IGI Logo

Outlook intact despite weak quarter...

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.

* CRIN’s total revenues in Q4FY21 de-grew by 0.5% YoY to Rs.2,856cr on the back of de-growth in revenues and volumes from the fertilizer business.

* The de-growth was mainly due to the planned maintenance shutdown of fertilizer plants and inventory build-up for the kharif season.

* The crop protection business saw a 16.5% growth YoY to Rs.515cr in revenues during the quarter with new product launches contributing to revenue growth.  CRIN received subsidy reimbursements of Rs.2,943cr from the government in Q4FY21, which will improve the working capital cycle in the long term.

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

* We reiterate a “Buy” rating on CRIN with a target price of Rs.941 based on 16x FY23E EPS.

Fertilizer revenues decline

CRIN’s total revenue de-grew by 0.5% YoY in Q4FY21 on the back of de-growth in volumes and revenue from the fertilizer business (-2.9% YoY). The decline in volumes was mainly attributed to the early annual maintenance shutdown of the fertilizer plants as well as the building up of inventory for the upcoming kharif season. The crop protection business grew by 16.5% YoY in Q4FY21 as new launches continue to gain traction. The increase in key raw material prices and higher freight rates during the quarter led to a decline in EBITDA margins (-450bps YoY) and net profits (-33.6% YoY).

Government subsidy pay-out boosts balance sheet

CRIN received subsidy reimbursements of Rs.2,943cr in Q4FY21 vs Rs.100cr in Q4FY20. The large subsidy pay-out was on the back of the announcement by the finance ministry during the union budget to allocate a further Rs.65000cr to settle outstanding fertilizer subsidy. We expect CRIN’s receivables to substantially decline going forward thus improving its working capital performance in the long term as well as generation of higher free cash flow.

Capex plans to improve bottom-line

The management stated that it plans to incur a capex of Rs.500-600cr over the next 2 years across different segments. CRIN will set up a large evaporator plant in Vizag which will improve the availability of phosphoric acid, a key raw material. Once operational in FY22, the plant will enable CRIN to further reduce raw material costs and improve margins. In the crop protection business, the company looking at acquiring molecules that are going off-patent as well as incurring capex for R&D and product development.

Outlook and valuation

We expect revenue/net profit to grow at a CAGR of 9%/17% during FY20- FY23E. The management expects a normal monsoon which will aid volume growth of the fertilizer products. Despite a decline in margins in Q4FY21, margins should continue to improve in FY22, on the back of backward integration measures and price hikes of few fertilizer products.

The company will also look to increase its share of revenues from higher-margin segments like crop protection and speciality nutrients through new launches and better marketing initiatives. The large subsidy pay-out from the government has eased the working capital constraints and will enable CRIN to generate higher cash flow for potential organic and inorganic opportunities. We reiterate a “Buy” rating on CRIN with a target price of Rs.941 based on 16x FY23E EPS.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at www.geojit.com
SEBI Registration number is INH200000345

Above views are of the author and not of the website kindly read disclaimer