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Coromandel International Ltd
Limited upside; Downgrading
to Neutral
„About 33% outperformance since Q1; limited upside
We downgrade Coromandel International to Neutral on limited upside, following
~33% outperformance since Q1FY11. The stock trades at the higher end of
historical P/E and EV/EBITDA band on our ~11% higher than the street estimates.
Post a 10% beat in Q1 FY12 led by under-provisioning, we tweak forecasts
marginally. Revised PO of Rs363 (earlier PO Rs370) offers limited upside potential.
Q1 results were ahead of estimates on under-provisioning
While Q1 revenue grew in line at 16% yoy, PAT beat estimates by 10% led by
under-provisioning w.r.t. recognition of subsidy income on the opening
inventories. EBITDA margin was up 169bp as a result of this as well as ~10%
price hikes the company took in farm gate prices. We expect these hikes along
with efficient procurement to help protect fertilizer margins in the coming quarters.
Not U’perform: Remain bullish on long term potential
Q1 results indicated continued strength in Coromandel’s subsidy as well as non
subsidy based businesses. We remain bullish on its long term potential given i)
consistent scale up in non subsidy based segments of organic manure, farm
mechanization that form ~25% of earnings currently, ii) cost leadership in NPK
fertilizers led by strategic alliances and iii) sector high return ratios at ~40% RoE.
No near term triggers; stock fairly valued
The stock trades at 12xFY12E PE and 11xFY13E PE which we believe is a fair
valuation based on SOTP. We expect near flatness in the stock given this and as
Q2FY12 is likely to be muted given higher base in Q2FY11. Key risks: i) better
than expected performance in non subsidy based segments of organic manure/
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Coromandel International Ltd
Limited upside; Downgrading
to Neutral
„About 33% outperformance since Q1; limited upside
We downgrade Coromandel International to Neutral on limited upside, following
~33% outperformance since Q1FY11. The stock trades at the higher end of
historical P/E and EV/EBITDA band on our ~11% higher than the street estimates.
Post a 10% beat in Q1 FY12 led by under-provisioning, we tweak forecasts
marginally. Revised PO of Rs363 (earlier PO Rs370) offers limited upside potential.
Q1 results were ahead of estimates on under-provisioning
While Q1 revenue grew in line at 16% yoy, PAT beat estimates by 10% led by
under-provisioning w.r.t. recognition of subsidy income on the opening
inventories. EBITDA margin was up 169bp as a result of this as well as ~10%
price hikes the company took in farm gate prices. We expect these hikes along
with efficient procurement to help protect fertilizer margins in the coming quarters.
Not U’perform: Remain bullish on long term potential
Q1 results indicated continued strength in Coromandel’s subsidy as well as non
subsidy based businesses. We remain bullish on its long term potential given i)
consistent scale up in non subsidy based segments of organic manure, farm
mechanization that form ~25% of earnings currently, ii) cost leadership in NPK
fertilizers led by strategic alliances and iii) sector high return ratios at ~40% RoE.
No near term triggers; stock fairly valued
The stock trades at 12xFY12E PE and 11xFY13E PE which we believe is a fair
valuation based on SOTP. We expect near flatness in the stock given this and as
Q2FY12 is likely to be muted given higher base in Q2FY11. Key risks: i) better
than expected performance in non subsidy based segments of organic manure/
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