We recently met the Coromandel International (Coromandel) management. While fertilizer volume during FY13 is likely to be subdued on account of delayed monsoon and excessive inventory in the system, however non subsidy business is gaining momentum. Commissioning of new fertilizer and TIFERT facility in November 2012, Sabero’s turnaround and strong growth in non-subsidy business will be key growth drivers during FY14. We maintain ‘BUY’ with target price of INR383.
Subsidy business: Short-term flip, but brighter long-term prospects
Consumption of P&K fertilisers is likely to be lower by 12-15% during FY13 on account of delayed monsoon and excessive inventory. On account of pick up in rainfall during August-September, the company anticipates the rabi season to be better than kharif season. Coromandel’s Kakinada expansion plan and TIFERT are expected to be on stream by November, which will lead to strong volume growth during FY14.
Non-subsidy business: Gaining momentum
· Sabero’s capacity ramp up from 40% in FY12 to 75% in FY13 is likely to boost higher margin pesticides volumes.
· The water soluble fertiliser plant, which was set up as a JV with SQM (Chile), will replace the company’s traded WSF volume and boost WSF EBITDA margin.
· Strong growth continues in organic manure and specialty nutrient business.
· In the retail business, Coromandel plans to increase store count from 641 in FY12 to 1,000 by FY14E. The company expects to add 150 outlets during FY13.
Outlook and valuations: Positive; maintain ‘BUY’
We are positive on Coromandel on back of strong prospects for its non-subsidy business as well as strong volume growth in the fertiliser business. We have trimmed our FY13E EPS ~7% considering lower fertiliser volume. We maintain ‘BUY’, with fair value target at INR383/share.
Regards,
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