Motilal Oswal Securities Reports on Coromandel

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Revenue growth in line, margins beat estimates: Overall revenue grew 7.8% YoY to

INR34.7b (our estimate: INR34.7b). EBITDA margin expanded 110bp YoY to 10% (our

estimate: 8.9%) primarily due to 50bp gross margin expansion and 50bp decrease in

other expenses. Fertilizer volumes grew by 8% and margins stood at ~INR2,700/MT,

as the company took a blended price increase of 5% during the quarter. Reported PAT

grew 12.4% YoY to INR1.8b (our estimate: INR1.7b). Non-subsidy business reported

mixed performance with overall growth of ~5%, with Sabero posting robust 23%

growth while the performance of domestic agro-chemicals and MGC stores was

impacted due to weak rainfall and demand in AP/Telangana. Additionally, gypsum

sales during the quarter also declined due to lower demand from cement

manufacturers. The non-subsidy business contributed 18% and 36% to revenues and

EBITDA respectively.

Market share gains to further drive growth; margins to improve: CRIN’s market

share in complex fertilizers expanded from 24% to 29%. With focus on customized

products and investments in the Gromor brand, the management is confident of

further market share gains. Further, due to normalization of channel inventories and

higher capacity utilization (~83% capacity utilization in FY16 v/s 65% in FY14), we

believe CRIN will outpace industry growth. Due to Cyclone Hudhud, production at the

Vizag facility has been impacted (50% of normal production for October), but this is

unlikely to materially impact full-year growth due to sufficient inventories. Focus on

complexes as against DAP, along with revival of demand for domestic agro-chemicals

and higher gypsum sales will boost aggregate margins.

Maintain Buy: We like CRIN for its focus on the more lucrative complex fertilizers

space and its initiatives to diversify from a pure fertilizer business to a broader,

agricultural inputs business. We expect earnings CAGR of 30% over FY14-17. With

capex being limited to INR1b, we expect RoCE to improve from 16.6% to 28.9% and

RoE from 16.3% to 24.4%. Maintain Buy with a revised TP of INR400 (18x FY16E EPS).