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Investment Rationale
• Company works in 4 major segments – Fertilizer, crop
protection, specialty nutrients, rural retailing.
•Farm mechanization and Organic manure is the new growth
driver from the retail ruraling
•Strong free cash flows to continue going forward
•Successful organic growth with capacity expansion plans on
track.
•Policy change in the Fertilizer sector is beneficial on the
margins front
Company Background
Coromandel Fertilisers Ltd, a part of the Murugappa Group of
companies is a leading manufacturer of a wide range of
fertilisers and pesticides. They are the producer of phosphatic
fertilisers, plant protection chemicals, specialty nutrients, and
sulphur bentonite, potash.
They are in the business of manufacturing and marketing of
pesticides, which includes insecticides, fungicides, herbicides
and plant biostimulants.
Their brand name includes Gromor, Paramfos, Parry
Sulphur and Parry Gold.
It is the second largest producer of Di-Ammonium Phosphate
in India with a strong presence in South India.
The company's fertilizer plants are located are located at
Visakhapatnam and Kakinada in Andhara Pradesh, Ennore
and Raniper in Tamil Nadu
• Company works in 4 major segments – Fertilizer, crop
protection, specialty nutrients, rural retailing
Fertilizer segment contributes almost 90% to the revenue. It
deals more in complex fertilizers like phosphatic fertilizers with
a capcity of 3.26mn ton. It also manufactures and sells DAP
and SSP (Single Super Phosphate)
Crop Protection almost contributes 3% of the revenue. It
mainly manufacturers and markets insecticides, Fungicide,
Herbicides and plant growth regulations. It has various tie-ups
like Multinationals like Nihon Nohyaku Co. Ltd., Syngenta,
DuPont, BASF, FMC and Otsuka for marketing their products
in India.
Speciality nutrients contributes around just 2% to the
revenue. Products like secondary nutrients, water soluble
fertilizers and municipal composts.
Rural retailing contributes 5% to the revenue. Company
currently runs 423 such centers across the state of Andhra
Pradesh. Each center covers 30-40villages having ~5000 farm
families in a radius of 20km. it is also planning to expand n the
states of Tamil Nadu, Karnataka and Maharashtra over the
next 2-3 yrs.
• Farm mechanization and Organic manure is the new
growth driver from the retail ruraling
The company has entered into ‘Farm Mechanization’ Services
where it provides machine based sowing and tilling. Currently
the company is focusing only on paddy farmers. This segment
is known as the high margin segment.
• Strong free cash flows to continue going forward
The company has been giving positive free cash flows and is
now focusing on non based subsidy based segments like farm
mechanism and organic manure which will further help to
maintain the positive free cash flows going forward.
• Capacity expansion plans on track.
The Kakinada expansion project is expected to be commissioned in
H1FY13 and will in turn increase the capacity to 4mn tones. The
Tunisia project is also on track now and is expected by Sep 2011.
The company is also looking for expansion in retail projects as well.
• Successful organic growth through various JV’s,
acquisitions and tie ups
The acquisition of Godavari Fertilisers and Chemicals Ltd,
business assistance agreement with Foskor Pty Ltd, South
Africa in which the company provides the technical and
managerial assistance to Foskor for three years. Agreement
with Groupe Chimique Tunisien, Campagnie Des Phosphates
De Gafsa and Gujarat State Fertilisers and Chemicals Ltd for
setting up a Joint Venture company named Tunisian Indian
Fertilisers S.A at Tunisia for manufacturing phosphoric acid
and Ficom Organics Ltd and their wholly owned subsidiary
company Rasilah Investments Ltd amalgamated with the
company. These all assistance have helped the company to
grow in capacity, geographically and also helped to develop
the synergies logical.
• Policy change in the Fertilizer sector is beneficial on the
margins front.
The new import parity prices are being considered for DAP
and MOP for subsidy calculation and are expected to come
into effect retrospectively from April 01, 2011.
With Indian companies having already contracted ~2.5 mn MT
of DAP imports at landed price of USD 612 per MT, this
upward revision of subsidy by GoI is likely to help these
companies maintain their margins.
Valuation
At the current market price of Rs. 317, the stock trades at a
P/E of 12.3x and 10.5x for FY12E and FY13E respectively. We
recommend to buy the stock with a target PE of 15X and 13x
for FY 12E & FY 13E which convert into 384 Rs. target price.
