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Backward integration and better RM sourcing drive EBIDTA

Better-than-expected earnings

* CRIN reported a robust operating performance, with EBIDTA growing 42% YoY due to better per tonne margin in the Fertilizer business. This was achieved on the back of backward integration, control on fixed costs, inventory gain, and better outsourcing of raw materials, despite an inflationary cost scenario.

* Factoring in its 1QFY23 performance, we have raised our FY23/FY24 earnings estimate by 14%/7%, led by higher EBIDTA/MT in the Fertilizer business. We value the stock at 18x FY24E EPS to arrive at our TP of INR1,240. We maintain our Buy rating.

Fertilizer drives operating performance

* CRIN reported a revenue of INR57.3b (est. INR62.1b) in 1QFY23, up 56% YoY, driven by a growth in realization. Fertilizer volumes grew 3% YoY to 1.05MMT (manufactured fertilizer volume declined by 11% YoY to 0.85MMT, while trading volume increased by 2.8x YoY to 0.2MMT).

* The Nutrient and Other Allied business segment grew 66% YoY to INR51.1b. The Crop Protection segment grew 5% YoY to INR6.6b, with utilizations at 60% v/s 79% YoY and better growth in the domestic market. Volume growth in the domestic market is expected with the launch of four products in Jun’22. Adjusted PAT grew 48% YoY to INR5b (est. INR3.5b).

* EBIT for Nutrient and Other Allied and the Crop Protection business stood at INR6b/INR867m, up 51%/5% YoY. Margin in the Crop Protection segment remained flat YoY at 13.1% in 1QFY23.

* EBITDA rose 42% YoY to INR6.9b (est. INR5b). As per our calculations, EBITDA/mt for manufactured fertilizers (including SSP, assuming an EBITDA/mt of INR400 for DAP and MOP traded) stood at INR6,715/mt (up 64% YoY and 82% QoQ). The same for manufactured NPK and DAP stood at INR7,805/mt (up 64% YoY and 78% QoQ). The share of unique grade, at 30% in 1QFY23, remained at similar levels YoY.

Highlights from the management commentary

* Subsidy outstanding as of Jun'22 stood at INR27.3b (v/s INR11.5b in Jun’21). Subsidy received from the government stood at INR1.36b in 1QFY23 (v/s INR4.93b in 1QFY22). There was a delay in the payment of NPK subsidies in 1QFY23, impacting the cash flows of companies.

* Capex: It has raised its capex guidance for FY23 to INR8-9b (v/s INR7-8b in its last concall). Fertilizer segment capex stands at INR6-6.5b, with a focus on: 1) backward integration, 2) expanding capacity through debottlenecking of the phosphoric acid plant, and 3) increasing sulfuric acid capacity. It has guided a capex of INR1.5-2b in the Crop Protection segment.

* Margin: The company has guided at an EBITDA/MT of INR4,000-4,500 for FY23, which the company aims to achieve by focusing on further debottlenecking and smart sourcing of its raw materials, thereby improving its overall efficiency.

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