global expansion of the
environmental health business
Develop the nucleic acid medicine
business and expand tech application
Establish a global footprint in the
crop protection business
(YEN bn) FY19* YoY (%) FY21 target
Sales Revenue 344 5.6 480
Core operating income 2 (17.6) 75
Note: *FY19 is year ending March 2020. Source: Company, Elara Securities Research
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India remains focused market
Emerging economies contributed ~30% to total SCC
revenue in FY19, with share of emerging Asia
accounting for 14% of revenue, followed by emerging
Latin America, which accounted for 16%. For SCC, South
America and India are key markets as they both are
growing faster than the rest of the world. The South
American region accounts for 25% of global pesticides
market, surpassing North America and China in terms of
market size. India is growing at an annual rate of 7-8%.
The strong parentage will help SUMICHEM continue
with its new and innovative product launches. The
company aims to launch 6-8 new products in the next 3-
4 years, which along with the recently launched
products will drive growth, in our view.
SCC sets revenue target of USD 500mn for India
In SCC’s 2020 handbook, management has shared its
long-term vision for its India operations. It plans to target
INR 500mn in revenue by FY25. This milestone is likely to
be achieved via: 1) development of active ingredients
and a range of formulations research, 2) introduction of
products manufactured globally, which are not currently
in the domestic market, and 3) access to new active
ingredients without additional capex, keeping existing
SUMICHEM facilities available to manufacture other
molecules. We believe SCC has set a conservative
revenue target of USD 500mn by FY25, which should be
achieved by FY23E, as per our analysis.
Exhibit 4: SCC’s aims revenue of USD 500mn for
SUMICHEM by FY25
Source: Company, Elara Securities Research
0
100
200
300
400
500
600
FY18 FY19 FY20 FY25
(USD
mn
)
Revenue
Exhibit 5: Pipeline of new agrosolutions and environmental health products
Time of launch CY13-18 CY19-21 CY22-24 CY25 and after
Crop protection chemicals
Agricultural fungicide
Ethaboxam
Mandestrobin
Agricultural fungicide
Indiflin (inpyrfluxam)
Pavecto (metyltetraprole)
Pyridaclometyl eg. field crop and vegetable diseases
Agricultural herbicide
Next-generation herbicide for weed control solutions
Agricultural insecticide
To control insecticide-resistant pests
Household & ublic hygiene insecticides
Sumifreeze (Momfluorothrin)
Agricultural insecticide
Oxazosulfyl e.g. Major rice pests.
Next-generation pipeline
5 projects
Biorationals Biorational rhizosphere
Bacillus amyloliquefaciens
Microbial pesticide Agricultural plant growth regulator
Next-generation pipeline
More than 3 projects
Botanical insecticide (for household & public hygiene)
Botanical insecticide (for agriculture)
Source: Company, Elara Securities Research
Sumitomo Chemicals
6 Elara Securities (India) Private Limited
STRENGTHS Strong R&D capabilities and robust development
pipeline of crop protection chemicals and the
biorationals
Differentiated technologies and products in
niche areas products with high market share
Alliances with major overseas agrochemicals
companies
Offering total solutions
WEAKNESS
Relatively small business size compared to
competing majors
OPPORTUNITIES
Increasing food demand due to growing
global population
Growing agriculture-related businesses
Increased demand in fields related to or
downstream of the environmental health
business
THREATS
Tightening of regulations on crop protection
chemicals
Increased competition with off-patent crop
protection chemicals
Consolidation in major agrochemicals
companies
Exhibit 6: SWOT analysis of SCC
Source: Company, Elara Securities Research
SWOT
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Excel Cropcare: good fit
SCC acquired a majority stake in Mumbai - based Excel
Cropcare (ECC) in CY16 to increase its presence in the
fast-growing agriculture market in India. SCC has a
presence in India via SUMICHEM for more than a decade.
While SUMICHEM has been able to grow on the back of
its innovative product portfolio, its presence was
restricted to a few major markets. ECC, on the other
hand, has a pan-India distribution network and strong
manufacturing base in generic technicals. Hence, ECC
acquisition has been a natural fit for SUMICHEM.
Commenting on the acquisition, Ray Nishimoto, Director
and President of Health and Crop Sciences Sector, SCC,
said: “ECC’s extensive distribution network in India will
complement SCC’s rapidly growing presence in India and
create new opportunities for SCC’s proprietary products
to penetrate into this key agrochemicals market. Further,
ECC’s robust off-patent product portfolio and low-cost,
state-of-the-art manufacturing facilities will enhance
SCC’s capabilities”.
ECC key strengths
Portfolio with rising share of herbicides & fungicides
Rejig in the ECC’s product basket has led to significant
change in revenue mix. Prior to the ban of Endosulfan, a
widely sold insecticide, in FY11, insecticides accounted
for ~57% of revenue, followed by herbicides with 25%
contribution in FY11. However, post the ban, the
company has focused on products in other segments,
especially glyphosate, a popular herbicide; as a result,
revenue mix has changed significantly in recent years. By
FY18 share of insecticides dropped to 42% while
herbicides contributed ~29% to revenue, fungicides 9%
and others 20%.
Good manufacturing base in technicals, formulations
ECC’s manufactures products across three locations:
Bhavnagar, Gajod, and Silvassa in Gujarat. These facilities
have state‐of‐the-art machinery and are accredited with
ISO 9002, ISO 14000, and OSHAS 18000, meeting
statutory requirements on quality and safety. Each
location comes well‐equipped with R&D facilities and
explores eco-friendly chemistries for crop care and
effective formulations technologies & recipes. ECC has
mastered complex technologies and delivered best
solutions globally. Its technical actives, bulk, and branded
formulations are registered and marketed in Asia-Pacific,
South Asia, West Asia, Africa, Europe (West & East
including CIS countries) Central & South America, and
the US.
