Margin improvement continues
* Coromandel’s Q4 EBITDA increased 36% yoy to Rs2.7bn driven by 530bps EBITDA margin expansion to 11.9% which was a function of lower RM cost, improved operational efficiency and better product mix. Gross margins improved 770bps yoy to 33.5%.
* EBIT margins across fertiliser and crop protection segment registered sharp improvement of 550/150bps yoy to 10.9%/16.8%. Fertiliser EBIT increased by 44% yoy to Rs 2.2bn and crop protection EBIT increased by 11% yoy to Rs488mn.
* Q4 revenue dropped 25% yoy to Rs22.8bn (below our estimate of Rs27.5bn) on the back of 28% yoy decline in fertiliser sales to Rs20bn while crop protection revenues remained muted at Rs2.9bn (+2% yoy). PAT increased 56% yoy to Rs1.4bn.
* We cut FY18/19E revenues by 7%/8% to factor the miss in Q4 revenues. We also reduce our interest expense as we anticipate faster subsidy disbursement under DBT which will subsequently lower the working capital requirement. Maintain BUY.
Operational beat driven by sharp improvement in margins
CRIN’s consolidated revenues declined 25% yoy to Rs22.8bn and was below our estimate of Rs27.5bn. Decline in revenue was on account of 28% yoy drop in fertiliser sales to Rs20bn while crop protection segment posted muted revenue growth of 2% yoy to Rs2.9bn. Gross margins expanded by 770 bps yoy to 33.5% while EBITDA margin improved by 530bps yoy to 11.9% (vs our estimate 9.3%). Consolidated EBITDA increased 36% yoy to Rs2.7bn and was higher than our estimate of Rs2.5bn. Fertiliser segment EBIT margins improved 550bps yoy to 10.9% on the back better product mix coming from nutrients, benign RM cost, lower trading, and overall improvement in efficiency in manufacturing process. Consequently, fertiliser EBIT increased 44% yoy to Rs2.2bn. EBIT in crop protection increased by 11% yoy to Rs488mn and EBIT margin expanded 150bps yoy to 16.8% led by improved operational efficiencies and better realization in key molecules like Mancozeb. Consolidated APAT registered a growth of 56% yoy to Rs1.4bn and was above our estimate of Rs1.2bn.
While CRIN’s manufactured fertiliser sales dropped by 7% yoy to 2.5mn MT in FY17, the consumption at farmer level has been steady resulting in higher liquidation of channel inventory causing lower opening stock as on 1st April 2017. This should help to drive volume growth in FY18. In the crop protection segment we expect the company to continue to post healthy performance driven by increased capacity for mancozeb and better demand for specialty and high margin products. We cut our FY18/19E revenue to align with lower than estimated revenue in Q4FY17. We also reduce our interest expense by 23%/35% for FY18/19 as anticipate reduction in working capital requirement post the implementation of DBT since subsidy disbursement will be faster. We maintain our target price at Rs418 based on 18x FY19E EPS of Rs23. Retain BUY.
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