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Steady performance and best play in fertilizers; maintain Buy
* Coromandel International’s revenues rose 9.4% yoy to Rs26.3bn in Q4FY19, below our and consensus estimates. However, EBITDA margins expanded 215bps yoy to 9.8% due to lower freight costs and other expenses, partially offset by a rise in RM expenditure.
* Fertilizer EBIT/ton grew 38.0% yoy to Rs2074/ton (vs. Rs1503/ton), led by price hikes and a 49.1% yoy decline in other expenditure. Its crop protection segment margins contracted 77bps yoy to 15.7%, resulting in EBIT de-growth of 1.7% yoy to Rs699mn.
* Management appeared positive and sighting robust future demand has decided to strategically stock the finished goods inventory of 2.5 lakh tons for Kharif season. CRIN is confident of maintaining the fertilizer EBITDA in the range of Rs3100-3200/ton in FY20. Factors such as increasing the contribution of unique-grade fertilizers, new product launches in the domestic market and capacity expansions in its crop-protection segment all look positive. Maintain Buy rating with a TP of Rs569 (17x FY21E EPS of Rs33.4).
Strong EBITDA margin expansion
* Consolidated revenues was up by 9.4% yoy (down 13.5% qoq) to Rs26.3bn in Q4FY19, below our/Bloomberg estimates of Rs29.0bn/Rs28bn. Coromandel’s fertilizer segment revenues grew by 10.6% yoy to Rs22.8bn, driven by realizations. Realizations rose 11.6%, helped by a 3.4% yoy increase in fertilizer volumes. Complex fertilizer volumes de-grew 8.9% yoy, partially offset by a 78% yoy surge in urea volumes. The realization improvement was largely due to cost-led price hikes. The company’s crop protection segment reported a 1.2% yoy increase in revenues to Rs3.6bn during the quarter.
* However, gross margins in Q4FY19 contracted 150bps yoy to 25.8% (from 27.3% in Q4FY18) due to a 16% yoy rise in phos-acid prices, partially offset by a 9% yoy fall in ammonia prices. Consolidated EBITDA margins increased by 215bps yoy to 9.8%. Consolidated EBITDA jumped by 40% yoy to Rs2.59bn in the quarter. Depreciation went up by 47.5% yoy to Rs351mn on account of the commissioning of Mancozeb facility. Finance cost has also seen an uptick, increasing 28.9% yoy to Rs653mn due to higher inventory days. Inventory has seen a jump of Rs10bn over last year (increase of 28 days).
Outlook remains positive; maintain Buy
We believe that concerns over its gross margins should be addressed to an extent by consecutive price hikes and backward integration of phosphoric-acid (likely saving Rs700mn annually). New product launches (about seven) in Coromandel's crop protection business should drive growth momentum in the domestic market, in our view. Mancozeb capacity expansion should bode well for crop protection exports volumes in FY20/21E. We keep our FY20/21 EPS estimates unchanged and reiterate our Buy with a TP of Rs569 (17x FY21E EPS of Rs33.4). Key risks include delayed monsoon rains and increase in RM prices.
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