Focus on local
Good fit: Excel Cropcare stake buy a win-win for SCC
Brand matters: increasing share of specialty portfolio & MNC recall with benefits
Other greener pastures: tapping exports opportunities
Exhibit 7: Key brands of ECC (now part of SUMICHEM portfolio)
Gycel - Gylphosate Celcron - Profenophos Caviet - Tebuconazole Tricel - Chlorpyriphos
Junoon - Bispyribac Sodium Dimendsion - Difenoconazole Robot - Emamectin Benzoate Hexzol Gold - Hexaconazole
Source: Company, Elara Securities Research
Sumitomo Chemicals
8 Elara Securities (India) Private Limited
Pan-India distribution and good farmer connect
Brands create a “pull” effect; however, there is also the
need to ensure availability of products at the grassroots
level. Considering the fragmented nature of end-
consumers in India, a strong distribution network is key
to success. ECC has built strong sales and marketing
reach with a distribution network of 40,000 dealers
across the country and enjoys good relationship with
2mn+ farmers. It was on the back of this network that
ECC was able to drive revenue from its other products
and registered ~35% growth in revenue and 65%
profitability post the ban on Endosulfan in FY10.
ECC enjoys strong goodwill among channel partners
During our interactions with distributors, dealers, retailers,
we found ECC enjoys high goodwill. Dealers attribute this
solely to support which ECC had given them during the
initial days. Endosulfan was a highly successful product for
ECC and even channel partners earned good money, due
to high demand. However, post the ban, ECC was unable
to replicate a similar success with other products. As a
result, dealers started taking their dealership to other
companies. Nevertheless, they did say if ECC were to
launch a new competitive product, they would give ECC’s
product first preference.
Key limitations
Less innovation in its product portfolio and management’s
limited focus on agrochemicals restricted growth despite
its market reach and brand recall. With lack of innovation
in the post‐ patent space, ECC faced huge challenges
from its domestic and global peers in terms of better
efficacy products, expansion of categories and pricing
pressures.
Exhibit 9: Product mix tilting towards generics (FY20)
Source: Company, Elara Securities Research
100
37
73
63
27
0%
20%
40%
60%
80%
100%
ECC SCIL SUMICHEM
Generic Specialty
Exhibit 8: ECC + SCIL bring together plethora of synergies
Parameter ECC SCIL (pre-merger) SUMICHEM (post-merger)
Manufacturing Facilities
Plants in Gujarat (2) and Dadar & Nagar Haveli (1)
Plant in Maharashtra (1) and Gujarat (1)
5 plants in West India
Manufacturing Capability
Predominantly a formulation company with facilities for both formulation & technical
Manufacturing of formulations Presence in both technical & formulation manufacturing
Distribution Capability
4,700+ distributors located across India
9,000+ distributors concentrated in few regions
Improved depth and breadth of the distributors
R&D Capability 3 fully equipped R&D facilities for synthesis and formulation of chemicals
Outsources R&D requirements Creating new combinations using SCIL’s chemistries
Industry Sub segments
Insecticides (44%), Herbicides (27%), Fungicides (11%), Metal Phosphides (13%), Others (5%)
Insecticides (63%), Fungicide (8%), Herbicide (7%) & Others (22%)
Insecticides (52%), Herbicides (19%), Fungicides (9%), Metal Phosphides (8%), Others (12%)
Product Capability Major focus on Generics; nascent presence in Biopesticides
Major focus on Specialty Products Presence across complete range of products
Business Segments Presence only in agrochemical segment
Presence in ASD, AND & EHD segments^
ASD focused with presence in AND & EHD^
Range of Crops Served
Staple crops with major presence in Kharif season
Fruits and vegetable crops covering both Kharif and Rabi season
Well diversified product range covering Kharif & Rabi crops
Customer Concentration
Top 5 customers contributes to ~12% of sales
Top 5 customers contributes to ~15% of sales
Top 5 customers contribute ~12% of sales
S&M Capability Strong wide spread presence with the distributors / retailers
High degree of engagement with the farmers
Strong presence with both the retailers and farmers
Note: ^ASD Agro solutions Division; AND Animal Nutrition Division; EHD Environmental health Division. Source: Company, Elara Securities Research
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SUMICHEM: dominates the specialty segment
SUMICHEM is witnessing increased penetration in new
generation pesticides. This segment posted healthy
growth in India’s agri inputs space over the last few
years. Prior to its merger with ECC, the company’s
specialty segment contributed 63% to total revenue.
Today, it contributes 29% to total revenue. With
leadership in the agrochemicals space and a strong new
product pipeline, SUMICHEM is set to benefit from a shift
in farmer preference for new products, such as Dantotsu,
Danitol, and Sumi Max. The company is set to
consolidate its leadership by offering complete pest
management solutions, through extensive product
portfolio serving key segments, such as rice and cotton.
Exhibit 11: Share of specialty products increases
Source: Company, Elara Securities Research
73 71
27 29
0
20
40
60
80
100
FY19 FY20
(%)
Generic Specialty
Exhibit 10: Key brands of SUMICHEM in the specialty segment
Dantotsu – Clothianidin Danitol – Fenpropathrin Lano – Pyriproxyfen Sumi Prempt – Pyriproxyfen + Fenpropathrin
Sumi Gold - Bispyribac Sodium Sumi Max - Flumioxazin Haru – Tebuconazole + Sulphur Sumi Nara – Glyphosate
Leader - Sulfosulfuron Borneo - Etoxazole Meothrin – Fenpropathrin Pro Gibb – Gibberellic Acid
Source: Company, Elara Securities Research
Sumitomo Chemicals
10 Elara Securities (India) Private Limited
Domestic growth rate higher than the industry’s
Over the past 3-4 years, SUMICHEM has emerged as a
leading company in the domestic market, driven by its
thrust on 1) growing share of branded formulations, 2)
strengthening distribution network, and 3) aggressive
product launch in generics as well as new product
categories. As a result, it currently enjoys a market share
of >13% in domestic formulations as on FY20.
