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Q3FY12–Strong topline growth; margins under pressure; immediate term
challenges lurk
• Coromandel International (COIL) reported a 25% Y-o-Y growth in net sales to `25.5 bn during
Q3FY12 from `20.4 bn in Q3FY11. This includes subsidy income worth `115.5 mn recognized
during Q3FY12 against `109.8 mn recognized during Q3FY11. Overall, the topline growth was in
line with street estimates.
• EBITDA growth was relatively flat at `2.5 bn in Q3FY12 against `2.4 bn in Q3FY11, growth of 4%
Y-o-Y. This was due to 27% Y-o-Y increase in raw material costs and 31% increase in other
expenses. Other income includes loss of `426.7 mn during Q3FY12 on sale of Government of
India Special Bonds. Consequently, EBITDA margin showed decline of 186 bps to 9.6% in Q3FY12.
• Reported net profit was `1.3 bn for Q3FY12 against `1.5 bn in Q3FY11, a drop of 13%. This
number includes `355.3 mn as non-compete fee paid to promoters of Sabero Organics Gujrat.
Adjusting for this fee, net profit was `1.7 bn for Q3FY12, a growth of 10% Y-o-Y.
Result Highlights
Sales impacted due to lower acreages
Acreages of several crops were affected during the quarter due to erratic rainfall, lower yields and
adverse conditions in major states of A.P. and Maharashtra. This had an impact on farmer
sentiment, thereby affecting sale of fertilisers. With respect to consumption volumes during the
quarter, Urea declined 1.8% Y-o-Y; Diammonium Phosphate (DAP) declined 12% Y-o-Y; Muriate of
Potash (MoP) showed growth of 6.3% Y-o-Y. Overall, the consumption was lower than last year.
Inventory pile up could be a matter of concern
COIL has inventory of 3 lac tons of DAP and MoP. Across the industry as well, inventory has gone up
to 3-3.5 mn Tons against the usual 1-1.2 mn Tons. This inventory pile up could pull down prices of
these items. Since COIL derives considerable amount of its sales from DAP and MoP, it could put
margins under pressure.
All eyes on subsidy amount to be announced by the government
The management stated during the concall that government could mull reducing fertiliser subsidy
to improve its fiscal position and also since global fertiliser prices had begun to move southwards.
Although urea decontrol still remains a distant dream, the subsidy announcement would have
important repercussions for the industry as a whole.
Valuation & Viewpoint
At the CMP of `274, COIL is trading at 9x its FY13E consensus earnings estimate. The stock has had
a good run over the past year rising 12% against a 12% decline for the SENSEX; thereby it is richly
valued currently. Factors such as inventory pile up and Sabero acquisition is expected to strain
margins in the coming quarters. Hence, we advise investors to watch out for these near-term
triggers before approaching the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Q3FY12–Strong topline growth; margins under pressure; immediate term
challenges lurk
• Coromandel International (COIL) reported a 25% Y-o-Y growth in net sales to `25.5 bn during
Q3FY12 from `20.4 bn in Q3FY11. This includes subsidy income worth `115.5 mn recognized
during Q3FY12 against `109.8 mn recognized during Q3FY11. Overall, the topline growth was in
line with street estimates.
• EBITDA growth was relatively flat at `2.5 bn in Q3FY12 against `2.4 bn in Q3FY11, growth of 4%
Y-o-Y. This was due to 27% Y-o-Y increase in raw material costs and 31% increase in other
expenses. Other income includes loss of `426.7 mn during Q3FY12 on sale of Government of
India Special Bonds. Consequently, EBITDA margin showed decline of 186 bps to 9.6% in Q3FY12.
• Reported net profit was `1.3 bn for Q3FY12 against `1.5 bn in Q3FY11, a drop of 13%. This
number includes `355.3 mn as non-compete fee paid to promoters of Sabero Organics Gujrat.
Adjusting for this fee, net profit was `1.7 bn for Q3FY12, a growth of 10% Y-o-Y.
Result Highlights
Sales impacted due to lower acreages
Acreages of several crops were affected during the quarter due to erratic rainfall, lower yields and
adverse conditions in major states of A.P. and Maharashtra. This had an impact on farmer
sentiment, thereby affecting sale of fertilisers. With respect to consumption volumes during the
quarter, Urea declined 1.8% Y-o-Y; Diammonium Phosphate (DAP) declined 12% Y-o-Y; Muriate of
Potash (MoP) showed growth of 6.3% Y-o-Y. Overall, the consumption was lower than last year.
Inventory pile up could be a matter of concern
COIL has inventory of 3 lac tons of DAP and MoP. Across the industry as well, inventory has gone up
to 3-3.5 mn Tons against the usual 1-1.2 mn Tons. This inventory pile up could pull down prices of
these items. Since COIL derives considerable amount of its sales from DAP and MoP, it could put
margins under pressure.
All eyes on subsidy amount to be announced by the government
The management stated during the concall that government could mull reducing fertiliser subsidy
to improve its fiscal position and also since global fertiliser prices had begun to move southwards.
Although urea decontrol still remains a distant dream, the subsidy announcement would have
important repercussions for the industry as a whole.
Valuation & Viewpoint
At the CMP of `274, COIL is trading at 9x its FY13E consensus earnings estimate. The stock has had
a good run over the past year rising 12% against a 12% decline for the SENSEX; thereby it is richly
valued currently. Factors such as inventory pile up and Sabero acquisition is expected to strain
margins in the coming quarters. Hence, we advise investors to watch out for these near-term
triggers before approaching the stock.
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