Buy Coromandel International, target price Rs 910: Emkay Global

Emkay Global has given a buy rating to Coromandel International with a 12-month target price of Rs 910. The share price moved up by 0.89 per cent from its previous close of Rs 752.20. The stock’s last traded price is Rs 758.90.

The brokerage has upgraded Coromandel International to buy from hold rating as investors are taking note of doubling of nutrient segment’s ROCE over the last five years. The brokerage believes that the company deserves to trade at a premium to its historical valuations. FY20 has been a transformational year for Coromandel. Its fertilizer segment’s ROCE (pre-tax) jumped 541 bps year on year to 32.1 per cent in FY20.

Coromandel's strategy to push more NPK and manufactured volumes has paid off. Apart from a change in the product mix, ROCE and EBITDA in the fertilizer segment were aided by 1) lower raw material prices, 2) backward integration of Phos Acid, and 3) robust acreages aided by rainfall in its key geographies (AP/TG/KA/MH).

Investment Rationale

With a structural change in the ROCE profile of the fertilizer segment, Coromandel should trade at a premium to its historical average. The brokerage has upgraded the company to buy with a revised target price of Rs 910 and increases its one-year forward P/E multiple to 19 times vs. 17 times earlier and rolled forward to Jun-22E EPS.

It has increased its target multiple due 1) change in ROCE profile, 2) backward integration, 3) robust demand environment, and 4) pick up in crop protection segment

Key risks are a sharp change in raw material prices, erratic weather and lower demand in export markets.



Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 2869.32 crore, down -12.48 per cent from last quarter sales of Rs 3278.65 crore and up 8.75 per cent from last year's same quarter sales of Rs 2638.34 crore. The company reported net profit after tax of Rs 233.77 crore in the latest quarter.


Promoter/FII Holdings

Promoters held 61.63 per cent stake in the company as of March 31, 2020, while FIIs held 3.5 per cent, DIIs 19.71 and public and others 15.16 per cent.