SUMICHEM posted a sales CAGR of 20% in the domestic
pesticides business over FY11-19, which is well ahead of
industry average of 8%. We estimate domestic branded
products revenue at INR 22bn in FY23 based on 80% of
total India sales of INR 27.8bn. We expect SUMICHEM to
sustain growth above the industry, led by new product
launches and growth in its existing portfolio. We
estimate a revenue CAGR of 16.6% in domestic pesticides
business over FY20-23E, complemented by strong
growth in exports on low base.
Exhibit 12: Balanced mix across categories
Note: FY20; Source: Company, Elara Securities Research
Exhibit 13: SUMICHEM’s sales CAGR over FY15-20
higher than industry
Note: UPLL registered higher growth due to merger with Arysta; Source:
Company, Elara Securities Research
Insecticides47%
Herbicides18%
PGR10%
Metal Phosphides
7%
Fungicides11%
AND & EHD7%
Industry
BYRCS
DAGRI
INST
PI
RALI
SUMICHEM
UPLL
(5)
0
5
10
15
20
25
30
Exhibit 14: Diversified and de-risked business model of SUMICHEM
Well-diversified across dimensions
Source: Company, Elara Securities Research
Business segments
•Insecticides
•Herbicides
•Fungicides
•Plant growth
regulators (PGR)
•Increased focus on
high growth, stable
and high profitable
segments such as
herbicides, PGR,
biorational products
Products
•Dual brand portfolio
offering products at
all price points
serving customer
sub-segments
•More than 20 mega
brands with high
brand recall
•Top 10 products
contribute less than
50% of revenue
Geography
•Strong presence in
India
•Geographic
diversification with
exports to 60
countries
•Key export
destinations: Japan
(20%), Africa (33%),
Asia (19%), South
America (16%) and
North America (4%)
Customers
•Catering to B2C and
B2B segments
•1mn+ farmer
connect
•Pan-India
distribution network
ensures strong
presence with
retailers and farmers
•B2B segment
contibuting 20% of
revenue
Crops served
•Products available
for all major crops -
paddy, wheat,
cotton, corn, chilli,
potatoes
•Focused efforts on
fruits & vegetables,
paddy and other
high growth
segments
Sumitomo Chemicals
Ag
roch
em
ica
ls
11 Elara Securities (India) Private Limited
Brand matters
Increasing share of branded products
With the thrust on building brands across regions, the
share of branded products to total revenue has
increased from 68% in FY19 to 72% currently. The
change in revenue mix (72:28) from (71:29) also has
bolstered margin improvement for innovative and novel
products over generics. SUMICHEM’s top 10 products
contributed less than 50% of total revenue in FY20 while
no product/molecule contributed more than 15% of
total revenue. The higher share of branded sales
indicates the company’s distribution strength.
Exhibit 15: Share of branded products rising
Source: Company, Elara Securities Research
R&D, complex chemistry focus leads to strong products
SUMICHEM has developed expertise in manufacturing
complex chemistries which has helped the company to
develop cost efficiency and leadership globally. It has
three fully equipped DSIR, approved R&D labs, one at
Mumbai in Maharashtra and Bhavnagar & Gajod in
Gujarat. These labs are capable of synthesizing, technical
products and developing formulations. The R&D team
comprises 75 qualified scientists with more than 15 years
of experience. Currently, 25 patents have been granted
across geographies, and the company has filed patents
for nine more products. R&D facilities have the capability
to create new processes and combinations using SCC
Japan’s know-how, which would improve production
processes and efficiency. The company is also studying
the feasibility of SCC Japan’s new molecule pipeline and
evaluating it for the Indian context. It also aims to invest
10% of consolidated EBITDA every year for upgradation
of manufacturing facilities and capacity expansion to
cater to strong domestic and global demand.
Robust pipeline, new product revenue driving growth
SUMICHEM, with support of the parent in terms of a rich,
new product pipeline, has become one of the most
dynamic companies in India’s agrochemicals space. It has
posted a revenue CAGR of 20% over FY11-19, which is
faster than the industry average. Growth has picked up
since FY10 with the launch of blockbuster products, such
as Dantotsu, Danito, Sumi Max, Sumi Gold and Haru,
which has led to faster-than-average industry CAGR of
6.5% in the past five years, according to FICCI. The
company has launched 15+ products over FY15-20 and
is working on introducing nine new combination
products & pre-mixtures, which are currently under
development (five insecticides, two fungicides & two
PGR) and two technical products (one insecticide and
one Herbicide) for manufacturing in India.
