Sumitomo Chemicals has reported strong Q4FY22 earnings with revenue growth of 24.5% YoY. The gross margin improved 196bps led by both price hikes and improved revenue mix; lower staff costs and operating leverage improved EBITDA margin by 303bps YoY in Q4FY22 and agro-chemicals segment reported strong revenue growth of 29.3% YoY.

ICICI Securities models Sumitomo to gain market shares from smaller players in Indian agrochemicals. ICICI Securities also believes outsourcing of products to global group companies offers huge value creation opportunity to Sumitomo India in medium-long term. It will benefit from its parent’s R&D support and distribution expansion in India. ICICI Securities models it to report earnings CAGR of 11.1% over FY22-24E.

Q4FY22 result: Sumitomo reported strong revenue, EBITDA and PAT growth of 24.5%, 52.7% and 38% YoY, respectively. Gross and EBITDA margins improved 196bps and 303bps YoY, due to price hikes, reduction in staff costs (33bps) and other expenses (74bps). The company reported PAT of Rs747mn, up from Rs541mn in Q4FY21.

Segment-wise performance: In Q4FY22, agrochemicals (93% revenue contribution) reported revenue increase of 29.3% YoY. Operating margin of agrochemicals improved 363bps YoY. In FY22, agrochemicals and others revenue increased 14.9% and 29.1%, respectively.

Rising global opportunity: Global shortage of food grains and other agricultural produce due to Russia-Ukraine conflict will boost demand for agro-chemicals to improve the productivity of the land. We believe it presents a unique opportunity to Indian agro-chemicals companies like Sumitomo India to export its agro-chemicals. Additionally, ICICI Securities notes Sumitomo India has approval from its parent to manufacture and supply five proprietary products to SCC Japan and its global affiliates (revenue potential of these five products is Rs2-2.5bn with similar profit margins).