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UBS Investment Research
Coromandel International
4 Q – a negative surprise, maintain BUY
4Q results below expectation on lower volumes
CRIN reported Q4 FY11 net profit of Rs710mn (-16% YoY), sharply lower than
UBS and consensus estimates. This was due to lower volumes, as company
preponed plant shutdown into this quarter (not known earlier and a negative
surprise) and supply disruptions from Tunisia (known but bigger than expected).
Supplies from Tunisia are expected to resume in a month.
Margins stable, non subsidy businesses on track, maintain estimates
We broadly maintain estimates despite weak 4Q as margins for subsidy/fertilizer
business remained stable (see chart 1 inside). CRIN has demonstrated ability to
sustain margins over last 4-5 years despite volatile international prices; NBS
scheme towards de-regulation should further support margins in future. Company
has taken price hikes of 8-10% in April’11 to sustain margins. Non subsidy
businesses (27% of EBITDA in FY11) continued to impress – management
reiterated impressive growth plans for rural retail and organic compost.
Buy – best agri play in India
Stock corrected sharply post 4Q and is now trading at FY12 P/E of 12.9x, with
underlying ROEs of 30% and a net cash balance sheet. Though near term this stock
may behave like a fertiliser company, we reiterate our view that it is emerging as a
broad agri inputs player that can capture huge opportunities in Indian agri space.
Valuation: Maintain Buy; Raise PT to Rs 416 (from Rs 366.5)
We value CRIN on a DCF-based methodology with a higher target price (as we
roll over our DCF-based valuation methodology) of Rs416, implying FY13E P/E
of 13.2x.
4QFY11 results highlights
CRIN reported Q4 FY11 net profit of Rs710mn (-16% YoY), sharply lower
than UBS and consensus estimates.
Net sales for the quarter stood at Rs 11.8bn which declined by 14% YoY and
42% sequentially, led by lower sales volumes. The manufacturer fertilizers
volume fell by 10% YoY to 0.42 mn tones and traded fertilizers volume
declined by 80% QoQ to 24K tons in 4Q.
The decline in fertilizer volumes was led primarily by preponement of annual
plant shutdown, seasonal factors and disruptions in phosphoric acid supplies
from Tunisia. The management expects the raw material supply to resume to
normal levels by next month.
The tax rate for the quarter stood at 11% which was very low compared to
the full year tax rate of 30%. This was due to the write-back of provisions on
bonds that were sold back to government – these were not tax deductible at
the time of provisioning so there is no tax liability now at the time of
writeback.
On a full year basis the company’s earnings grew by 48%, led by revenue
growth of 18% and higher EBITDA margins at 14%.
Conference call takeaways
UBS hosted CRIN’s 4Q conference call. Below are the key takeaways:
4Q - a seasonally weak quarter
4Q being a generally low season period for the company, the sales volumes were
lower due to delayed rains and reduced demand.
Price hikes to ensure stable margins
The company has earlier taken price hikes of approx 15-30% since last year for
all its complex fertilisers and it took another price hike of 8-10% in this quarter
which is effective April’11. This should help ensure stable margins (on a per
tonne basis) for the company in FY12.
Capacity expansion plans remains on track
The company’s Kakinada expansion project is progressing well and is expected
to get commissioned in 1HFY13. The Kakinada project is expected to increase
capacity to 4mn tones.
The Tunisia JV project was delayed by three months due to political unrest in
the country but is now back on track. The company expects to start using
phosphoric acid supplies from its Tunisia plant by September 2011. The
management also guided towards capex plans of Rs 5bn, including Rs 3.5bn for
Kakinada expansion project, Rs 500mn for retail expansion project and Rs 1bn
for maintenance.
Positive non-subsidy business trend and outlook
The company remains focussed on the non-subsidy business which contributed
~14% to revenues and 27% of EBITDA in this quarter. The crop protection
business continued to grow and the retail business turned profitable in this
quarter. The company plans to expand its retail business by increasing the
number of its retail centers from 423 to 623 by FY12 and 1000 centers by FY14.
It also plans to open stores in Karnataka and near by states. The company also
intends to grow its organic compost sales from 0.12mn tonnes in this quarter to
1mn tonnes in next few years – FY12 is expected to add 0.3mn tonnes.
Company’s strategy is underpinned by increasing share of non-subsidy
businesses (de-regulated and with higher margin growth and ROEs) from 30%
now to 50% next year.
Change in estimates
We reduce our FY12/13 earnings and EBITDA estimates marginally to reflect
the lower sales volumes. Our FY12/13 PAT estimates changes by -1.8/-1.5%.
Valuation
We raise Coromandel’s price target to Rs 416 from Rs 366.5 as we roll over our
DCF-based valuation methodology. We derive our price target from a DCFbased
methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool (12.53% WACC, 0.99 beta and 1.7% terminal growth),
implying FY13E PE of 13.2x and EV/EBITDA of 8.4x.
The stock is currently trading at FY12E P/E of 12.9x. We reiterate our view that
the company remains well placed to capture emerging opportunities in Indian
agri space and should emerge as a broad agri-inputs player.
