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Higher realization drove the top line.

Coromandel International (CRIN) is one of the leading private sector fertilizer manufactures in the country, with significant presence in South India. CRIN is one of the key producers of NPK and SSP grade fertilizers.

• In Q1FY23, revenue grew by 56% YoY aided by higher realisation. Nutrients and other allied business (89% of sales mix) grew 66% YoY

 • EBITDA rose by 42% YoY, but the margin shrunk by 120bps YoY to 12%, on account of input cost inflation.

• CRIN’s NPK market share improved marginally on a QoQ basis from 27% to 28%.

• Company acquired its first rock mine in Senegal as part of backward integration and expected to meet one-third of its phosphatic requirements.

• We believe the company to report robust growth in sales on the back of capacity expansion, backward integration and expectation of normal monsoon.

• However, the margins are expected to be subdued in FY23 owing to higher raw material cost. The same is likely to improve by FY24 supported by the relaxation in material prices.

• Considering the healthy balance sheet and consistent ROE of ~27% for the last 3 years, we reiterate our ACCUMULATE rating with revised target price of Rs. 1,171 based on 15x FY24E adj. EPS.

 

Top line reported growth while margins contracted.

CRIN reported revenue of Rs.5,729Cr for Q1FY23 (56% YoY) compared to Rs.4,227Cr in Q4FY22, aided by realisation growth. EBITDA rose from Rs.483Cr in Q1FY22 to Rs.685Cr in Q1FY23. EBITDA margin contracted to 12% from 13.2% in Q1FY22. PAT grew by 48% YoY to Rs.499Cr, while the PAT margin shrunk YoY by 50bps to 8.7%. DAP and complex fertilizer plants operated at 91% capacity compared to 83% for FY22. During the quarter, CRIN received subsidy of Rs.136Cr (v/s Rs.493Cr in Q1FY22) from government and reported subsidy outstanding of Rs.2,731Cr as on 30th June 2022 (v/s Rs.1,149Cr in Q1FY22). Considering good reservoir levels and soil moisture level, management anticipates good traction in the rabi season.

 

Better realisation aided the operating performance

During the quarter, EBITDA margin expanded to 12% from 9% in Q4FY22, despite the headwinds in raw material cost. The company was able to expand the margins by sourcing raw materials from multiple sources, control on fixed overheads, utilization of plant flexibility and inventory gains. We are expecting the profitability to sustain throughout the year considering the benefits of backward integration, new product launches, higher NBS (Nutrient Based Subsidy) by Government of India and softening in raw material cost .

 

Focus on backward integration and de-bottlenecking plants.

Planned capex of Coromandel for FY23 is Rs.800-900 Crs. Out of which Rs.600- 650 Crs for fertilizer segment. For 1) capacity expansion for sulphuric acid plants. 2)Debottlenecking the phosphoric acid plants and 3) for general capital expenditure. Capex planned for crop protection is Rs.150-200 Crs. During the quarter Coromandel invested in rock mine in Senegal . The management expect this will help in diversifying the rock sourcing and strengthen the backward linkage. These mines can meet one –third of company’s phosphatic rock requirements.

 

Outlook and valuation

We believe, the company has limited ability to pass on the increased raw material cost to customers in FY23,but the same is expected to improve by FY24 aided by lower input prices. Considering the healthy balance sheet and consistent ROE of ~27% for the last 3 years, we reiterate our ACCUMULATE rating with revised target price of Rs. 1,171 based on 15x FY24E adj. EPS.

 

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