Concern
Dependency on monsoons and government regulated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
• Company works in 4 major segments – Fertilizer, crop
protection, specialty nutrients, rural retailing.
•Farm mechanization and Organic manure is the new growth
driver from the retail ruraling
•Strong free cash flows to continue going forward
•Successful organic growth with capacity expansion plans on
track.
•Policy change in the Fertilizer sector is beneficial on the
margins front
Company Background
Coromandel Fertilisers Ltd, a part of the Murugappa Group of
companies is a leading manufacturer of a wide range of
fertilisers and pesticides. They are the producer of phosphatic
fertilisers, plant protection chemicals, specialty nutrients, and
sulphur bentonite, potash.
They are in the business of manufacturing and marketing of
pesticides, which includes insecticides, fungicides, herbicides
and plant biostimulants.
Their brand name includes Gromor, Paramfos, Parry
Sulphur and Parry Gold.
It is the second largest producer of Di-Ammonium Phosphate
in India with a strong presence in South India.
The company's fertilizer plants are located are located at
Visakhapatnam and Kakinada in Andhara Pradesh, Ennore
and Raniper in Tamil Nadu
• Company works in 4 major segments – Fertilizer, crop
protection, specialty nutrients, rural retailing
Fertilizer segment contributes almost 90% to the revenue. It
deals more in complex fertilizers like phosphatic fertilizers with
a capcity of 3.26mn ton. It also manufactures and sells DAP
and SSP (Single Super Phosphate)
Crop Protection almost contributes 3% of the revenue. It
mainly manufacturers and markets insecticides, Fungicide,
Herbicides and plant growth regulations. It has various tie-ups
like Multinationals like Nihon Nohyaku Co. Ltd., Syngenta,
DuPont, BASF, FMC and Otsuka for marketing their products
in India.
Speciality nutrients contributes around just 2% to the
revenue. Products like secondary nutrients, water soluble
fertilizers and municipal composts.
Rural retailing contributes 5% to the revenue. Company
currently runs 423 such centers across the state of Andhra
Pradesh. Each center covers 30-40villages having ~5000 farm
families in a radius of 20km. it is also planning to expand n the
states of Tamil Nadu, Karnataka and Maharashtra over the
next 2-3 yrs.
• Farm mechanization and Organic manure is the new
growth driver from the retail ruraling
The company has entered into ‘Farm Mechanization’ Services
where it provides machine based sowing and tilling. Currently
the company is focusing only on paddy farmers. This segment
is known as the high margin segment.
• Strong free cash flows to continue going forward
The company has been giving positive free cash flows and is
now focusing on non based subsidy based segments like farm
mechanism and organic manure which will further help to
maintain the positive free cash flows going forward.
• Capacity expansion plans on track.
The Kakinada expansion project is expected to be commissioned in
H1FY13 and will in turn increase the capacity to 4mn tones. The
Tunisia project is also on track now and is expected by Sep 2011.
The company is also looking for expansion in retail projects as well.
• Successful organic growth through various JV’s,
acquisitions and tie ups
The acquisition of Godavari Fertilisers and Chemicals Ltd,
business assistance agreement with Foskor Pty Ltd, South
Africa in which the company provides the technical and
managerial assistance to Foskor for three years. Agreement
with Groupe Chimique Tunisien, Campagnie Des Phosphates
De Gafsa and Gujarat State Fertilisers and Chemicals Ltd for
setting up a Joint Venture company named Tunisian Indian
Fertilisers S.A at Tunisia for manufacturing phosphoric acid
and Ficom Organics Ltd and their wholly owned subsidiary
company Rasilah Investments Ltd amalgamated with the
company. These all assistance have helped the company to
grow in capacity, geographically and also helped to develop
the synergies logical.
• Policy change in the Fertilizer sector is beneficial on the
margins front.
The new import parity prices are being considered for DAP
and MOP for subsidy calculation and are expected to come
into effect retrospectively from April 01, 2011.
With Indian companies having already contracted ~2.5 mn MT
of DAP imports at landed price of USD 612 per MT, this
upward revision of subsidy by GoI is likely to help these
companies maintain their margins.
Valuation
At the current market price of Rs. 317, the stock trades at a
P/E of 12.3x and 10.5x for FY12E and FY13E respectively. We
recommend to buy the stock with a target PE of 15X and 13x
for FY 12E & FY 13E which convert into 384 Rs. target price.
Concern
Dependency on monsoons and government regulated.
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