84 88
32 27
16 12
68 73
0
20
40
60
80
100
H1 FY20 H1 FY21 H1 FY20 H1 FY21
Domestic Exports
(%)
Branded Bulk
Exhibit 16: Top products of SUMICHEM
Technical Segment Brand under erstwhile SCI Brand under erstwhile ECC Application
Glyphosate Herbicide Glydon, Sumi Nara Glycel Tea Gardens, non-cropped
Profenofos Insecticide Kemcron Celcron Cotton, Soya Bean
Clothianidin Insecticide Dantop / Dantotsu
Vegetables
Tebuconazole Fungicide Tebuzol Caviet, Seedex Wheat, Soya bean, Chilli
Gibberlic acid 40% WSG Plant Growth Regulator Progibb/Progibb Easy
Citrus Fruits
Aluminium Phosphide Fumigant Celphos
Warehousing of Food grains
Chlorpyriphos Insecticide Kemtrek Tricel Paddy, Beans, Gram
DL-Methionine Animal Nutrition
Poultry
Source: Company, Elara Securities Research
Sumitomo Chemicals
12 Elara Securities (India) Private Limited
Pan-India distribution reach helps scale up revenue
Over the years, SUMICHEM has augmented its distribution
reach and today has presence in 23 states. Its extensive
distribution network ensures strong presence with
retailers & farmers and on-time feedback mechanism.
More than 1,400 field and market development officers
carry out on-field demonstration of products, training of
farmers in using products as well as building awareness
among stakeholders in relation to products. This helps to
develop deep farmer connect, which facilitates launch of
specialty products in the market. Strengthening of the
distribution network has ensured faster revenue scale-up
from newly launched products. Distribution reach has
surged from <500 distributors in FY10 to 9,000+
distributors currently and post-merger with ECC the
network has expanded to 13,000+ with more than
40,000+ dealers. This multi-fold jump ensures significant
increase in farmer reach, leading to faster scale-up of
revenue from new launches.
Exhibit 17: SUMICHEM has the largest distribution
network spread across the country
Source: Company, Elara Securities Research
MNC brand recall needs no incentivization push
Based on our interactions with farmers across the
country over the past many years, we have observed
they have perceived quality of global brands to be
superior to those of local brands. Most farmers also seem
happy to pay a premium for foreign brands as they
associate them with better quality and higher
technology.
When a brand enters into a new segment, it tries to run
additional promotional schemes and offer higher margin
& credit period to retailers and distributors to acquire
shelf space. However, in case of most MNC brands, the
pull from farmers’ end is significantly higher. As a result,
such companies tend to leverage their position in the
market by offering lower discounts and incentives to
channel partners.
Thus, even with increased competition, one thing that is
constant with SUMICHEM over the years is its credit
discipline. The company has barely budged on
discounting, distributor & retailer margin, credit period
and schemes.
Distributors and retailers remain key cogs in sales of agri
inputs. Distributors usually deploy their own capital
when they take up a brand for sales. The risk of brand
failure is high for a distributor. Similarly, a retailer running
a shop with a fixed cost, which is ~15-17% of sales,
entails high risk when it allows keeping a new brand on
a limited shelf space. Hence, whenever a new brand
wants to acquire shelf space, it will have to incentivize
distributors by offering better margin and higher credit
period than the incumbent brand. At the same time, it
also will have to incentivize the retailer by offering better
retailer margin and promotional offers.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Ra
llis
Ba
ye
r C
rop
Inse
cti
cid
es
I.
Dh
an
uka
Cry
sta
l
PI
Ind
.
SU
MIC
HE
M
(no
s)
Sumitomo Chemicals
Ag
roch
em
ica
ls
13 Elara Securities (India) Private Limited
Sector tailwinds
India’s agrochemicals industry is expected to grow at a 5
year CAGR of ~6.1% to reach ~USD 8.7bn by FY25. The
domestic market is expected to reach USD 3.8bn by
FY25, at a 5.5% 5 year CAGR (Source: FICCI). Distribution-
focused companies have witnessed the strongest
growth. New product launches remain the key. India
remains attractive for new and specialty product
launches. The country is also emerging as a
manufacturing hub to cater to the global markets
Exhibit 18: India’s crop protection market size at USD
8.7bn by FY25
Source: FICCI, Elara Securities Research
Climate change likely to increase use of agrochemicals
The operating landscape of India’s agriculture is
expected to alter with changing climatic patterns.
Changing temperature patterns, such as rising average
temperatures, more extreme heat, longer & shorter cold
periods, changing precipitation patterns, like longer dry
spells, increased duration of heavy rainfall and related
weather events, are expected to impact crop yield. Soil
degradation due to over-ploughing, use of substandard
agrochemicals, monocropping and deforestation have
led to loss of soil fertility. Such changes in environmental
parameters are shifting habitable zones for harmful
pests, pathogens and weeds, especially in regions that
go from cool to warm. This will mean a rise and change
in use of agrochemicals and pest control mechanism that
farmers have been accustomed to for decades.
Exhibit 19: One of the lowest per capita consumption
of pesticides
Source: FICCI, Elara Securities Research
Availability of agri labour to remain challenging
In the coming years, it is expected India’s agricultural
workforce will be smaller, older, and more feminized.
Daily wages in non-farm activities were estimated to be
2.4x higher than agricultural wages in CY18, due to
which labour is exiting farm work steadily, leading to
feminization of the workforce. Also, based on our
channel checks, less than 5% of the youth in villages
aspire to be farmers. Thus, farming will be left to the
older generation of farmers.
Exhibit 20: All-India annual average daily wage rate
Source: Ministry of Labour and Employment, Elara Securities Research
2.0 2.1 2.2 2.4 2.5 2.8 3.8
2.0 2.0 2.1 2.6
3.2 3.4
4.9
0
2
4
6
8
10
FY14 FY15 FY16 FY17 FY18 FY19 FY25
(USD
bn
)
Domestic Exports
CAGR 6.6%
CAGR 5.5%
0.6
5 5
7 7
1213
17
0
2
4
6
8
10
12
14
16
18
Ind
ia
UK
Fra
nce
Ko
rea
USA
Jap
an
Ch
ina
Ta
iwa
n
(kg
/ha
)
0
50
100
150
200
250
300
350
FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
INR
pe
r d
ay
Male Female
Sumitomo Chemicals
14 Elara Securities (India) Private Limited
Key policy measures
Transparency in land ownership, use & consolidation
The agricultural reforms proposed by the Central
government relating to model tenancy, bypassing APMC
and removing stocking limits are likely to have long-term
benefits for farmers.
