Sumitomo Chemical India Limited — Q4 FY24 earnings call

Call held 28 May 2024

Management summary

Sumitomo Chemical India delivered a resilient Q4 performance, marked by significant margin expansion despite a challenging full year for the agrochemical sector. While FY24 was marred by high-cost inventory liquidation and global pricing headwinds (25-30% drops in generics), the company successfully optimized its cost structure and working capital. Management is now pivoting toward volume-led growth and capacity expansion at Bhavnagar and Dahej to drive future performance.

Highlights

  • Q4 Revenue at ₹674 crores, up 3% YoY and 24% QoQ, showing signs of recovery.

  • Q4 EBITDA surged 74% YoY to ₹140 crores with margins expanding 843 bps to 20.8%.

  • FY24 Revenue declined 19% YoY to ₹2,844 crores due to global pricing pressure and erratic weather.

  • Gross margins in Q4 hit 41.7%, up 1,042 bps YoY, driven by liquidation of high-cost inventory and lower procurement costs.

  • Cash and cash equivalents stood strong at ₹1,207 crores as of March 31, 2024.

  • Management targets 12-15% volume growth for FY25 to offset generic price declines of 25-30%.

  • New product launches (last 2-3 years) targeted to contribute 8-10% of total revenue in FY25.

Concerns

  • Global Generic Pricing Pressure

Key financials

  1. Revenue ₹674 Cr +3%YoY
  2. EBITDA Margin 20.8%
  3. PAT ₹110 Cr +52%YoY
  4. Gross Margin 41.7%

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

  • Agrochemicals (FY24 Revenue Mix)
    41% Insecticides22% Herbicide10% PGR8% Fungicides
  • Geographic Mix (FY24)
    80% Domestic Revenue20% Export Revenue

Guidance & targets

Volume

  • Volume Growth Volume · FY25 · Medium confidence 12-15%
    So overall, I'm looking at somewhere around 12% to 15% volume.

    — Suresh Ramachandran, Whole Time Director

Capex

  • New Project Capex Cycle Capex · Immediate basis · High confidence ₹250-300 crores
    we are looking to invest about INR250 crores to INR300 crores to start this new capex cycle.

    — Kunal Mittal, Senior VP

Revenue

  • New Product Contribution Revenue · FY25 · Medium confidence 8-10%
    And we hope to deliver about 8% to 10% growth, if the season is normal, in contribution from the new products.

    — Suresh Ramachandran, Whole Time Director

Other

  • Green Power Generation Other · by end of FY25 · High confidence 100%
    we want to be 100% green power generation company by the end of this financial year.

    — Chetan Shah, Managing Director

Risks & concerns

  • Global Generic Pricing Pressure

    high

    Generic prices have dropped 25-30%, requiring significant volume growth to maintain revenue levels.

    Management acknowledged

  • Geopolitical Supply Chain Disruption

    medium

    Potential closure of the Taiwan route could disrupt China-linked supply chains and increase transport costs.

    Management acknowledged

  • Delayed Export Recovery

    medium

    Global destocking and LatAm weather issues have delayed the ramp-up of new export-oriented capacities like Tarapur.

    Both acknowledged

Areas of evasion (2)

  • Specific market share numbers for OLED/LED chemicals of the parent company.
  • Exact breakup of sales to group companies vs outsiders.

Q&A highlights

2 direct
FY25 Guidance and Pricing Headwinds Direct
the prices itself have dropped 25% or so... the only answer to your question is to ramp up the volumes.

Confirms that revenue growth will be volume-driven as generic prices remain depressed.

Asked by Swati Hiroo

Tarapur Plant Revenue Delay Direct
we, unfortunately, have lost out on this revenue in '24-'25 or we will be losing out. But we expect that from '25-'26 there will be a full production.

Management transparently admitted a one-year delay in the ramp-up of the Tarapur facility due to global demand softness.

Asked by Rohit Nagraj

Entry into IT Chemicals Partial
we have just got the preliminary inquiry from IT department of SCC Japan... we are committed to reply to them by first week of June.

Signals a potential diversification beyond agrochemicals into high-value electronic/IT chemicals, leveraging the parent company's strength.

Asked by Chintan Modi

2 min read 5 chapters

Detailed narrative

Inventory Liquidation Drives Margin Recovery

Sumitomo successfully liquidated high-cost inventory by the end of August 2023, allowing them to benefit from lower raw material prices in H2 FY24. This strategic move resulted in a massive 1,042 bps YoY expansion in Q4 gross margins to 41.7%. Management believes these margin levels are sustainable in a normalized environment, as they have moved past the 'extraordinary negative event' of high-cost inventory overhang.

Volume-Led Growth Strategy for FY25

With generic product prices declining by 25-30% across the industry, Sumitomo is pivoting to a volume-driven strategy. The company targets a 12-15% volume growth in FY25 to compensate for lower realizations. This growth is expected to be supported by a normal monsoon forecast and the ramp-up of recently launched proprietary products, which are targeted to contribute 8-10% of revenue.

Capex and Capacity Expansion Timelines

The company is embarking on a new capex cycle of ₹250-300 crores. While the Bhavnagar plant is expected to reach 100% export capacity in FY25, the Tarapur plant's full ramp-up has been pushed to FY26 due to global demand softness. For the Dahej site, environmental clearance is expected by the end of 2024, with the facility likely becoming operational in approximately two years (FY27).

Strategic Diversification into IT Chemicals

A significant highlight was the mention of potential entry into IT/Electronic chemicals, a core strength of the Japanese parent company. Sumitomo India has received a preliminary inquiry from SCC Japan regarding the Indian market landscape for these products. While in early discussion stages, this represents a major potential long-term growth lever beyond the traditional agrochemical business.

ESG and Operational Efficiency

Sumitomo is aggressively pursuing ESG goals, aiming to become a 100% green power generation company by the end of FY25 through a ₹25 crore investment in captive renewable energy. This initiative is expected to save approximately 2 crore units of electricity annually, with a cost saving of at least ₹4 per unit (totaling ~₹8 crores in annual savings). Additionally, the company reduced its working capital cycle by 33 days YoY through disciplined collection and inventory management.

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