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Capex improves profit growth visibility

Lower subsidy drags fertilizer business EBITDA

Coromandel International (CRIN IN) reported subdued results but in line with our estimates. Top line came in at INR 54.5bn vs our estimates of INR 52.0bn. EBITDA declined 54% to INR 3.6bn, in line with our estimates due to a sharp cut in subsidy for H2FY24. Subsidy (fertilizer) business EBITDA fell 77% YoY and EBITDA per tonne (total volume ex-Urea) by 74% to INR 1,201. Q4FY24 is expected to be soft as well, but the decline is profitability is expected to be lower. Further, CRIN has announced capacity expansion for phosphoric and sulphuric acid plants. Further, backward integration has improved visibility of EBITDA growth in the long term.

Capex to further enhance backward integration

CRIN plans to invest INR 10bn in the next two years to set up 200,000 tonne of phosphoric acid plant and 600,000 tonne of sulphuric acid plant at its Kakinada unit in Andhra Pradesh. The move is expected to enhance cost competitiveness and secure raw material supplies. Post completion of this project, the company may still import 0.20-0.25mn tonne of phosphoric acid.

Volume growth of 21% in the crop protection business

Crop protection (CP) revenue declined 6% YoY, led by lower realization. Volume grew 21%. Domestic sales and exports declined 8% YoY and 3% YoY, respectively. CP EBIT was up 4.4% to INR 846mn and margin expanded 133bp to 13.7%. Segment gross margin has improved, driven by efficiency improvement and a better product mix.

Valuation: reiterate Buy with a lower TP of INR 1,345

While the subsidy reduction has been sharp, we believe it is only transient in nature and may last until Q4FY24. With rising raw material prices globally and commencement of new sulphuric acid facility, backward integration benefits in FY25 should be healthy and subsidy increase reasonable. We reduce our EBITDA and PAT by 16% & 17% for FY24E, respectively, and 3% each for FY25E. We reiterate Buy with a lower TP of INR 1,345 from INR 1,387 on 17x (unchanged) FY25E P/E.

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