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Lower subsidy; high RM costs continue to hurt performance

Operating performance above estimates

* Coromandel International (CRIN) reported subdued operating performance in 2QFY25 (EBIT down 10% YoY) due to a lower NBS rate and high raw material prices, partly offset by healthy performance from the crop protection business (EBIT up 24% YoY).

* With improved reservoir levels and forecasts of above-normal northeast monsoons, the company is expecting healthy growth in fertilizer volumes in the upcoming quarters. This, coupled with the bottoming out of agrochemical prices, should lead to better performance in 2HFY25.

* We maintain our FY25/FY26 earnings estimates. We value the company at ~25x Sep’26E EPS to arrive at a TP of 2,000. Reiterate BUY.

Operating performance hit by the subdued fertilizer business

* CRIN reported overall revenue of INR74.3b (est. INR69.9b) in 2QFY25, up 6% YoY, led by higher sales volume.

* Total manufacturing volumes (NPK+DAP) grew 6% YoY to 1.1 MMT, and total phosphate fertilizer manufacturing volumes (including SSP) increased 6% YoY to 1.3 MMT during the quarter.

* Nutrient & other allied business revenue rose 7% YoY to INR67.5b, while crop protection business revenue grew 3% YoY to INR7.5b.

* EBITDA declined 8% YoY to INR9.75b (est. INR9.2b). As per our calculations, manufacturing EBITDA/MT (including SSP) stood at INR5,435 (down 25% YoY), while EBITDA/MT for phosphate fertilizers (DAP and NPK) stood at INR6,325 (down 25% YoY).

* EBIT margin for Nutrient & other allied business contracted 310bp YoY to 12.6%, while for crop protection business expanded 250bp YoY to 14.4%.

* Adjusted PAT stood at INR6.6b (est. INR6.5b), down 12% YoY.

* In 1HFY25, CRIN’s revenue/EBITDA/Adj. PAT declined 4%/16%/22% YoY; however, implied revenue/EBITDA/Adj. PAT growth in 2H is expected to be 12%/56%/71% (on low base), with healthy growth in the key fertilizer volume and recovery in crop protection business.

Highlights from the management commentary

* Outlook & guidance: Management has maintained its EBITDA/MT guidance of ~INR4,500-5,000 for manufactured fertilizer (NPK and DAP) in FY25.

* The crop protection business clocked improved margins led by cost optimization initiatives. Management expects agrochemical prices to have bottomed out globally and is likely to inch up from next calendar year. CRIN introduced ~10 new products in 1HFY25 including one patented product.

* Capex: CRIN will incur capex of INR5.1b for enhancement of granulation capacity by 0.75m tons per annum for manufacturing of complex and unique fertilizers at Kakinada. It is also setting up of a 600 TPA state-of-the-art multiproduct plant for manufacturing the recently off-patented Fungicides at Ankleshwar, Gujarat at the cost of INR1.6b

Valuation and view

* The company’s key product (NPK) witnessed volume resilience (up 6% YoY in 1HFY25) in 1H, but margins were under pressure due to lower NBS rate and high raw material prices. However, with extended southwest monsoon during the year and above-normal northeast monsoons, the rabi season is expected to do well.

* The operating performance of the fertilizer business is anticipated to witness healthy growth with better margins YoY in 2HFY25 (margins in 2HFY24 were lower due to reduced subsidy rate, higher RM costs, and subdued demand). The growth momentum within the crop protection business is likely to witness recovery going forward.

* We maintain our FY25/FY26 earnings estimates. We value the company at ~25x Sep’26E EPS to arrive at our TP of 2,000. Reiterate BUY.

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