Buy Coromandel International Ltd For Target Rs.910 - Emkay Global
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In-line quarter; product mix improves in crop protection segment
Result highlights
* Coromandel International (CRIN) EBITDA/PAT increased 15.6%/25.6% yoy on the back of 1) 19% growth in fertilizer volumes, 2) 96bps improvement in EBITDA margins, led by 208bps EBIT margin improvement in crop protection segment, and 3) 55% reduction in interest expenses due to robust operating cash flow generation.
* EBITDA/PAT missed our estimates by 2% mainly due to lower-than-expected margins in the complex fertilizer trading segment. Fertilizer manufacturing EBITDA increased 2.7% yoy to Rs4,160/ton (Emkay est.) against our estimate of flat on a yoy basis.
* Crop protection (CP) revenue increased 11% yoy to Rs5.1bn (4% below estimate) despite challenges in its key markets of AP/TG/TN on the back of excessive rainfall and drought conditions in LatAm (key export market).
* EBITDA margins improved 96bps yoy to 14.1% (vs. our estimate of 13.9%), aided by higher margins in the CP segment. Nutrient segment EBIT margin expanded 57bps yoy to 13.4%. Crop protection segment margins improved 208bps yoy to 17.5% due to improved product mix. Overall gross margins improved 118bps yoy to 32.7%.
* Interest expenses decreased 55% yoy to Rs205m on the back of robust operating cash flow.
New products/Capex
* The Sulphuric Acid plant has been successfully re-commissioned at Ranipet and a pilot Liquid Fertilizer Plant is being set up at Vizag.
* The company has received registration for Quizalofop Ethyl, a selective systemic herbicide for soybean and other vegetative crops. New products continue to do well and have contributed to 25% of the domestic formulation business on an YTD basis.
* CRIN plans to expand capacity at the Thyagavalli plant to cater to the increased demand for bio products.
Emkay View
* CRIN’s improvement in manufactured EBITDA/ton despite lower manufactured volumes is impressive. We believe that improvement in EBITDA/ton could be attributable to 1) increased share of unique grades to 50% vs. 38% in Q3FY20 and 2) full ramp-up of phos acid plant at Vizag vs. partial ramp-up in the base quarter. New launches and better product mix has helped achieve the best Q3 EBIT margins in the CP segment since Q3FY17. We expect additional cash flow of ~Rs20bn in FY21E on the back of accelerated subsidy payout by the government (Rs1.34trn vs. Rs71bn budgeted). CRIN’s strong balance sheet allows it to pursue inorganic opportunities going ahead to accelerate growth.
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