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Margins improved YoY, led by softening RM costs and backward integration in fertilizer business

In-line operating performance

* Coromandel International’s (CRIN) experienced a marginal 1% decline in its EBIT during 2QFY24, despite a steep ~31% YoY decline in revenue. Softening of raw material prices and the benefits of backward integration led to EBIT growth of 4% YoY in the Nutrients and Allied business (EBIT contribution: 92%). On the other hand, the Crop Protection business (EBIT contribution: 8%) registered a ~17% YoY decline in EBIT due to pricing pressures.

* Factoring in its 2QFY24 performance, we maintain our earnings for FY24E/ FY25E. We reiterate our BUY rating on the stock.

Lower subsidy realization led to a decline in revenue

* CRIN reported overall revenue of INR69.8b (est. INR77.1b) in 2QFY24, down 31% YoY, led by lower subsidy realization in the fertilizer business. Total manufacturing volumes (NPK+DAP) declined 7% YoY to 1,027KMT, while total phosphate fertilizer manufacturing volumes (including SSP) declined 8% YoY to 1,239KMT.

* Nutrient & other allied business revenue declined 33% YoY to INR63b, while crop protection business revenue grew 3% YoY to INR7.3b. The Crop protection business performance was adversely affected by industry headwinds and below-average normal rainfall in its key market areas.

* EBITDA stood flat on YoY basis at INR10.6b (est. INR10.2b). As per our calculations, manufacturing EBITDA/MT (including SSP) stood at INR7,230 (up 14% YoY/7% QoQ). The same for phosphate fertilizers (DAP and NPK) stood at INR8,412 (up 15% YoY/ 5% QoQ).

* EBIT margin of the Crop Protection segment contracted 300bp YoY to 11.9% due to pricing pressures.

* Adjusted PAT stood at INR7.6b (est. INR7.2b), up 2% YoY.

* In 1HFY24, revenue declined 20% to INR126.8b, while EBITDA/Adj. PAT grew marginally YoY (1%) to INR17.7b/INR12.5b.

Highlights from the management commentary

* Sulphuric Acid plant: CRIN has commissioned 1650 TPD sulphuric acid plant (with investment of ~INR4b) in 2QFY24, increasing its total capacity to ~1.1 MTPA from 0.6MTPA.

* Outlook: The management has reduced its full-year EBITDA/MT guidance for manufactured fertilizer (excluding SSP) to INR5,000 in FY24 from its earlier guidance of INR5,500 to INR6,000 provided in previous quarters. This was on the back of a recent reduction in the NBS rates by the government.

* Nano DAP plant in Kakinada is set to be commissioned in 3QFY24 (subject to a few pending approvals). The plant has a capacity of ~10m bottles per annum (1 liter each) with ~MRP of ~INR600.

Valuation and view

* The operating performance of the Fertilizer business is expected to continue facing challenges in 2HFY24, primarily due to the lower NBS rates announced by the government for the upcoming Rabi season. Similarly, the operating performance of the Crop Protection segment is also expected be under pressure in FY24; however, a recovery is anticipated in FY25.

* Factoring in its 2QFY24 performance, we maintain our earnings for FY24E/FY25E. We reiterate our BUY rating on the stock with TP of INR1,300 (at 18x FY25E EPS).

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