Coromandel International Limited Multibagger and Stock Market Tips

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Coromandel International Limited Multibagger and
Stock Market Tips
Company Review Coromandel International Limited,
originally named Coromandel Fertilizers was
incorporated in 1961, by International Minerals
and Chemical Corporation (IMC), Chevron
Chemical Company and EID Perry (India) Ltd.
Now Coromandel International is owned by
Murugappa Group and it has 8 manufacturing units
located in the states of Andhra Pradesh,
Tamil Nadu, Maharashtra, Gujarat and Jammu
and Kashmir. Being India's 2 largest Phosphate
fertilizer players after IFFCO the Coromandel
International Limited is active in the business
segments of Fertilizers, Specialty Nutrients,
Crop Protection and Retail. Its harvest is sold
under the brand names like Gromor, Godavari,
Paramfos, Parry Gold and Parry Super etc.
For crop protection, Coromandel produce
insecticides, fungicides, herbicides, and markets
them in India and abroad and its retail business
includes over 640 rural retail centers. Merger
of Sabero Organics and Liberty Phosphate
with Coromandel Coromandel International is
merging of Sabero Organics, Liberty Phosphate Ltd
and Liberty Urvarak Ltd with itself. According to
the management realizing the synergies is the
rationale behind the mergers. Company Financial
View In Q3FY14, net consolidated revenue
stood at Rs. 27562mn witnessing 13.7
percent YoY growth and sequential degrowth
of 14.3 percent as increase in YoY
consolidated sales volume of 21 percent was
partially offset by lower average
realizations due to discounts offered to
the distributors. EBITDA increased 80.1 percent
YoY but dipped 22.3 percent QoQ to Rs. 2312mn and
resulted in EBITDA margin of 8.4 percent as
against 5.3 percent in Q3FY13 and 9.3 percent in
Q2FY14. PAT rose by 52.3 percent YoY and fell by
39.7 percent QoQ to Rs. 1041mn and PAT margin was
3.8 percent as compared to 2.8 percent in Q3FY13
and 5.5 percent in the previous quarter. Margins
were lower due to lower margins of non-
fertilizer business and higher discounts
offered to distributors in the northern
markets due to high system inventories. Non
fertilizer business margins were hit by
lower margins at Sabero Organics because of
production disruption during the quarter.
Effective tax rate in Q3FY14 was 33.14
percent compared to 24 percent in 2QFY14
and 2.96 percent in 3QFY13. Subsidy
business's contributions to revenue and
EBITDA were 82 percent and 66 percent
respectively while subsidy contribution to
consolidated sales has decreased YoY from
31 percent to 24 percent in Q3FY14.
Further outstanding subsidy from government
stood at Rs. 13000mn as on December 31, 2014
compared to Rs. 11900mn as on September 30, 2013.
During Q3FY14 plant utilization rate was 85
percent. Debt to equity stood at 1.3 as on
March 31, 2013 and it is expected to go
down to less than one by March 31, 2014.
Return on Equity (ROE) declined from 28.5
percent in FY12 to 15.4 percent in FY13 while the
ratio is expected to improve to above 18.5
percent in FY14.
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Positives of the Company Lowest cost producer
in India High production volume and highly
efficient manufacturing facility reduced the
cost of production making it a cost leader in the
domestic industry. Beneficiary of Nutrients
Based Subsidy (NBS) scheme The Nutrient
Based Subsidy (NBS) scheme was introduced in
April 2010, according to this scheme the
government fixes the subsidy on fertilizers based
on their nutrient content. Coromandel
International Limited are paid a fixed amount for
each nutrient used, irrespective of the cost of
production. Coromandel is the largest private
sector Phosphatic fertilizer manufacturer in
India, so large scale of operations and
operational efficiencies are likely to make
Coromandel International biggest beneficiary of
NBS scheme Improvement in working capital
management Management of system
inventories improved as Inventories of
complex fertilizer reduced from 7-7.5mn tons at
the beginning of the year to 3.2-3.5mn tons at
the end of Q3FY14 and thus fast approaching the
normal levels. Company Assessments The
valuation stands at 15.82x FY13 EPS. Earnings are
expected to grow at CAGR of over 23 percent over
the period of FY13-15E. The stock is currently
trading at Rs. 212 We give buy recommendation to
buy at Rs. 212-207 for investment horizon The
stock can touch Rs 270 that values the stock at
20.3x FY14E EPS and 13.2x FY15E EPS in a time
period of 3-9 months. Bse Id 506395 Nse Id
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