Digital India Land Records Modernization
Programme: The scheme until the last review had
86% of land records being computerized and 46%
with cadastral maps digitized. By CY25, 90% of land
records may be digitized, verified and linked to
Records of Rights, bringing financing and
investment capability to smallholders
Urgency to spend unutilized Direct Benefit Transfer
(DBT) funds efficiently lying with the government
estimated at INR 270bn, especially after economic
ripple effects of COVID-19 related lockdowns
Farmer Producer Organisation (FPO) have become
key policy priorities and will continue to scale up and
mature. In less than a decade since passing of the
National Policy for Promotion of FPO, nearly 7,000
such organizations have been created from a base
of a few hundred at the start of the decade
China’s competitiveness eroding; Advantage India
Once a go-to destination for chemicals manufacturing,
China is fast losing its grip in this space. Increased capital
cost, currency appreciation, stricter environment
regulations and reduction in government subsidies are
some reasons that have forced global firms to look
outside China for supplies. India's capability in low-cost
manufacturing, availability of technically trained
manpower, seasonal domestic demand, overcapacity,
better price realization globally and strong presence in
generic pesticides manufacturing has made it a more
preferred destination today.
Sumitomo Chemicals
Ag
roch
em
ica
ls
15 Elara Securities (India) Private Limited
Tapping export opportunities
Exporting to South America, Europe and Africa
The African continent and Europe remain key focus
areas for SUMICHEM’s exports business. Currently,
exports to Japan (to the parent company) and the
African continent constitute ~53% of total sales. The
company primarily exports technicals to these
geographies. On the African continent, Europe and
Central America, it exports products under its own brand
through local distributors. It also has a small presence in
the US, largely for technical (bulk) sales to formulators.
Increased export registrations in key markets, such as
Europe, would drive growth. Acquisition of Nufarm’s
South America business by the parent company has
opened an additional market for SUMICHEM as it can
take advantage of the distribution network to push its
generic branded products. Given the inherent risk of
weak receivables for the African markets, we believe
exports growth in this market will be gradual in nature.
Exhibit 21: The African continent and Japan account
for 53% of total exports
Note: FY20; Source: Company, Elara Securities Research
Nufarm offers export opportunity to South America
SCC acquired four South American subsidiaries of
Nufarm in FY19 for USD 876mn. The South American
region accounts for 25% of the global pesticides market,
surpassing North America and China in terms of market
size. The purpose of the acquisition was to enhance its
global footprints (its own distribution network), build a
seamless system of manufacturing, sales and R&D in
South America and maximize sales of its newly launched
blockbuster product, INDIFLIN. Nufarm has formulations
plants in South America but was purchasing mostly
generic technicals from China. We understand at least
10-12 of these technicals are manufactured by
SUMICHEM in India. SCC will look to procure these
technicals from SUMICHEM, thereby reducing
dependence on China and saving cost.
Low-cost sourcing hub for the parent
SUMICHEM also has been supporting its parent
company, SCC, in terms of procurement from India, a
low-cost destination. Up until a few years ago, the
Japanese parent would manufacture all its technicals in-
house. Only recently it has started to outsource
production of a few of technical to SUMICHEM in India.
The Indian entity is currently manufacturing and
supplying one technical grade molecule to SCC.
SUMICHEM management is gearing up to make at least
2-3 molecules for the parent in the upcoming years.
Since India is the only other manufacturing source
outside of Japan for SCC, we believe SUMICHEM will
become an important supplier to SCC in the coming
years, supplying a wider range of molecules.
SUMICHEM exports goods worth ~INR 0.8bn to the
parent and imports materials worth INR 2.4bn annually
from it. With the parent looking to increase its sourcing
from SUMICHEM, the exports business acts as a natural
hedge against currency fluctuations.
Leverage SCC’s supply chain and marketing network
SCC is one of the leading agrochemicals companies
globally with distribution channels and presence across
60 countries. SUMICHEM is a strong beneficiary of the
large global presence of its parent and supplies active
ingredients to its parent in several countries. This has
resulted in a 12% CAGR in export revenue over FY18-20
to INR 4.8bn in FY20 from INR 3.8bn in FY18. The
company registered 11 new products for exports over
FY18-20, which has led to significant growth in export
revenue. SCC accounts for 20% of total exports of
SUMICHEM. We believe strong momentum in exports
will continue and estimate exports revenue CAGR of 18%
over FY20-23 to INR 8.0bn by FY23 on the back of new
product registration and growth in existing product
registration.
African continent
33%
Japan20%
Asia19%
Europe16%
South America
8%
North America
4%
Sumitomo Chemicals
16 Elara Securities (India) Private Limited
Exhibit 22: Exports revenue CAGR of 18%
Source: Company, Elara Securities Estimate
The contribution of exports revenue to total is likely to
increase from 20% in FY20 to 22% in FY23E.
