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UBS Investment Research
Coromandel International
On track to achieve our FY11E estimates
3QFY11 earnings in line, well-placed to meet our FY11 estimates
Coromandel International (CIL) reported 3QFY11 earnings at Rs1.51bn, up 4%
yoy. Reported earnings in this quarter and last fiscal were impacted by prior-year
subsidies. Adjusted earnings in 3QFY11 were down 1% yoy and in line with our
estimates. 9MFY11 adjusted earnings at Rs4.68bn was up 122% yoy. CIL remains
on track to achieve our FY11E forecasts – it needs to replicate 3Q numbers in 4Q.
Subsidy business - Flat volumes, raw material pricing pressure
3Q earnings were mildly impacted by flat volumes (due to acid availability from
FOSKOR caused by plant shutdown) and pressure of higher prices of ammonia.
The company has already taken price hikes of approx 5% in November 2010 for
non-DAP complex fertilisers and we expect company to hike prices of DAP in next
couple of weeks. This should ensure stable margins (on per tone basis) in 4QFY11
Non-subsidy business growth continues
Crop protection business witnessed 20-30% yoy increase in volumes. Specialty
nutrients volumes growth was however muted at 10% yoy, due to excessive rains.
Valuation: Reiterate Buy, PT of Rs 366.5
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool, assuming a WACC of
12.56%. CIL remains well-placed to benefit from opportunities in Indian agri
market with its strategy of increasing mix of non-subsidised businesses (higher
margins and lower regulatory risk) from 30% to 50% of the total contribution in 3-
4 years and also given its technical knowhow / understanding of farmers’ needs
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