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¾ Coromandel being proxy to complex fertiliser is likely to
witness challenges due to pressure on complex fertiliser
demand and may see margin pressure
¾ Non subsidy business (agrochemicals, specialty fertilisers,
retail etc) which contributes 14% to revenues and 27% to
profits to also see margin pressure with slowdown in growth
¾ However, synergy from Sabero acquisition & TIFERT
commissioning in Q1FY13 remain future growth drivers
¾ Reduce FY12/13 est by 14.3% / 23.7% to Rs 22.6 / 24.7,
respectively and downgrade the stock from BUY to HOLD
with revised price target of Rs 286
Coromandel being proxy to complex fertiliser may witness pressure on
volume growth and margins
Coromandel Int’l is a leading player in the decontrolled fertilizer space with installed
capacity of 2.3mn mt of NPK (market share of 23%) & 0.8mn mt of DAP (market share
of 6%). Growing demand for complex fertiliser with farmers’ increasing awareness of
complex fertilizers has enabled the company to record topline CAGR of 25% and PAT
CAGR of 17% over FY08-11. However moderation in demand growth may hamper
complex fertilisers offtake and can put pressure on margins in near future due to
increased competition to maintain market share.
Coromandel’s non-subsidy business (which includes agrochemicals, retailing etc&
contributed ~14% to revenues and ~27% to EBITDA in FY11) with domestic market
focus might as well be impacted as farmers reduce their consumption of agri inputs.
However, synergies from Sabero Organics & TIFERT commissioning to
facilitate growth
Acquisition of Sabero Organics, a leading agrochemical player in technicals
manufacturing, should facilitate growth for Coromandel’s agro chemicals business.
Improved capacity utilization from 30-35% at present and integration of Sabero’s
diversified product portfolio of active ingredients (AI’s) with Coromandel’s strong
distribution network will help the company to support revenues, though the contribution
will remain marginal in percentage terms. Coromandel’s joint venture - TIFERT to
produce phos acid is expected to be commissioned by Q1FY13 and will increase
availability of phosphoric acid for Coromandel’s plants enabling the company to
increase the production of decontrolled fertilizers.
Reduce estimates and target price, Downgrade from BUY to HOLD
Foreseeing the challenges in near term on company’s earnings, we have reduced our
EPS estimates by 14%/24% to Rs 22.6/24.7 for FY12/13 respectively. Coromandel has
witnessed re-rating in multiples (post the introduction of NBS in April’10) with its PE
multiple expanding to 13x in FY11 compared to average of 5x during FY06-10.
However, in the current scenario, we have trimmed our target multiple to 11x from 13.5x
and revised our target price to Rs 286 (previous Rs 435) which also includes Rs 15 for
9% bonus debentures announced by the company and subsequently downgrade the
stock from BUY to HOLD. Strong balance sheet (cash positive) and RoE of 30% remain
key strengths of the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
¾ Coromandel being proxy to complex fertiliser is likely to
witness challenges due to pressure on complex fertiliser
demand and may see margin pressure
¾ Non subsidy business (agrochemicals, specialty fertilisers,
retail etc) which contributes 14% to revenues and 27% to
profits to also see margin pressure with slowdown in growth
¾ However, synergy from Sabero acquisition & TIFERT
commissioning in Q1FY13 remain future growth drivers
¾ Reduce FY12/13 est by 14.3% / 23.7% to Rs 22.6 / 24.7,
respectively and downgrade the stock from BUY to HOLD
with revised price target of Rs 286
Coromandel being proxy to complex fertiliser may witness pressure on
volume growth and margins
Coromandel Int’l is a leading player in the decontrolled fertilizer space with installed
capacity of 2.3mn mt of NPK (market share of 23%) & 0.8mn mt of DAP (market share
of 6%). Growing demand for complex fertiliser with farmers’ increasing awareness of
complex fertilizers has enabled the company to record topline CAGR of 25% and PAT
CAGR of 17% over FY08-11. However moderation in demand growth may hamper
complex fertilisers offtake and can put pressure on margins in near future due to
increased competition to maintain market share.
Coromandel’s non-subsidy business (which includes agrochemicals, retailing etc&
contributed ~14% to revenues and ~27% to EBITDA in FY11) with domestic market
focus might as well be impacted as farmers reduce their consumption of agri inputs.
However, synergies from Sabero Organics & TIFERT commissioning to
facilitate growth
Acquisition of Sabero Organics, a leading agrochemical player in technicals
manufacturing, should facilitate growth for Coromandel’s agro chemicals business.
Improved capacity utilization from 30-35% at present and integration of Sabero’s
diversified product portfolio of active ingredients (AI’s) with Coromandel’s strong
distribution network will help the company to support revenues, though the contribution
will remain marginal in percentage terms. Coromandel’s joint venture - TIFERT to
produce phos acid is expected to be commissioned by Q1FY13 and will increase
availability of phosphoric acid for Coromandel’s plants enabling the company to
increase the production of decontrolled fertilizers.
Reduce estimates and target price, Downgrade from BUY to HOLD
Foreseeing the challenges in near term on company’s earnings, we have reduced our
EPS estimates by 14%/24% to Rs 22.6/24.7 for FY12/13 respectively. Coromandel has
witnessed re-rating in multiples (post the introduction of NBS in April’10) with its PE
multiple expanding to 13x in FY11 compared to average of 5x during FY06-10.
However, in the current scenario, we have trimmed our target multiple to 11x from 13.5x
and revised our target price to Rs 286 (previous Rs 435) which also includes Rs 15 for
9% bonus debentures announced by the company and subsequently downgrade the
stock from BUY to HOLD. Strong balance sheet (cash positive) and RoE of 30% remain
key strengths of the company.
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