Coromandel International CMP 815

The company is the second-largest player in the phosphatic-fertiliser industry in India with a market share of around 17%. The company has also been gradually increasing the sale of non-subsidy-based products, including crop protection, speciality nutrients (secondary and micro-nutrients [sulphur, zinc, calcium, and boron], water-soluble fertilisers, and compost), and gypsum (a by-product from the manufacture of phosphoric acid). During April 2018, it also acquired the bio-pesticides business of E.I.D. Parry India Ltd. Increasing share of non-subsidy-based products, such as specialty nutrients, crop protection, and retail business has also reduced vulnerability of profits to changes in the government's subsidy policies.

Financial
Strong ROE and ROCE and which is around 27% and 26% respectively.

Stock PE (multiple forward) is around 16 which is fair as per Industry benchmark.

Promoter holding is also too strong around 57% (recently holding company EID parry sold 2% stake at 800-825 price), FIIs and mutual fund hold around 5.9% and 19.7% respectively.

- FY20 topline was around INR 13,137 Crs Vs. 13,225 Crs in F19 therefore slightly down.

- Q2FY21 topline was around INR 4,611 Crs Vs. 4,811 Crs in QFY20 therefore declined by 7% in YoY.

- Q2FY21 bottom line was around INR 589 Crs Vs. 504 Crs in YoY therefore up by 16%.

- Operating profit margin was around 18% in YoY and its highest among past 12 quarters.

Key Positive
- Coromandel, one of the flagship companies of the Murugappa group. At present, E.I.D. Parry (India) Ltd, a Murugappa group company, owns 60% of Coromandel.

- Debt is continoulsy reducing and down almost 532 Crs in Q2FY21 Vs. 1,625 Crs in March 2020. May be debt free by next year. As within 1.5 years debt repaid more than 80%.

- The company started benefitting from the completion of PA capex, increasing its PA capacity to 0.35 million metric ton (mmt) from 0.25mmt out of its annual requirement of around 0.85mmt.

- Company intends to increase the share of non-subsidised products to lower working capital and higher margins.

- In view of a rise in fertiliser sales, augmented by favourable monsoon prospects, high reservoir levels, and improved liquidity in the hands of farmer. At an industry level, Ind-Ra expects the fertiliser sector to record year-on-year volume growth of 10%-15% in FY21.

- Company is likely to incur a capex of INR 250-300 Crs by FY21 (to be funded fully by internal accruals) primarily for the CPC segment, de-bottlenecking activities, leading to an improvement in phosphatic capacity utilisations.

Risk/Weakness
- The Agriculture Ministry issued a draft order in May 2020 proposing to ban the manufacture and sale of 27 pesticides including three molecules manufactured by CIL. The latter form a sizeable share of CPC segment’s revenues and profitability. While CIL’s profitability might get affected in case the ban is implemented.

View Share support zone is 750/710. Recently promoter EID Parry has offloaded their stake around 2% due to this share price down by 5-7%. Dividend paying company and current year it was around INR 12 as compared to previous year it was around INR 3.5 per share. Mid to long term investor should continue with the company. At Current price it can be added and if it correct 770-780 added more target can be 880/950 in short to mid term.
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