Exhibit 23: Share of exports to rise to 22% of sales
Source: Company, Elara Securities Estimate
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
FY18 FY19 FY20 FY21E FY22E FY23E
(IN
R m
n)
Exports sales
80% 78% 80% 79% 78% 78%
20% 22% 20% 21% 22% 22%
0%
20%
40%
60%
80%
100%
FY18 FY19 FY20 FY21E FY22E FY23E
Domestic as % of Total Export as % of Total
Exhibit 24: SCC’s global footprints offer huge opportunity for SUMICHEM’s exports business (FY20)
Note: Map not to scale, Source: Company, Elara Securities Research
Sumitomo Chemicals
Ag
roch
em
ica
ls
17 Elara Securities (India) Private Limited
Sales CAGR of 14% over FY20-23E
SUMICHEM had posted a faster-than-industry top-line
CAGR of 20% over FY11-19, driven by organic as well as
inorganic expansion. Parent company SCC has outlined
its plan for the next four years, which is to achieve
revenue of USD 500mn, which, in our opinion, is
conservative. We expect the company to clock in a
revenue CAGR of 14% over FY20-23E, thereby achieving
a revenue target of USD 500mn by FY23E. We expect
domestic revenue CAGR of 13% over FY20-23E, driven
by scaling up of existing molecules, synergy benefits
post-merger with ECC and launch of new molecules. The
company is likely to post an exports CAGR of 18% during
the same period, led by higher procurement by the
parent company and sale of technicals to group
companies globally.
Exhibit 25: Domestic CAGR of 13% over FY20-23E
Source: Company, Elara Securities Estimate
Exhibit 26: Exports CAGR of 18% over FY20-23E
Source: Company, Elara Securities Estimate
Exhibit 27: Sales CAGR of 14% over FY20-23E
Source: Company, Elara Securities Estimate
Exhibit 28: EBITDA CAGR of 20% over FY18-21E
Source: Company, Elara Securities Estimates
Exhibit 29: PAT CAGR of 20% over FY18-21E
Source: Company, Elara Securities Estimate
0
5,000
10,000
15,000
20,000
25,000
30,000
FY19 FY20 FY21E FY22E FY23E
(IN
R m
n)
Domestic revenue
0
1,500
3,000
4,500
6,000
7,500
9,000
FY19 FY20 FY21E FY22E FY23E
(IN
R m
n)
Export reveune
0
10,000
20,000
30,000
40,000
FY19 FY20 FY21E FY22E FY23E(I
NR
mn
)
Total revenue
10
12
14
16
18
20
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY19 FY20 FY21E FY22E FY23E
(%)
(IN
R m
n)
EBITDA EBITDA margin
0
1,000
2,000
3,000
4,000
5,000
FY19 FY20 FY21E FY22E FY23E
(IN
R m
n)
APAT
Numbers at work
Sales CAGR of 14%, EBITDA CAGR of 25.8% and PAT CAGR of 26% over FY20-23E
Better product mix to drive 480bp margin improvement by FY23E
Initiate with Accumulate and TP of INR 330, implying 10% upside
Sumitomo Chemicals
18 Elara Securities (India) Private Limited
Better product mix to drive margin
EBITDA margin has improved by 260bp, from 11.1% in
FY18 to 13.7% by FY20, primarily driven by merger
synergies and operating leverage. Gross margin have
declined from 36.9% in FY18 to 33.7% by FY20, led by
higher raw material prices in the generics segment. With
benign raw material prices and higher manufacturing of
technicals in-house, we estimate gross margin to revert
to 36% in FY21. Driven by operating leverage
(proportionate lower increase in staff cast and other
expense) company’s other expenses and staff cost as a
percentage of revenue declined from 26% in FY18 to
20% by FY20. We expect this trend to continue and will
support further expansion in EBITDA margin by 480bp
to 18.5% by FY23E from 13.7% in FY20.
Exhibit 30: Falling employee and other expenses
Source: Company, Elara Securities Estimate
Exhibit 31: Margin expansion to continue
Source: Company, Elara Securities Estimate
Working capital cycle to improve
We anticipate the working capital cycle to improve in the
upcoming years. Farm-level liquidity position has been
improving over the past two seasons due to high
government procurement and better commodity prices.
We expect the situation to get better, as new farm laws
will enable farmers to sell outside the mandi system to
anyone offering a higher price. As a result, we expect
receivables to fall from 128 days in FY20 to 100 days by
FY21E. We expect payables to drop to 60 days by FY21E
from 73 days in FY20, as the company increases its raw
material procurement from the parent. As a result, the
cash conversion cycle is likely to drop from 143 days in
FY20 to 130 days by FY21E.
Exhibit 32: Improving cash conversion cycle
Source: Company, Elara Securities Estimate
Healthy free cash flow generation to continue
SUMICHEM has a healthy free cashflow generation. FCF
would improve significantly from FY21 due to minimal
capex and higher profitability. We expect FCF of INR 2.5-
3bn pa over FY21-23E
Exhibit 33: Healthy FCF generation
Source: Company, Elara Securities Estimate
Exhibit 34: With limited working capital strain, cash
flow conversion to be healthy
Source: Company, Elara Securities Estimate
15
18
21
24
FY19 FY20 FY21E FY22E FY23E
(%)
0
10
20
30
40
FY19 FY20 FY21E FY22E FY23E
(%)
Gross margin EBITDA margin
110
115
120
125
130
135
140
145
FY19 FY20 FY21E FY22E FY23E
(Da
ys)
Cash conversion cycle
0
1,000
2,000
3,000
4,000
FY19 FY20 FY21E FY22E FY23E
(IN
R m
n)
Cash flow from operations Free cash flow
2.43.5
9.1
13.9
9.6 10.0
2.4 1.7
7.6
12.4
8.38.9
0
2
4
6
8
10
12
14
16
FY18 FY19 FY20 FY21E FY22E FY23E
(%)
OCF (% of sales) FCF (% of sales)
Sumitomo Chemicals
Ag
roch
em
ica
ls
19 Elara Securities (India) Private Limited
Clean balance sheet with high cash reserve
SUMICHEM remains almost debt-free since FY18. The
only borrowings on its book had been short-term loans,
primarily used for working capital which also became nil
in FY20 from INR 197mn in FY19. Going forward, with
strong cash flow generation from the business and no
major capex, we expect cash reserve to continue
increasing to INR 5.3bn by FY23E. The large cash pile
could be utilized for higher dividend payouts in the
future.
