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COROMANDEL INTL
 
  

 

SHARETIPSINFO >>Research Reports >>Coromandel Intl>> (15-06-2013)

 

LISTING
CMP
Rs 187
52 WEEKS HIGH/LOW
Rs 299.90 /Rs 180
FACE VALUE
Rs 1
PE RATIO
11.87
MARKETCAP
Rs 5,349 crore
INDUSTY PE
7.13
FAIR VALUE
Rs 216

Theme of Investment – Monsoon Pick

Key Positive:

  1. Good Monsoon always boosts demand of fertilizers.
  2. Any change in urea pricing policy to market determined rate will act as positive for the stocks.
  3. Market determined rate for nutrient based subsidy is positive.
  4. Acquisition of stake in Andhra Pradesh Gas Power Corporation (APGPCL) will give Coromandel access to captive power production capacity and lower its sourcing costs.
  5. At the end of Q4FY13, Coromandel’s subsidy receivables stood at Rs12.6bn.
  6. Coromandel’s management guided for capacity utilization of 70-80% on standalone manufactured fertilizer capacity in FY14E.

COMPANY OVERVIEW:
Coromandel, incorporated in 1961, is owned by the Murugappa Chettiar Group. The company manufactures and markets fertilizers and pesticides. It is the second largest phosphatic fertilizer player in India (after IFFCO). Its fertilizers are sold under brand names - Gromor, Paramfos, Parry Gold, Parry Super and Godavari. For crop protection, Coromandel produces insecticides, fungicides, herbicides, and markets them in India and abroad. It has also ventured into the retail business, setting up more than 425 rural retail centers in agri and lifestyle segments. Coromandel markets its products all over India through 15 marketing offices and a network of 12,000 dealers besides exporting pesticides to various countries across the globe. Coromandel's fertilizer plants are located at Visakhapatnam (Vizag) and Kakinada in Andhra Pradesh, and Ennore and Ranipet in Tamil Nadu with a combined production capacity of 3.3 mn MT of fertilizers. These plants are state-of-the-art facilities with a good infrastructure support and integration, enabling high capacity utilization for Coromandel and also making it the lowest cost producer of complex fertilizers in India.

Expansion Plans:

  1. Andhra Pradesh, Maharashtra, Karnataka and Tamil Nadu are key marketing states for Coro Intl and these states were adversely impacted on account of seasonal factor. It led to drop in DAP and complex fertilizer consumption by ~44% and ~33% YoY, respectively in these states. However, the company has gained market shares in all the above key states.
  1. The company expects overall DAP and complex fertilizer demand to pick up from 16.4mMT in FY13 to 18m MT in FY14.
  1. Agri commodity prices as well as farmer profitability are good at present. The company expects farmer incomes to rise in near future.
  1. The management guided for 70-80% of expanded capacity utilization i.e. 3.6mn tons, subject to normal monsoon during FY14.

Impressive performance of Sabero Organics:
Coromandel currently owns ~74.6% stake in Sabero Organics (Sabero). Sabero posted a strong performance during the quarter with revenue of INR1.2bn (up 32.2% YoY) and EBITDA of INR131mn (Q4FY12 – Loss of INR32m).

Recent Developments:

  1. Coromandel reported consolidated sales of Rs20.8 bn (-25% YoY; -15% QoQ) which were in line. Reported 4QFY13 consolidated EBITDA of Rs840 mn (-46% YoY; -35% QoQ) was lower than estimate.
  2. Kakinada plant is likely to be commissioned with the regulatory approval. The recent acquisition of Liberty phosphate will help the company to increase the geographic reach.

INDUSTRY OUTLOOK:
At present, the demand scenario on non-urea fertilizer looks good. But, excessive inventory has to liquidate in H1FY14. Industry is carrying gross inventory of 6-6.5mMT of DAP and complexes (normal inventory – 2-2.5m MT) at present.

Considering the fall in global raw material prices, the government is expected to cut non urea subsidy for FY14.

