Recommendations from Fertilizers Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

COROMANDEL INTERNATIONAL : PROFITING FROM PROTECTION

HERE IS WHY
☛Good growth potential
☛Strong market position
☛Good financial performance.

Coromandel International Limited operates in crop protection and nutrients and other allied businesses. The nutrient and other allied segment consists of phosphatic fertilisers, specialty nutrients and organic fertilisers. It also has retail business that provides agricultural inputs and agricultural services. The CPC segment comprises technicals, formulations and biopesticides. The company enjoys a considerable market presence in southern, eastern and western regions of the country and accounts for nearly 22 per cent of the domestic production capacity in India. It is the second-largest player in the country in the phosphatic fertiliser space with a market share of 15.7 per cent in FY20 and the largest single super phosphate player with a share of 14 per cent. 

The subsidised products are phosphatic fertilisers, while all the other businesses form non-subsidised products. The company benefits from its presence in the manufacturing of non-urea fertilisers where the share of subsidy in the total revenue was only around 25 per cent. Due to this, the impact of delays in subsidy disbursements from the Government of India is limited for Coromandel International. The company established a phosphoric acid plant at Vizag during FY20. Thereby it has become selfsufficient for its phosphoric acid requirements for its Vizag plant.

Besides operational synergies, it also helps in increasing the company’s market footprint. To further improve its manufacturing capability and position in the crop protection segment, it has added three new plants at Ankleshwar, Dahej and Sarigam. The company has a strong portfolio of bio-pesticides and is the largest ‘Azadirachtin’ manufacturer in the world. It also enjoys a prominent position in the speciality nutrients business, which is one of the fastest-growing agricultural input segments in India.

Low per capita consumption of agricultural chemicals in India offers significant upside potential. India’s low-cost manufacturing in crop protection and high capacity provide significant opportunities in the export market too. Further, the closure of China’s chemical units due to increased environmental scrutiny may provide an export opportunity for domestic players, thereby adding to export revenue. The company has shown good growth in the last few years. 

Its net sales have increased from Rs 11,082 crore in FY18 to Rs 13,136 crore in FY20. EBITDA in the same period increased from Rs 1,316 crore in FY18 to Rs 1,771 crore in FY20. The latest quarterly results were also encouraging. For the quarter ended June 2020, the company’s net sales increased 50.8 per cent to Rs 3,213 crore in Q1FY21 from Rs 2,130 crore in Q1FY20.

Operating profit showed an increase of 106 per cent to Rs 423.18 crore in Q1FY21 from Rs 205.26 crore in the same quarter last year. Operating profit margin for Q1FY21 stood at 13.17 per cent as against 9.63 per cent in the same quarter last year. Net profit for Q1FY21 stood at Rs 248.02 crore as against Rs 62.58 crore in the same quarter last year, showing an increase of 296.32 per cent. PAT margin for Q1FY21 stood at 7.72 per cent as against 2.94 per cent in the same quarter last year. ROCE for FY20 stood at 26.32 per cent. The company is trading at PE of 18.77x. On PB multiple, it is trading at 5.17x. The debt to equity for FY20 stood at a healthy 0.38. By virtue of these factors, our recommendation to reader-investors is to BUY this stock.