Exhibit 35: Cash position to further swell up
Source: Company, Elara Securities Estimate
Exhibit 36: Return ratios climb up on increasing
earnings growth
Source: Company, Elara Securities Estimate
(6,000)
(5,000)
(4,000)
(3,000)
(2,000)
(1,000)
0
FY18 FY19 FY20 FY21E FY22E FY23E
I(N
R m
n)
Net debt
10
15
20
25
30
35
FY18 FY19 FY20 FY21E FY22E FY23E
(%)
ROE ROCE
Sumitomo Chemicals
20 Elara Securities (India) Private Limited
Initiate with Accumulate; TP of INR 330
Medium-term earnings visibility remains intact with new
product launches, robust pipeline for the exports
business and scaling up of existing products. We expect
cash reserve to increase, which will help further
strengthen balance sheet in the medium term, with
expectations of significant FCF generation. However, the
stock has run-up by 12% in the past 2 months, and it is
currently trading at 30x FY23E EPS of INR 9.4. We initiate
coverage of the stock with an Accumulate rating and
arrive at a target price of INR 330 valuing the stock at
35x FY23E P/E.
Exhibit 37: Valuation overview
FY23E
EPS (INR) 9.4
Current market cap (INR mn) 142,250
No of shares (mn) 499
Target multiple (x) 30
TP (INR) 330
CMP (INR) 300
Upside (%) 10
Note: pricing as on 15 December 2020; Source: Elara Securities Estimate
Exhibit 38: SUMICHEM’s high P/E is in line with
industry-leading ROE
Source: Company, Elara Securities Estimate
Exhibit 40: EV/EBITDA vs ROCE for SUMICHEM and
peers
Source: Company, Elara Securities Estimate
Key risks
Related party transaction
Any move by group companies to charge a higher price
for its technicals or allow lower margin for the listed
entity would hit profitability. Further, parent SCC
currently does not charges any royalty. Any move to
charge royalty is a key risk to our call.
Currency exposure
SUMICHEM imports raw materials and finished goods
worth INR 2.48bn pa. Even after considering export
revenue of ~INR 0.8bn, SUMICHEM remains a net
importer. Also, there could be a difference in timing of
exports and imports, which exposes it to risk of volatility
in exchange rates. However, the company has proven its
ability to manage currency risk through forex hedging. BYRCS
CHMB
CRIN DAGRI
PI
RALI
SUMICHEM
UPLL
y = 0.2001x + 15.726R² = 0.0058
0
5
10
15
20
25
30
35
40
45
14.0 19.0 24.0 29.0
PE
(x)
ROE (%)
BYRCS
CHMBCRIN
DAGRI
INST
PI
RALI
SUMICHEM
y = 0.1306x + 9.1345R² = 0.0184
0
5
10
15
20
25
30
14.0 19.0 24.0 29.0 34.0
EV
/EB
ITD
A (
x)
ROCE (%)
Exhibit 39: Peer valuation
Company Ticker Rating Mkt cap CMP TP Upside P/E (x) EV/EBITDA (x) ROCE (%) ROE (%)
(INR bn) (INR) (INR) (%) FY21E FY22E FY21E FY22E FY21E FY22E FY21E FY22E
UPL UPLL IN Buy 338.1 442 569 29 11.7 9.3 6.7 5.5 10.0 11.3 14.2 16.0
PI Industries PI IN Accumulate 321.3 2,335 2,320 (1) 49.1 35.2 33.6 24.3 19.4 19.6 16.9 16.4
Bayer CropScience BYRCS IN Accumulate 236.7 5,271 5,495 4 34.6 28.8 25.3 20.8 20.6 18.5 21.9 21.7
Coromandel International CRIN IN Buy 234.2 801 1003 25 17.8 16.0 11.9 10.5 28.5 28.7 24.7 22.7
Sumitomo Chemicals SUMICHEM IN Accumulate 150.2 300 330 10 48.1 38.6 14.1 11.4 27.6 29.5 22.1 23.6
Chambal Fertilisers CHMB IN Buy 95.7 230 302 31 7.5 6.9 6.5 5.7 17.7 20.4 29.4 26.5
Rallis India RALI IN Accumulate 56.4 290 291 0 23.5 20.0 14.3 11.8 17.4 18.7 16.3 17.5
Dhanuka Agritech DAGRI IN Buy 36.6 746 948 27 17.9 15.7 14.5 12.6 33.4 32.4 25.7 24.8
Insecticides India INST IN Buy 9.7 467 606 30 8.7 7.7 5.6 5.1 15.8 16.2 13.5
Note: pricing as on 15 December 2020; Source: Elara Securities Estimate
Sumitomo Chemicals
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Exhibit 42: Aggressive growth phase: FY11-19
Source: Company, Elara Securities Research
Exhibit 43: Key management personnel as on FY20
Employees Designation Qualification Experience
Dr Mukul Asher Chairman & Independent Director
Graduate in Commerce Advisor to governments in Asia on tax policy & pension reforms and to multi-lateral institutions, including IMF, Asian Development Bank, PFRDA of India, Government of Gujarat and the World Bank
Chetan Shah Managing Director Graduate in Commerce & MBA
43 years of industry experience in various leadership and senior management roles
Sushil Marfatia Executive Director Chartered Accountant 42 years of industry experience. Worked with New Chemi Industries for 33 years, which was later merged with SUMICHEM
Source: Company, Elara Securities Research
Exhibit 44: Strategically located manufacturing facilities
Plant Area (acres) Segment served Products manufactured
Bhavnagar ~58 Manufacturing of technical grade pesticides and formulations Technical grade products: Chlorpyriphos, Profenophos, Glyphosate, Tebuconazole Tech, Quinalphos, Imidacloprid, Thiacloprid, Acetamiprid, Byspyribac Sodium, Aluminium Phosphide, Zinc Phosphide, Sulphur WDG, Fenpropathrin Formulations for above TG products and other specialty and generic products
Gajod ~120 Production and manufacturing of metal phosphides, sulphur WDG and other WDG formulations
Tarapur ~5 Production and manufacturing of active ingredients
Vapi ~6 Formulation & Packaging
Silvassa ~3 Formulation of Glyphosate and other speciality products
Source: Company, Elara Securities Research
7.2 6.9 7.8 9.8 10.3 9 9.711.9 13.2
2.3 4.54.9
6.5 7.1 7.9 8.59.0
10.0
0
5
10
15
20
25
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
(IN
R b
n)
ECC SUMICHEM
Exhibit 41: Exploration phase: FY00-09
Source: Company, Elara Securities Research
SUMICHEM incorporated
