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UBS Investment Research
First Read: Coromandel
Subsidy for FY12 revised, maintain BUY
Base prices for DAP, a key product for Coromandel, raised by 29%
An empowered Group of Ministers (EGoM) on fertilisers has approved the higher
prices of complex fertilisers for the upcoming financial year FY12. Base prices for
DAP (a key product for Coromandel) for subsidy calculation for FY12 increased
by 29%, Urea by 25%, Sulphur by 44%, MOP by 5%. Earlier in November 2010,
the government had reduced the subsidy on these products compared to FY11
levels substantially, leading to Coromandel (and other complex fertiliser) stocks
falling off.
Subsidy revision is in line with what we have been expecting
In scenario of no let-up in international prices and inability to raise local fertiliser
prices, we have been expecting a revision in these subsidies by the Government,
which cannot afford to have fertiliser companies make losses and thus impact
production/availability of fertilisers for farmers. This revision should reassure
investors about sustainability of margins (on per tonne basis) for Coromandel.
An emerging broad agri-inputs player
The stock is trading at FY12E P/E of 10x, with underlying ROEs of 35%. We
reiterate our view that it may not be correct to look at this company just as a
fertiliser company (though near-term stock may behave like that) - it should
emerge as a broad agri-inputs player to capture emerging opportunities in Indian
agri space.
Valuation: Reiterate Buy with a PT of Rs366.50
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 12.56%.
Coromandel International
Coromandel International is an India-based leading agri-input company. It is the
second largest phosphate fertilizer manufacturer in India and is part of the
US$3bn Murugappa Group. The company manufactures a wide range of
fertilizers, specialty nutrients, and crop protection products (technicals and
formulations). It is in the retail business through its Mana Gromor Centres that
sell agri-input products.
Statement of Risk
We believe the key risks for the company are volatility in foreign currency,
increased competition, weather outlook and changes in the government’s
subsidy policy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: Coromandel
Subsidy for FY12 revised, maintain BUY
Base prices for DAP, a key product for Coromandel, raised by 29%
An empowered Group of Ministers (EGoM) on fertilisers has approved the higher
prices of complex fertilisers for the upcoming financial year FY12. Base prices for
DAP (a key product for Coromandel) for subsidy calculation for FY12 increased
by 29%, Urea by 25%, Sulphur by 44%, MOP by 5%. Earlier in November 2010,
the government had reduced the subsidy on these products compared to FY11
levels substantially, leading to Coromandel (and other complex fertiliser) stocks
falling off.
Subsidy revision is in line with what we have been expecting
In scenario of no let-up in international prices and inability to raise local fertiliser
prices, we have been expecting a revision in these subsidies by the Government,
which cannot afford to have fertiliser companies make losses and thus impact
production/availability of fertilisers for farmers. This revision should reassure
investors about sustainability of margins (on per tonne basis) for Coromandel.
An emerging broad agri-inputs player
The stock is trading at FY12E P/E of 10x, with underlying ROEs of 35%. We
reiterate our view that it may not be correct to look at this company just as a
fertiliser company (though near-term stock may behave like that) - it should
emerge as a broad agri-inputs player to capture emerging opportunities in Indian
agri space.
Valuation: Reiterate Buy with a PT of Rs366.50
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 12.56%.
Coromandel International
Coromandel International is an India-based leading agri-input company. It is the
second largest phosphate fertilizer manufacturer in India and is part of the
US$3bn Murugappa Group. The company manufactures a wide range of
fertilizers, specialty nutrients, and crop protection products (technicals and
formulations). It is in the retail business through its Mana Gromor Centres that
sell agri-input products.
Statement of Risk
We believe the key risks for the company are volatility in foreign currency,
increased competition, weather outlook and changes in the government’s
subsidy policy.
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