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Benign RM costs and better volumes aid 3Q performance

Operating performance above estimates

* Coromandel International (CRIN) reported a strong operating performance in 3QFY25 (EBIT up 2.2x YoY), aided by strong growth in the Nutrient & Other allied business (up 2.5x YoY) and decent performance in the crop protection business (EBIT up 8% YoY). Margin improvement was driven by better manufactured volume (up 8% YoY), operating leverage, and benign raw material prices.

* With improved reservoir levels and above-normal northeast monsoons, the company is expecting healthy growth in fertilizer volumes in the upcoming quarters. This, coupled with the stabilization of agrochemical prices, should lead to a better performance in 4QFY25 and FY26.

* Factoring in a strong performance in 3Q and a healthy trajectory for 4Q, we increase our FY25 earnings estimate by 6% while maintain our FY26/FY27 earnings estimates. We value the company at ~25x FY27E EPS to arrive at a TP of INR2,270. Reiterate BUY.

Fertilizer business drives strong operating performance

* CRIN reported total revenue of INR69.4b (est. INR64.4b) in 3QFY25, up 27% YoY, led by higher sales volume. Total manufacturing volumes (NPK+DAP) grew 4% YoY to 0.9mmt, and total phosphate fertilizer manufacturing volumes (including SSP) rose 8% YoY to 1.1mmt.

* Nutrient & other allied business revenue rose 30% YoY to INR63.7b, while crop protection business revenue grew 3% YoY to INR6.3b.

* EBITDA jumped 2x YoY to INR7.2b (est. INR6.6b). As per our calculations, manufacturing EBITDA/mt (including SSP) stood at INR4,609 (up 3.5x YoY), while EBITDA/mt for phosphate fertilizers (DAP and NPK) stood at INR5,287 (up 3.9x YoY).

* EBIT margin for Nutrient & other allied business expanded 470bp YoY to 9.8%, while crop protection business EBIT margin expanded 60bp YoY to 14.3%.

* Adjusted PAT stood at INR5.1b (est. INR4.5b), up 2.2x YoY.

* For 9MFY25, revenue/EBITDA grew 5%/4% YoY to INR191b/INR22b, while adj. PAT remained flat YoY. Our implied growth in 4Q is 23%/52%/72% YoY.

Highlights from the management commentary

* Capacity: The Kakinada project for 200KMT of phosphoric acid and sulfuric acid is on track for commissioning in 4QFY26. Moreover, construction of its 750KMT NPK facility has begun, with commercial production likely by 4QCY27. Negotiations with the technology provider and business partner are in the final stages.

* Subsidy received in 3Q/9MFY25 stood at ~INR20.4b/INR59b vs. INR7.2b/ INR70.3b in 3Q/9MFY24. Subsidy outstanding as of Dec’24 was INR21b vs. INR24.1b in Dec’23.

* SSP: CRIN expects margins to improve as the share of differentiated SSP products rises, which can boost margins to INR1,500-2,000/mt or more.

Valuation and view

* CRIN’s key product (NPK) witnessed volume resilience (up 8% YoY in 9MFY25), with margin recovery in 3QFY25 led by benign raw material prices and operating leverage. The company is expected to deliver a similar performance in 4QFY25.

* CRIN’s longer-term outlook remains strong, led by 1) backward integration (full integration of Kakinada facility by CY26 and Baobab Mining and Chemicals Corporation mines); 2) product diversification (Nano fertilizers and new products across fertilizer and crop protection) and market expansion (such as in UP and MP); 3) scale-up of CDMO business; and 4) ramp-up of its key subsidiary (Daksha).

* We expect a CAGR of ~8%/14%/17% in revenue/EBITDA/adj. PAT over FY24-27E. We value CRIN at ~25x FY27E EPS to arrive at our TP of INR2,270. Reiterate BUY.

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