in India as EHD (HHI) distribution
company
Manufacturing JV with New
Chemi Industries
Starts ASD
business
Starts EHD (public health
business)
Acquires EHD (HHI) unit from
Bayer Vapi
Acquires Sulfosulfuron rights from Monsanto
Starts animal nutrition
sales: INR 2bn
FY00 FY01 FY02 FY03 FY05 FY06 FY10
Company Description Sumitomo Chemicals was incorporated in 2000 as a wholly owned subsidiary of Japan’s Sumitomo Chemical
Company (SCC) to drive expansion of its health crop sciences business in India. SUMICHEM is primarily engaged in
manufacture and sale of speciality and generic products under the agrosolutions division (ASD), environmental
health division (ENH) and animal nutrition division (AND). It has strong R&D capabilities with 75 engineers and
scientists capable of creating new combination process developments and improvement. Recently, Excel Crop Care,
a leading firm engaged in manufacturing and marketing of crop protection, soil nutrition, seed treatment and post-
harvest products, was merged with SUMICHEM. The combined entity’s pan-India distribution network ensures
strong presence with retailers as well as farmers and on-time feedback mechanism. It has five manufacturing units
strategically located in Gujarat and Maharashtra. The company aims to invest ~15% of consolidated EBITDA every
year to upgrade manufacturing facilities and capacity expansion to cater to strong domestic and global demand.
Sumitomo Chemicals
22 Elara Securities (India) Private Limited
Coverage History
Date Rating Target Price Closing Price
1
15-Dec-2020 Accumulate INR 330 INR 300
Guide to Research Rating
BUY Absolute Return >+20%
ACCUMULATE Absolute Return +5% to +20%
REDUCE Absolute Return -5% to +5%
SELL Absolute Return < -5%
1
150
170
190
210
230
250
270
290
310
330
Jan
-20
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Au
g-2
0
Oct-
20
De
c-2
0
Not Covered Covered
Elara Securities (India) Private Limited
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Disclosures & Confidentiality for non U.S. Investors
The Note is based on our estimates and is being provided to you (herein referred to as the “Recipient”) only for information purposes. The sole purpose of this
Note is to provide preliminary information on the business activities of the company and the projected financial statements in order to assist the recipient in
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Any clarifications / queries on the proposal as well as any future communication regarding the proposal should be addressed to Elara Securities (India) Private
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Elara Securities (India) Private Limited is maintaining arms-length relationship with its associate entities.
Research Analyst or his/her relative(s) may have financial interest in the subject company. Elara Securities (India) Private Limited does not have any financial
interest in the subject company, whereas its associate entities may have financial interest. Research Analyst or his/her relative does not have actual/beneficial
ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Elara
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relative or Elara Securities (India) Private Limited or its associate entities does not have any other material conflict of interest at the time of publication of the
Research Report.
Research Analyst or his/her relative(s) has not served as an officer, director or employee of the subject company.
Research analyst or Elara Securities (India) Private Limited have not received any compensation from the subject company in the past twelve months. Associate
entities of Elara Securities (India) Private Limited may have received compensation from the subject company in the past twelve months. Research analyst or Elara
Securities (India) Private Limited or its associate entities have not managed or co-managed public offering of securities for the subject company in the past twelve
months. Research analyst or Elara Securities (India) Private Limited or its associates have not received any compensation for investment banking or merchant
banking or brokerage services from the subject company in the past twelve months. Research analyst or Elara Securities (India) Private Limited or its associate
entities may have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject
company or third party in connection with the Research Report in the past twelve months.
Elara Securities (India) Private Limited
24
Disclaimer for non U.S. Investors
The information contained in this note is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although
we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.
Disclosures for U.S. Investors
The research analyst did not receive compensation from Sumitomo Chemicals India Limited.
Elara Capital Inc.’s affiliate did not manage an offering for Sumitomo Chemicals India Limited.
Elara Capital Inc.’s affiliate did not receive compensation from Sumitomo Chemicals India Limited in the last 12 months.
Elara Capital Inc.’s affiliate does not expect to receive compensation from Sumitomo Chemicals India Limited in the next 3 months.
Disclaimer for U.S. Investors
This material is based upon information that we consider to be reliable, but Elara Capital Inc. does not warrant its completeness, accuracy or adequacy and it
should not be relied upon as such.
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