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Good volumes in fertilizer drove the top line.

Coromandel International Ltd. (CRIN) is one of the leading private sector fertilizer manufacturers in the country. CRIN is one of the key producers of NPK and SSP grade fertilizers.

* CRIN reported decent revenue of 30% YoY in Q4FY23, driven by higher MRP and subsidy realisation.

* EBITDA grew by 6.2% in Q4FY23. However, EBITDA margin contracted by 162bps to 7.4% YoY.

* In FY23, the company launched eight new products, which received an overwhelming positive response from the market.

* In addition to plans to launch new products like nano DAP and urea, the company is entering high-growth specialty chemicals and exploring opportunities in CDMO manufacturing.

* The fall in input prices, better capacity utilisation, backward integration measures are likely to improve the margin outlook in the near term.

* We value the stock at a revised target price of Rs.1,060, based on 14x FY25E EPS, and maintain Accumulate rating.

Better top-line growth.. but narrowed margins.

In Q4FY23, CRIN reported consolidated revenue of Rs.5,476cr for Q4FY23 (30% YoY), compared to Rs.4,227cr in Q4FY22. This was driven by higher MRP and subsidy realisation. Revenue from nutrients and other allied businesses saw a 32.5% YoY increase to Rs.4,881, while crop protection showed a moderate growth of 11% to Rs.615cr in the fourth quarter. While, EBITDA grew by 6.2% to Rs.403cr in Q4FY23. However, EBITDA margin contracted by 162bps to 7.4% (YoY). PAT fell by 15% to Rs.246cr. During the quarter, CRIN received a substantial subsidy amounting to Rs.4,483cr. For the entire FY23, the company received a total subsidy of Rs.12,477cr from the government. The company has to receive a total subsidy of Rs.2,378cr as of Q4FY23 (v/s Rs.2.94cr in Q4FY22).

Better capacity utilisation & new products aids future performance

In FY23, CRIN experienced a contraction in its EBITDA margin to 10%. The decline is mainly due to rise in raw material costs, as well as increased expenses related to freight and distribution. We expect the company to be able to improve margins through efficient sourcing of raw materials, utilization of plant flexibility and expansion. CRIN has maintained its EBITDA per tone guidance to Rs. 5,500- 6000 in coming years. The company launched eight new products in its portfolio during FY23. During the quarter, the company launched three new products. Two of these products were launched in the technical segments, while another belonged to the herbicide category, under the brand name "Clareo." During FY23, DAP and complex fertilizer plants operated over 90% of capacity, achieving a record production of 32.91 lakh metric tones

New capacity expansion to improve margin

In FY23, Coromandel strengthened its backward integration capabilities in the nutrients business by acquiring a Rock Phosphate mining company. The company also achieved significant progress in the sulphuric acid and the desalination plants as well. The Ankleshwar plant has been successfully commissioned, and two new products have been commercialized in the last quarter. This will help the company lessen its dependency on certain raw materials easing margin pressure. In addition to plan to launch new products like nano DAP and urea, the company is entering the high-growth specialty chemicals market and exploring opportunities in CDMO manufacturing. CRIN plans to invest Rs.2,000cr in the next two years for business expansion in Nutrients and CPC segments

Outlook and valuation

The fall in input prices, improved capacity utilization, backward integration measures, and the launch of new products in the CPC segment are likely to improve the margin outlook in the near term. However, concerns regarding the possibility of a strengthening El Nino during the monsoon season are likely to impact the business. Therefore, we value the stock at a revised target price of Rs. 1,060, based on 14x FY25E EPS, and maintain Accumulate rating.

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