INVESTMENT RATIONAL:

  1. Capacity expansion plan, acquisition of Liberty phosphate help to show robust growth
  2. Turnaround of Sabero organic coupled with anticipation of better FY14 to support the financials, going forward.
  3. Non‐subsidy business remains strong.
  4. Among Coromandel’s primary markets (Andhra Pradesh, Karnataka, Tamil Nadu & Maharashtra), Coromandel was able to improve its market share in DAP from 9.7% to 14.8%. In NPK, Coromandel’s market share improved to 47.5 % from 44.7% in these primary markets in FY13.
  5. Acquisition of stake in Andhra Pradesh Gas Power Corporation (APGPCL) will give Coromandel access to captive power production capacity and lower its sourcing costs.
  6. TIFERT is under commissioning and Coromandel expects first shipment from TIFERT to sail out by second half of May.
  7. Management expects complex fertilizer consumption to improve by 10% in FY14.
  8. At the end of Q4FY13, Coromandel’s subsidy receivables stood at Rs12.6bn.
  9. Coromandel’s management guided for capacity utilization of 70-80% on standalone manufactured fertilizer capacity in FY14E.

Risk:

  1. Poor monsoon could hit fertilizer demand.
  2. Delay in payment of fertilizer subsidies by government can also mar prospects.
  3. Though Coromandel has tied up for phosphoric acid and rock phosphates, any issue on the suppliers’ front may pose a hazard.

TREND OF SHAREHOLDING PATTERN IN LAST 4 QUARTER:

 

Q4FY13

Q3FY13

Q2FY13

Q1FY13

PROMOTERS

63.82%

63.83%

63.84%

63.88%

FII

6.49%

7.27%

7.28%

7.63%

DII

7.32%

7.45%

7.59%

7.51 %

FINANCIAL:

FY13

FY12

FY11

FY10

TOTAL INCOME

8627

9939

7716

6526

EXPENDITURE

-7825

-8797.5

-6581

-5683

PBIDTA

802

1141.5

1135

843

DEPRECIATION

-58.55

-56.16

-61.7

-59.23

PBIT

743.45

1085.34

1073.3

783.77

INTEREST

-176.7

-116.5

-84.2

-75.4

PBT

566.75

968.84

989.1

708.37

TAX

-122.4

-276.5

-294.2

-24.24

PAT

444.35

692.34

694.9

684.13

Key Highlights:

  1. Total Income grew at CAGR of 9.65% to Rs 8, 627 crore in last four years (YoY).
  2. PBDITA remained flat over the period of 4 years. Higher input cost has put pressure on margins.
  3.   PAT showed a negative growth of 13%. Higher interest cost and raw material were the key reason.

RATIOS:

FY13

F12

FY11

FY10

EPS

15.69820622

24.45931382

24.54975

24.16927

PBIDTA MARGIN

9.296395039

11.48505886

14.70969

12.91756

NPM

5.150689695

6.965891941

9.005962

10.48314

INTEREST COVER

53.10357143

83.48769231

178.8833

58.05704

 
Key Highlights:

  1. EPS showed negative growth of 13%.
  2. PBIDTA Margins got squeezed by 350 bps in last 4 years.
  3. NPM declined by 5%. Higher interest cost led to decline in NPM.
  4. Interest Cover declined to 53 from 58 over period of 4 years.

COMPARISION OF Q3FY2013 WITH Q3FY2013:

Q4FY13

Q4FY12

% CHANGE

TOTAL INCOME

2094

2762

-24.1

EXPENDITURE

-1995

-2592

PBIDTA

99

170

-41.7

DEPRECIATION

-19

-17.8

PBIT

80

152.2

-47.43

INTEREST

-58

-50.3

PBT

22

101.9

-78.41

TAX

-9.6

-39.8

PAT

12.4

62.1

-80.03

Key Highlights:

  1. Total Income declined 24% (YoY).
  2. PBDITA declined by 41.7% (YoY).
  3. PAT down by 80.3% (YoY).

VALUATION & OUTLOOK:
We expect FY14E EPS of Rs 18, stock is trading at PE of 10.5X. We value the stock on conservative basis at 12X; the fair value comes at Rs 216.
Generally stock shows good run up during the monsoon season. Also fertilizer sector outlook is likely to improve going forward.

CONCLUSION:
Investor can pick the stock with monsoon theme. 10-15% return is expected in next 6-8 months.
The Fair Value is Rs 216.

 

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