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Outlook continues to be intact.

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

* Revenue grew by 14% YoY to Rs.3,664cr in Q1FY22 driven by growth in both fertilizer and crop protection chemicals (CPC). Fertilizer segment revenue grew 9% while CPC segment grew at a staggering 50% YoY.

* Backward integration and inventory savings benefitted nutrient segment while higher exports and B2B deals helped consumer product segment.

* Company launched six new products in CPC segment during the quarter. All of them are combination molecules. Four of them are insecticides while each of the remaining two are herbicide and fungicide.

* Rainfall forecasted to be normal in the coming year which will enable further volume growth.

* We believe majority of the positives are already factored in valuation, So we downgrade our rating to ACCUMULATE with revised target price of Rs.922 based on 16x FY23 adj. EPS.

Crop protection segment grabs attention

Driven by both fertilizer business (9.4% YoY) and CPC business (50.3% YoY) CRIN’s revenue grew to Rs.3,664cr (14% YoY). Growth in CPC was driven by higher capacity utilization of plants, better export business and higher B2B deals. Management is expecting the growth trajectory in crop protection segment to continue supported by new product & molecule launches and improving export business. Higher Nutrient Based Subsidy (NBS) by government has helped company’s top line growth. CRIN’s market share improved to 18.1% from 16.4% in Q1FY21. Management is confident on the remaining kharif season considering the favourable factors in key markets. Upon the monsoon guidance from Meteorological Department, management expects a normal monsoon which will aid volume growth.

Better margins, despite rise in raw material cost

During the quarter, EBITDA margin expanded to 13.2% from 9.1% in Q4FY21, despite the increased raw material cost. Company was able to expand the margins by sourcing raw material from multiple sources, utilising the flexibility of plants to produce more NPK (nitrogen, phosphorus, and potassium), high capacity utilization of plants and benefitting from inventory gains. Due to backward integration, CRIN increased production of NPK by 11% and reduced its imports by 3%. 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 an increase in export business.

Focus on uplifting output

Management is planning to increase the production capacity of plants and remove bottleneck in order to improve the output. During the quarter, the company was able to recommission the sulphuric acid plant at Ranipet. CRIN’s large evaporator plant in Vizag is expected to be commissioned in Q2FY22 which will improve the availability of concentrated Phosphoric acid. Management plans to de-bottleneck fertilizer plants at Vizag and Kakinada.

Outlook and valuation

CRIN is focusing on increasing the revenue from higher margin segments like CPC and speciality nutrients through new launches and marketing initiatives. Considering CRIN’s plans on backward integration, initiatives on increasing the capacity, global expansion of distribution reach and expectation of normal monsoon, we remain positive on CRIN. But we believe, majority of the positives are already factored in the valuation, so we downgrade our rating to ACCUMULATE with a revised target price of Rs. 922 based on 16x FY23 adj. EPS.

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