Higher manufacturing volumes support margins
New phosphoric acid plant to aid in reducing RM cost
* Beat on all fronts: 2QFY20 revenue declined 3% YoY to INR48.6b (v/s est. INR44.4b). EBITDA margin expanded 140bp YoY to 14.7% (v/s est. 14%) and EBITDA grew 7% YoY to INR7.1b (v/s est. INR6.2b). PBT was up 6% YoY to INR6,145m. Adj. PAT grew 33% YoY to INR5b (v/s est. INR4b) on account of lower tax rate. In 1HFY20, revenue declined 7% YoY while EBITDA/PAT grew 3%/21% YoY
* Fertilizer segment drives performance: Nutrient and other allied segment revenue declined 2% YoY (to INR43.9b) with 160bp EBIT margin expansion (to 14.3%), due to higher manufacturing volumes. CRIN has contracted phosphoric acid at USD625/MT for 3QFY20 (v/s USD655/MT in 2QFY20). According to our calculations, in 2QFY20, EBITDA/MT for manufacturing fertilizer stood at INR4,067/MT (+1% YoY; +14% QoQ). Plant protection revenue declined 11% YoY (to INR5.1b) with EBIT margin contraction of 210bp (to 16.3%) on account of delay in stabilization of Sarigam plant (which resumed operations in mid-Jul’19) and softness in mancozeb prices.
* Key concall takeaways: (i) MRP of phosphatic fertilizers declined 10% owing to decrease in RM cost, (ii) Company expects revenue to remain flat in crop protection segment for FY20, and (iii) CRIN has guided EBITDA/MT at INR3,500/MT for manufacturing fertilizer in FY20.
* Valuation and view: Factoring in the strong beat on all fronts (revenue, EBITDA and PAT) during 2QFY20, we increase our PAT estimates by 15%/14% for FY20/21. Additionally, the rising backward integration (post commencement of new phos acid plant) and the decline in phos acid prices should drive margin expansion for CRIN. We expect revenue/EBITDA/PAT CAGR of 4%/12%/22% over FY19-21 and value the stock at 16x FY21E EPS (it has traded at an average P/E of 17x over the last five years). Our TP of INR600 implies 28% upside. Maintain Buy
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