Sumitomo Chemical India Limited — Q2 FY25 earnings call

Call held 29 Oct 2024

Management summary

Sumitomo Chemical India delivered a strong Q2 FY25 performance characterized by exceptional volume growth that more than offset significant pricing headwinds. The company successfully navigated a volatile domestic monsoon and a sharp decline in cotton acreage by focusing on demand generation and new product launches. Management remains optimistic about the Rabi season, backed by high reservoir levels and stable input costs, while maintaining a conservative full-year EBITDA margin guidance of 18-20%.

Highlights

  • Revenue for Q2 FY25 reached ₹998 crores, a 9% YoY increase, driven by strong volume growth despite price declines.

  • EBITDA surged 31% YoY to ₹245 crores, with EBITDA margins expanding 402 bps to 24.8%.

  • Profit After Tax (PAT) grew 34% YoY to ₹193 crores, with PAT margins improving to 19.5%.

  • Export revenue share increased significantly to 17% in H1 FY25, up from 11% in the previous year.

  • Domestic volume growth was robust at 15-16% for H1, though value growth was limited to 5% due to ~15% price erosion.

  • Export volumes grew by approximately 95% in H1, signaling a strong rebound in global markets like Japan and LATAM.

  • New product launches (last 3 years) now contribute 8-9% of total revenue, growing 65% YoY.

  • Environmental Clearance (EC) received for the Dahej plant; Phase 1 capex of ₹300 crores planned.

Key financials

2 periods

Headline

  • Revenue
    ₹998 Cr
    YoY +9% QoQ +18%
  • EBITDA Margin
    24.8%
  • PAT
    ₹193 Cr
    YoY +34% QoQ +52%
  • Gross Profit Margin
    42.6%

H1

  • Domestic Volume Growth
    15.5%
    YoY +15.5%
  • Export Revenue Share
    17%

What they filed

Q1 FY27: revenue up 0.6%, net profit up 20.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue988 642 679 1,057 930 −6%568 −12%684 +1%1,063 +1%
EBITDA245 106 120 219 218 −11%99 −7%134 +12%233 +6%
Net profit193 87 100 178 178 −8%76 −13%111 +11%215 +21%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Insecticides
    39% Revenue Share (H1)
  • Herbicides & PGR
    26% Revenue Share (H1)
  • Fungicides
    9% Revenue Share (H1)

Guidance & targets

Margin

  • Full Year EBITDA Margin Margin · FY25 · High confidence 18-20%
    on a full year basis... we should somewhere be in the similar range, 18% to 20% kind of EBITDA level margins.

    — Kunal Mittal, Senior VP

Revenue

  • Domestic Value Growth Revenue · FY25 · Medium confidence 9-10%

    Previously 12% → 9-10%

    for a full year scale, we are looking at 12% growth, that may be too stretching. Probably I would look at about 9% to 10% growth on a full year basis.

    — Suresh Ramachandran, Deputy MD

Capex

  • Dahej Phase 1 Capex Capex · next 2-3 years · High confidence ₹300 crores
    maybe the first phase will be around this amount [INR300 crores]. And if we go in for the full site development, it can cost you INR600 crores - INR700 crores.

    — Chetan Shah, MD

Capacity

  • Dahej Phase 1 Revenue Potential Capacity · Maturity · Medium confidence ₹600 crores
    Correct, 2x of the capex size should be the revenue potential but on a maturity level.

    — Kunal Mittal, Senior VP

Risks & concerns

  • Cotton Acreage Decline

    medium

    Cotton acreage in North India fell nearly 40% due to pink bollworm infestation and low commodity prices; management does not expect a quick recovery in this region.

    Management acknowledged

  • China Overcapacity and Dumping

    medium

    Management acknowledges excess capacity in China but counters it with a strategy focused on 'premiumness' and a stable customer base.

    Analyst acknowledged

  • Rabi Season Seasonality

    low

    Historically, Rabi margins are lower than Kharif, which is why management maintains a lower full-year margin guidance despite strong Q2 results.

    Management acknowledged

Areas of evasion (2)

  • Specific product-wise revenue numbers for new launches.
  • Exact timelines for the second CRAMS plant ramp-up.

Q&A highlights

3 direct
Sustainability of High EBITDA Margins Direct
Rabi season margins are always lower than the Kharif season... we are taking more of a historic trend rather than an optimistic trend.

Management is tempering expectations despite a record 24.8% margin in Q2, citing seasonality and competitive pricing in the second half.

Asked by Prashant Biyani, Elara Securities

Domestic Growth vs. Price Erosion Direct
The volume growth is upwards of 15% plus... this 15% to 16% kind of volume growth is quite encouraging for us.

Reveals that the underlying demand is much stronger than the 5% value growth suggests, as the company is gaining market share through volume despite a 15% price drop.

Asked by Priyank Chheda, Vallum Capital

Export Rebound and LATAM Inventory Direct
95% is the total growth and 15% is the price reduction... So the volume growth is around 95%.

Confirms a massive recovery in exports as global inventory overhangs (especially in LATAM) clear up, providing a significant tailwind for H2.

Asked by Dhavan Shah, AlfAccurate Advisors

2 min read 5 chapters

Detailed narrative

Export Rebound Drives Growth

Exports saw a dramatic turnaround in H1 FY25, with revenue share jumping to 17% from 11% YoY. This was led by a 95% volume growth, particularly in Japan and South America, where sales increased by 122% and 167% respectively. Management noted that the global inventory overhang that plagued the previous year has normalized, allowing for robust shipments of off-patent products from the Excel Crop Care portfolio.

Domestic Volume Resilience Amid Price Erosion

The domestic business faced a 15% average price decline in H1, yet managed 5% value growth due to a strong 15-16% increase in volumes. This volume growth was supported by the 'Every Day Farmer's Day' campaign, which engaged over 5.5 lakh farmers. Despite uneven rainfall disrupting some spraying schedules, the company's focus on volume growth helped maintain stable profitability.

Dahej Expansion Enters Execution Phase

Management confirmed receipt of Environmental Clearance (EC) for the Dahej site without specific conditions. Phase 1 of the project is estimated at ₹300 crores, with construction expected to begin in early 2026. The plant will have a flexible 'kitchen plant' design to manufacture a mix of new products from Japan and generic products, with an expected asset turnover of 2x at maturity.

New Product Portfolio Gains Traction

New products launched in the last three years now contribute 8-9% of total revenue, up from 3-4% in the prior year. Offerings like Meshi, Ormie, and Portion saw 65% YoY growth. The company plans to continue this momentum by launching 1-2 products annually in the bio and sustainable category, leveraging the global expertise of parent company Sumitomo Chemical Japan and Valent BioSciences.

Cotton Acreage Challenges in North India

A significant headwind discussed was the 40% decline in cotton acreage in North India. This was attributed to severe pink bollworm infestations over the last two years and low commodity prices, leading farmers to shift to crops like paddy and corn. While management expects cotton to bounce back in South and West India, they remain cautious about a recovery in the Northern belt.

This is an AI-generated summary of a publicly available earnings call transcript.
View original transcript

More Chemicals earnings calls