IGI Logo

Volume trims topline.. Margins supports bottom line

Coromandel International Ltd. (CRIN) is one of the leading private sector fertilizer manufacturers in the country. CRIN is one of the key producers of NPK and SSP grade fertilizers.

• Despite flat EBITDA growth, margin improved by 470bps to 15.2%% YoY, owing to stable RM prices and backward integration.

• During Q2, CRIN launched neem-oil-based biopesticides and planned to launch non-neem-based biopesticides in H2FY24.

• CRIN introduced nano-DAP-based fertilizer, and its initial response has been overwhelming positive, and obtained drone orders from the Indian Army.

• The fall in input prices, better capacity utilisation, backward integration measures are likely to improve the margin outlook in the near term.

• We value the stock at a revised target price of Rs.1,299, based on 17x FY25E EPS, and upgrade to BUY rating.

Top line dips.. But improved margin cushined bottom line

CRIN reported consolidated revenue of Rs.6,988cr for Q2FY24, a degrowth of 30.9% YoY, compared to Rs.10,013cr in Q2FY23. This was due to a decline in government subsidies and a subnormal monsoon. Revenue from nutrients and other allied businesses saw a de-growth of 33.4% YoY to Rs.6,302cr, while crop protection chemicals (CPC) witnessed a muted growth of 3.3% to Rs.730cr. While EBITDA grew modestly by 0.2% to Rs.1,059cr in Q2FY24. But the EBITDA margin improved by 470bps to 15.2% (YoY). Hence, PAT improved modestly by 1.9% to Rs.755cr. During the quarter, CRIN received a huge subsidy amounting to Rs.4,243cr during this quarter. The company has to receive a total subsidy of Rs.1,497cr as of Q2FY24 (v/s Rs.4,176cr in Q2FY23).

Backward integration aids margin support

CRIN showcased improved EBITDA margins on the benefit of stable raw material prices along with strong backward integration measures. We expect the company to be able to improve margins through efficient sourcing of raw materials, higher utilization, and expansion. CRIN has maintained its EBITDA per tone guidance to Rs. 5,500 in FY24. During the quarter, the company launched a biopesticide based on neem oil and planned to introduce a non-neem-based biopesticide in H2FY24. During Q2FY24, DAP and complex fertilizer plants operated over 86% of capacity, with a production of 11.6 lakh metric tones.

New capacity expansion, product launches to improve margin

In Q2FY24, Coromandel further strengthened its backward integration capabilities by commissioning a sulphuric acid plant, resulting in an 83% increase in annual production. The company also set up a desalination plant for its daily requirements. In addition, CRIN introduced nano-DAP-based fertilizer, and the initial response has been overwhelming positive. Despite global headwinds, the crop protection business has seen healthy volume growth, bolstering its performance in both exports and domestic formulations. Apart from nano-DAP and urea, the company commenced its presence in high-growth specialty chemicals and explored opportunities in CDMO manufacturing. The company has successfully obtained drone orders worth Rs.165cr from the Indian Army and has also made a strategic investment by acquiring a 16.53% stake in Xmachines, an AI-based robotics startup specializing in a variety of agricultural operations. CRIN plans to invest Rs.500cr during FY24 for the setting up of the SSP granulation facility, the DAP plant, and the manufacturing of CPC segments.

Outlook and valuation

The fall in input prices, improved capacity utilization, backward integration measures, and the launch of new products are likely to improve the margin outlook in the near term. Hike in MSP for rabi crops and near-normal monsoon in the ending season improve demand. However, the impact of El Nino during the rabi season is still a brewing concern. Therefore, we value the stock at a revised target price of Rs. 1,299, based on 17x FY25E EPS, and upgrade to BUY rating.

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 
SEBI Registration Number: INH200000345