Worst is over Coromandel International :: HDFC Securities

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Worst is over
Coromandel International’s (CRIN) 3QFY15 PAT was
in-line at Rs 1.2bn (+31% YoY). Despite lower acreage
in rabi (-5%), CRIN had a volume growth of ~8%.
However, lower share of manufactured fertilisers
(~90% vs ~100%) led to a drop in EBITDA margin to
7.6% (-35bps). Lower interest cost (-27%, low trade
receivables) and lower tax rate boosted PAT growth.
There are multiple long term triggers for CRIN : (1)
Excess channel inventory for complex fertilisers is
down from 4 mnT to 2mnT (2) Robust growth of nonsubsidy
biz (3) Pickup in Sabero’s utilisation (4) Rising
share of mfd fertilisers (5) Lowering receivables.
We are hopeful that the central govt. will address the
long pending issues like balanced usage of nutrients
and high subsidy receivables. Any duty boost to
producers (vs traders) under the ‘Make in India’
theme may further improve dynamics. We have cut
our FY16/17 estimates by ~20/7% factoring lower
volumes/margins. However, we feel the worst is over
and there are multiple positive triggers ahead.
Upgrade to BUY with a TP of Rs 350 (14x FY17E EPS).
3QFY15 highlights
 Coromandel’s standalone complex fertilisers sales were
0.75 mT (+7.6% YoY, mfd 0.65 mT, traded 0.1mT).
Liberty sales volumes were down by ~5% to 118 kt.
 Urea trading volumes (low margin biz) were down by
23.9% to 278 kT.
 The non-subsidy business contributed 18% and 37% to
revenues and EBITDA respectively.
Worst is behind
 PAT declined at a CAGR of 20% from FY11-14 due to all
round problems (excess channel inventory, volatile
currency/RM prices & high subsidy/farm receivables).
 We expect EBITDA/PAT to grow at 15%/26% CAGR over
FY14-17E. Consequently, RoE/RoCE should improve
from 16/11% in FY14 to 22/17% in FY17E.
Risks
 Large imports by traders capitalizing on the volatile
currency/DAP prices might upset equilibrium.
 Monsoon remains the biggest uncertainty for the
agriculture sector.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3010950