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¾ Decline in food grain prices (refer to our report on Rural
steroid is ebbing) have affected farmers’ profitability and is
likely to put pressure on agri input consumption
¾ We believe that complex fertiliser players will be affected
more than the urea players while in agro chemicals domestic
players will face severe impact than exports based players
¾ We prefer Chambal fertiliser (urea base player) over
Coromandel (complex fertiliser base) and United Phosphorous
(Agrochem exports) over Rallis India (domestic focus)
¾ Downgrade earnings and target price for Rallis India and
Coromandel, maintain for Chambal and United Phosphorous
Complex fertiliser based players to be affected more than urea, Prefer
Chambal fertiliser over Coromandel
Growth moderation in agri input consumption may have adverse impact on fertiliser
consumption also (as witnessed in FY03, kindly refer to chart on next page). However
domestic urea production is unlikely to be affected due to drop in demand (if any) since
imports contribute ~23% total urea consumption and any reduction in demand is likely to
reduce imports while keeping the domestic production intact. Complex fertilisers have
been brought under NBS and companies have increased prices significantly to pass on
higher input cost. However contraction in fertiliser demand may put pressure on
complex fertiliser manufacturers and squeeze companies’ margins. As a result we
prefer urea based players like Chambal Fertiliser over complex fertiliser players like
Coromandel International.
Agrochemicals - export based players to benefit while domestic players
may see demand pressure, prefer UPL over Rallis
Projecting a weak demand environment for agri input, we expect pesticide consumption
to come under pressure and companies may also see contraction in margins. Exports
oriented players may benefit from buoyant global demand environment and currency
depreciation. Under the current circumstances, we prefer United Phosphorous which is
largely a global player since India account for <25% of total revenues and profits over
Rallis India (where exports contribution is ~30%).
Earnings and valuations to take a hit, downgrade Coromandel & Rallis
Affected by weak demand outlook and margin pressure in near future, we are reducing
our earnings estimates for Coromandel and Rallis and subsequently downgrade these
stocks from BUY to Hold. Though strong balance sheet (cash surplus) and higher RoE
(28%+) are key strengths of these companies but we expect earnings multiple to
contract owing to deceleration in earnings growth. Also we expect that the premium
multiple which these stocks were enjoying over the peers is likely to come down.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
¾ Decline in food grain prices (refer to our report on Rural
steroid is ebbing) have affected farmers’ profitability and is
likely to put pressure on agri input consumption
¾ We believe that complex fertiliser players will be affected
more than the urea players while in agro chemicals domestic
players will face severe impact than exports based players
¾ We prefer Chambal fertiliser (urea base player) over
Coromandel (complex fertiliser base) and United Phosphorous
(Agrochem exports) over Rallis India (domestic focus)
¾ Downgrade earnings and target price for Rallis India and
Coromandel, maintain for Chambal and United Phosphorous
Complex fertiliser based players to be affected more than urea, Prefer
Chambal fertiliser over Coromandel
Growth moderation in agri input consumption may have adverse impact on fertiliser
consumption also (as witnessed in FY03, kindly refer to chart on next page). However
domestic urea production is unlikely to be affected due to drop in demand (if any) since
imports contribute ~23% total urea consumption and any reduction in demand is likely to
reduce imports while keeping the domestic production intact. Complex fertilisers have
been brought under NBS and companies have increased prices significantly to pass on
higher input cost. However contraction in fertiliser demand may put pressure on
complex fertiliser manufacturers and squeeze companies’ margins. As a result we
prefer urea based players like Chambal Fertiliser over complex fertiliser players like
Coromandel International.
Agrochemicals - export based players to benefit while domestic players
may see demand pressure, prefer UPL over Rallis
Projecting a weak demand environment for agri input, we expect pesticide consumption
to come under pressure and companies may also see contraction in margins. Exports
oriented players may benefit from buoyant global demand environment and currency
depreciation. Under the current circumstances, we prefer United Phosphorous which is
largely a global player since India account for <25% of total revenues and profits over
Rallis India (where exports contribution is ~30%).
Earnings and valuations to take a hit, downgrade Coromandel & Rallis
Affected by weak demand outlook and margin pressure in near future, we are reducing
our earnings estimates for Coromandel and Rallis and subsequently downgrade these
stocks from BUY to Hold. Though strong balance sheet (cash surplus) and higher RoE
(28%+) are key strengths of these companies but we expect earnings multiple to
contract owing to deceleration in earnings growth. Also we expect that the premium
multiple which these stocks were enjoying over the peers is likely to come down.
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