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
Coromandel International
4 Q – a negative surprise, maintain BUY
4Q results below expectation on lower volumes
CRIN reported Q4 FY11 net profit of Rs710mn (-16% YoY), sharply lower than
UBS and consensus estimates. This was due to lower volumes, as company
preponed plant shutdown into this quarter (not known earlier and a negative
surprise) and supply disruptions from Tunisia (known but bigger than expected).
Supplies from Tunisia are expected to resume in a month.
Margins stable, non subsidy businesses on track, maintain estimates
We broadly maintain estimates despite weak 4Q as margins for subsidy/fertilizer
business remained stable (see chart 1 inside). CRIN has demonstrated ability to
sustain margins over last 4-5 years despite volatile international prices; NBS
scheme towards de-regulation should further support margins in future. Company
has taken price hikes of 8-10% in April’11 to sustain margins. Non subsidy
businesses (27% of EBITDA in FY11) continued to impress – management
reiterated impressive growth plans for rural retail and organic compost.
Buy – best agri play in India
Stock corrected sharply post 4Q and is now trading at FY12 P/E of 12.9x, with
underlying ROEs of 30% and a net cash balance sheet. Though near term this stock
may behave like a fertiliser company, we reiterate our view that it is emerging as a
broad agri inputs player that can capture huge opportunities in Indian agri space.
Valuation: Maintain Buy; Raise PT to Rs 416 (from Rs 366.5)
We value CRIN on a DCF-based methodology with a higher target price (as we
roll over our DCF-based valuation methodology) of Rs416, implying FY13E P/E
of 13.2x.
4QFY11 results highlights
CRIN reported Q4 FY11 net profit of Rs710mn (-16% YoY), sharply lower
than UBS and consensus estimates.
Net sales for the quarter stood at Rs 11.8bn which declined by 14% YoY and
42% sequentially, led by lower sales volumes. The manufacturer fertilizers
volume fell by 10% YoY to 0.42 mn tones and traded fertilizers volume
declined by 80% QoQ to 24K tons in 4Q.
The decline in fertilizer volumes was led primarily by preponement of annual
plant shutdown, seasonal factors and disruptions in phosphoric acid supplies
from Tunisia. The management expects the raw material supply to resume to
normal levels by next month.
The tax rate for the quarter stood at 11% which was very low compared to
the full year tax rate of 30%. This was due to the write-back of provisions on
bonds that were sold back to government – these were not tax deductible at
the time of provisioning so there is no tax liability now at the time of
writeback.
On a full year basis the company’s earnings grew by 48%, led by revenue
growth of 18% and higher EBITDA margins at 14%.
Conference call takeaways
UBS hosted CRIN’s 4Q conference call. Below are the key takeaways:
4Q - a seasonally weak quarter
4Q being a generally low season period for the company, the sales volumes were
lower due to delayed rains and reduced demand.
Price hikes to ensure stable margins
The company has earlier taken price hikes of approx 15-30% since last year for
all its complex fertilisers and it took another price hike of 8-10% in this quarter
which is effective April’11. This should help ensure stable margins (on a per
tonne basis) for the company in FY12.
Capacity expansion plans remains on track
The company’s Kakinada expansion project is progressing well and is expected
to get commissioned in 1HFY13. The Kakinada project is expected to increase
capacity to 4mn tones.
The Tunisia JV project was delayed by three months due to political unrest in
the country but is now back on track. The company expects to start using
phosphoric acid supplies from its Tunisia plant by September 2011. The
management also guided towards capex plans of Rs 5bn, including Rs 3.5bn for
Kakinada expansion project, Rs 500mn for retail expansion project and Rs 1bn
for maintenance.
Positive non-subsidy business trend and outlook
The company remains focussed on the non-subsidy business which contributed
~14% to revenues and 27% of EBITDA in this quarter. The crop protection
business continued to grow and the retail business turned profitable in this
quarter. The company plans to expand its retail business by increasing the
number of its retail centers from 423 to 623 by FY12 and 1000 centers by FY14.
It also plans to open stores in Karnataka and near by states. The company also
intends to grow its organic compost sales from 0.12mn tonnes in this quarter to
1mn tonnes in next few years – FY12 is expected to add 0.3mn tonnes.
Company’s strategy is underpinned by increasing share of non-subsidy
businesses (de-regulated and with higher margin growth and ROEs) from 30%
now to 50% next year.
Change in estimates
We reduce our FY12/13 earnings and EBITDA estimates marginally to reflect
the lower sales volumes. Our FY12/13 PAT estimates changes by -1.8/-1.5%.
Valuation
We raise Coromandel’s price target to Rs 416 from Rs 366.5 as we roll over our
DCF-based valuation methodology. We derive our price target from a DCFbased
methodology and explicitly forecast long-term valuation drivers using
UBS’s VCAM tool (12.53% WACC, 0.99 beta and 1.7% terminal growth),
implying FY13E PE of 13.2x and EV/EBITDA of 8.4x.
The stock is currently trading at FY12E P/E of 12.9x. We reiterate our view that
the company remains well placed to capture emerging opportunities in Indian
agri space and should emerge as a broad agri-inputs player.
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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