India | Agrochemicals Initiating Coverage Sumitomo Chemicals€¦ · agrochemicals company globally, but it is the third largest in terms of patents underscoring its focus on R&D

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 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

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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

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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


Adjusted profit growth trend


Return ratios


13.7

17.0 18.0

18.5

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(IN

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Adjusted PAT PAT Growth

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23.6 24.2

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29.5 30.4

18

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28

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32


ROE (%) ROCE (%)

Sumitomo Chemicals


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


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Revenue (USD mn) No of Patents

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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


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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)


Sumitomo Chemicals


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


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


Sumitomo Chemicals


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)


100

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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


73 71

27 29

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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


Sumitomo Chemicals


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


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

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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


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


Sumitomo Chemicals


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


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

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r C

rop

Inse

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cid

es

I.

Dh

an

uka

Cry

sta

l

PI

Ind

.

SU

MIC

HE

M

(no

s)

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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


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.

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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


Exhibit 22: Exports revenue CAGR of 18%


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


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000


(IN

R m

n)

Exports sales

80% 78% 80% 79% 78% 78%

20% 22% 20% 21% 22% 22%

0%

20%

40%

60%

80%

100%


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

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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


Exhibit 26: Exports CAGR of 18% over FY20-23E


Exhibit 27: Sales CAGR of 14% over FY20-23E


Exhibit 28: EBITDA CAGR of 20% over FY18-21E

Source: Company, Elara Securities Estimates

Exhibit 29: PAT CAGR of 20% over FY18-21E


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


(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


(%)

(IN

R m

n)

EBITDA EBITDA margin

0

1,000

2,000

3,000

4,000

5,000


(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


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


Exhibit 31: Margin expansion to continue


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


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


Exhibit 34: With limited working capital strain, cash

flow conversion to be healthy


15

18

21

24


(%)

0

10

20

30

40


(%)

Gross margin EBITDA margin

110

115

120

125

130

135

140

145


(Da

ys)

Cash conversion cycle

0

1,000

2,000

3,000

4,000


(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


(%)

OCF (% of sales) FCF (% of sales)

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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


Exhibit 36: Return ratios climb up on increasing

earnings growth


(6,000)

(5,000)

(4,000)

(3,000)

(2,000)

(1,000)

0


I(N

R m

n)

Net debt

10

15

20

25

30

35


(%)

ROE ROCE

Sumitomo Chemicals


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


Exhibit 38: SUMICHEM’s high P/E is in line with

industry-leading ROE


Exhibit 40: EV/EBITDA vs ROCE for SUMICHEM and

peers


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


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Exhibit 42: Aggressive growth phase: FY11-19


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


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


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


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


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


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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

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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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preceding the date of publication of Research Report. Associate entities of Elara Securities (India) Private Limited may 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. Research Analyst or his/her

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.


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.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities, financial instruments or

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decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation

of particular securities, financial instruments or strategies to you. Before acting on any recommendation in this material, you should consider whether it is

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Certain statements in this report, including any financial projections, may constitute “forward-looking statements.” These “forward-looking statements” are not

guarantees of future performance and are based on numerous current assumptions that are subject to significant uncertainties and contingencies. Actual

future performance could differ materially from these “forward-looking statements” and financial information.


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India | Agrochemicals Initiating Coverage Sumitomo Chemicals€¦ · agrochemicals company globally, but it is the third largest in terms of patents underscoring its focus on R&D

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