Sumitomo Chemicals semiconductor materials opportunity could add 25 per cent EBITDA from FY30E

Investment View and Target Price

Anand Rathi Research maintains a BUY recommendation on Sumitomo Chemicals, identifying a potential high-purity semiconductor-chemicals project in India as a new, high-quality, long-term growth leg.

The broker raises its target multiple to 40 times FY28E EPS from 36 times, resulting in a revised target price of Rs650 per share, compared with Rs570 previously. The higher multiple reflects stronger long-term growth, superior execution, SCC parentage, a debt-free and cash-generative balance sheet, and potential re-rating as the company evolves beyond a pure-play agrochemical franchise towards a combination of agrochemicals and semiconductor materials.

Potential Semiconductor-Chemicals Project

The proposed collaboration between Tata Electronics and Sumitomo Chemical Company, Japan (SCC) is likely to be housed under, or closely tied to, listed Sumitomo Chemical India Limited (SCIL), a joint venture in which SCIL holds the majority. Anand Rathi's conviction is based on the following factors:

• SCIL management has confirmed active discussions with SCC's ICT and Mobility Solutions division and indicated that an announcement is imminent.
• SCC's FY25 materials identify India as a location for the commercialisation of high-purity chemicals.
• SCC has stated its focus on minority shareholder interests.
• SCIL is strategically important to its parent.

If the business is structured within SCIL, Anand Rathi estimates that the project could add approximately Rs3,000 million of EBITDA from FY30E, around 25 per cent above its existing estimates.

The broker expects a 30 per cent capital subsidy under ISM 2.0, potentially supplemented by state incentives, to make the investment return-accretive. Its scenario analysis assumes total subsidies equivalent to 50 per cent of capital expenditure, comprising 30 per cent from ISM 2.0 and 20 per cent from state incentives. Under illustrative gross capital-outlay scenarios of Rs500 crore, Rs1,000 crore and Rs1,500 crore, it models EBITDA margins of 18 per cent and a pre-tax return on subsidised own capital of 19 per cent.

Revenue contribution is expected only from FY30E-FY31E, following project approval, construction and a 12-18 month customer qualification cycle.

Addressable Market and Product Opportunity

The addressable opportunity is linked to Tata Electronics' Dholera fab, which is planned for 50,000 wafer starts per month and 28-110nm mature-node products. Anand Rathi argues that high-purity wet chemicals require local production because freight costs are high and purity can degrade during transit.

SCC's relevant capabilities include high-purity wet chemicals, i-line and KrF photoresists, functional chemicals and aluminium sputtering targets. The broker estimates that SCC could supply roughly 20-40 per cent of Dholera's purchased fab-material requirements, rather than being a full-service supplier.

Core Business and Earnings Outlook

The core Sumitomo Chemicals business remains a meaningful earnings base. Consolidated FY26 revenue was Rs32,383 million, EBITDA was Rs6,709 million, EBITDA margin was 20.7 per cent and reported PAT was Rs5,430 million. Anand Rathi broadly maintains its FY27E and FY28E estimates and forecasts approximately 15 per cent organic EBITDA CAGR over FY26-FY30E.

Key Catalysts

• Formal confirmation that the semiconductor-materials capex will be booked through listed SCIL.
• Details of semiconductor capex and subsidies.
• Progress on Tata Electronics supply and customer qualification.
• Appointment of an electronic-materials representative to SCIL's board.

Key Risks

• SCC could establish a new wholly owned Indian entity, leaving SCIL with rental or tolling income rather than chemical margins.
• Competition could increase, including from Tata's materials memorandum of understanding with Merck.
• Delays at Dholera or in the qualification process could defer revenues beyond FY30E-FY31E.
• Initial margins from wet chemicals could be lower before higher-intellectual-property products are localised.
• The core business remains exposed to adverse weather and commodity-price volatility.
• A complete glyphosate ban would be a risk, as glyphosate accounted for approximately 14-15 per cent of FY26 revenue.