Coromandel International Limited Multibagger and Stock Market Tips

Company Review: Coromandel International Limited, originally named Coromandel Fertilizers was incorporated in 1961, by International Minerals and Chemical Corporation (IMC), Chevron Chemical Company and EID Perry (India) Ltd. Now Coromandel International is owned by Murugappa Group and it has 8 manufacturing units located in the states of Andhra Pradesh, Tamil Nadu, Maharashtra, Gujarat and Jammu and Kashmir.

Being India's 2 largest Phosphate fertilizer players after IFFCO the Coromandel International Limited is active in the business segments of Fertilizers, Specialty Nutrients, Crop Protection and Retail. Its harvest is sold under the brand names like Gromor, Godavari, Paramfos, Parry Gold and Parry Super etc. For crop protection, Coromandel produce insecticides, fungicides, herbicides, and markets them in India and abroad and its retail business includes over 640 rural retail centers.

Merger of Sabero Organics and Liberty Phosphate with Coromandel: Coromandel International is merging of Sabero Organics, Liberty Phosphate Ltd and Liberty Urvarak Ltd with itself. According to the management realizing the synergies is the rationale behind the mergers.

Company Financial View: In Q3FY14, net consolidated revenue stood at Rs. 27562mn witnessing 13.7 percent YoY growth and sequential degrowth of 14.3 percent as increase in YoY consolidated sales volume of 21 percent was partially offset by lower average realizations due to discounts offered to the distributors. EBITDA increased 80.1 percent YoY but dipped 22.3 percent QoQ to Rs. 2312mn and resulted in EBITDA margin of 8.4 percent as against 5.3 percent in Q3FY13 and 9.3 percent in Q2FY14. PAT rose by 52.3 percent YoY and fell by 39.7 percent QoQ to Rs. 1041mn and PAT margin was 3.8 percent as compared to 2.8 percent in Q3FY13 and 5.5 percent in the previous quarter. Margins were lower due to lower margins of non-fertilizer business and higher discounts offered to distributors in the northern markets due to high system inventories. Non fertilizer business margins were hit by lower margins at Sabero Organics because of production disruption during the quarter. Effective tax rate in Q3FY14 was 33.14 percent compared to 24 percent in 2QFY14 and 2.96 percent in 3QFY13. Subsidy business's contributions to revenue and EBITDA were 82 percent and 66 percent respectively while subsidy contribution to consolidated sales has decreased YoY from 31 percent to 24 percent in Q3FY14. Further outstanding subsidy from government stood at Rs. 13000mn as on December 31, 2014 compared to Rs. 11900mn as on September 30, 2013. During Q3FY14 plant utilization rate was 85 percent. Debt to equity stood at 1.3 as on March 31, 2013 and it is expected to go down to less than one by March 31, 2014. Return on Equity (ROE) declined from 28.5 percent in FY12 to 15.4 percent in FY13 while the ratio is expected to improve to above 18.5 percent in FY14.

Positives of the Company: Lowest cost producer in India: High production volume and highly efficient manufacturing facility reduced the cost of production making it a cost leader in the domestic industry. Beneficiary of Nutrients Based Subsidy (NBS) scheme: The Nutrient Based Subsidy (NBS) scheme was introduced in April 2010, according to this scheme the government fixes the subsidy on fertilizers based on their nutrient content. Coromandel International Limited are paid a fixed amount for each nutrient used, irrespective of the cost of production. Coromandel is the largest private sector Phosphatic fertilizer manufacturer in India, so large scale of operations and operational efficiencies are likely to make Coromandel International biggest beneficiary of NBS scheme Improvement in working capital management: Management of system inventories improved as Inventories of complex fertilizer reduced from 7-7.5mn tons at the beginning of the year to 3.2-3.5mn tons at the end of Q3FY14 and thus fast approaching the normal levels.

Company Assessments: The valuation stands at 15.82x FY13 EPS. Earnings are expected to grow at CAGR of over 23 percent over the period of FY13-15E. The stock is currently trading at Rs. 212 We give buy recommendation to buy at Rs. 212-207 for investment horizon; The stock can touch Rs 270 that values the stock at 20.3x FY14E EPS and 13.2x FY15E EPS in a time period of 3-9 months. Bse Id: 506395 Nse Id: Coromandal

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