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UBS Investment Research
Coromandel International
Price/subsidy hike still needed
Event: High DAP and phosphoric acid prices
Zuari Industries has contracted to import 1mt DAP from Morocco's OCP Group at
US$612/t cfr (US$560/t fob Tampa) compared to US$580/t cfr used by GOI for
calculating FY12 subsidy (Source: Business Line). This is ~10% discount to spot
market vs estimates for a close to spot settlement by our Global team, reflecting
probably some bargaining power for Indian buyers given seasonal dominance in
global trade. The tight global supply outlook implies continued strength in DAP
prices.
Impact: Still need higher local prices/subsidies to maintain margins
Assuming above prices and recently increased subsidies (under NBS), local prices
would still need to be increased by 10-15% to maintain margins, in our view and
based on discussion with company. Govt. may further increase FY12 subsidy, if it
doesn’t want such price increase given inflation concerns. CRIN has tied up
phosphoric acid for 1Q at US$980/t cfr. Vs US$830/t in 4QFY11.
Impact on Coromandel earnings: None, in our view
For CRIN, subsidy from Govt is the bigger variable (60-70% of selling price) from
its margin perspective, vs local prices. In our view higher international prices will
impact Govt finances rather than company margins or product prices for farmers.
Valuation: BUY Coromandel, especially on any weakness
Stock trading at FY12 P/E of 12.1x, with underlying ROEs of 30%+ and net cash
balance sheet. We reiterate that the company will emerge as a broad agri-inputs
player to capture emerging opportunities in Indian agri space.
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
Price/subsidy hike still needed
Event: High DAP and phosphoric acid prices
Zuari Industries has contracted to import 1mt DAP from Morocco's OCP Group at
US$612/t cfr (US$560/t fob Tampa) compared to US$580/t cfr used by GOI for
calculating FY12 subsidy (Source: Business Line). This is ~10% discount to spot
market vs estimates for a close to spot settlement by our Global team, reflecting
probably some bargaining power for Indian buyers given seasonal dominance in
global trade. The tight global supply outlook implies continued strength in DAP
prices.
Impact: Still need higher local prices/subsidies to maintain margins
Assuming above prices and recently increased subsidies (under NBS), local prices
would still need to be increased by 10-15% to maintain margins, in our view and
based on discussion with company. Govt. may further increase FY12 subsidy, if it
doesn’t want such price increase given inflation concerns. CRIN has tied up
phosphoric acid for 1Q at US$980/t cfr. Vs US$830/t in 4QFY11.
Impact on Coromandel earnings: None, in our view
For CRIN, subsidy from Govt is the bigger variable (60-70% of selling price) from
its margin perspective, vs local prices. In our view higher international prices will
impact Govt finances rather than company margins or product prices for farmers.
Valuation: BUY Coromandel, especially on any weakness
Stock trading at FY12 P/E of 12.1x, with underlying ROEs of 30%+ and net cash
balance sheet. We reiterate that the company will emerge as a broad agri-inputs
player to capture emerging opportunities in Indian agri space.
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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