Coromandel International's Q2FY18 results (Neutral) - Impressive Performance
Q2FY18 results highlights
- Coromandel Q2FY18 revenues increased by 3.6% yoy to Rs36.4bn (est. Rs33.6bn). Fertiliser business revenues remained flat with lower subsidy rates, while pesticides business posted ~11% growth yoy
- Q2FY18 EBITDA increased significantly by 47.7% yoy to Rs5.6bn (est.Rs4.37bn) led by favourable raw material price and foreign exchange gains. EBITDA margins expanded by 465bp to 15.6%
- Lower interest costs (down 29.5% yoy) and stable depreciation charge led to steeper growth in net profit. Net profit increased by 60.5% yoy to Rs3.4bn (est Rs2.5bn)
Key positives: Profitability improvement.
Key negatives: Flat growth in fertiliser business
Impact on financials: FY18E/19E earnings estimates increased byy 21.5%/16%
Our view
Coromandel’s Q2FY18 performance was driven by normal monsoons in key operating regions and moderation of channel inventory post GST. However fertiliser business profitability (EBITDA/t) is expected to have reached the near term peak in Q2FY18.With limited scope for improvement in profitability in the near term (H2FY18), increase in rabi crop acreage and stable exchange rates are the near term drivers. The company’s initiative to increase the captive phosphoric acid production capacity will help improve the fertiliser business profitability in the long run. In the non-subsidised agri inputs business, increase in pesticides production capacity, initiatives to add more products and expansion in rural retail network will augur well for the non-subsidy business growth. At 19.4x/17.7x on FY18/19E P/E, the stock has already seen significant rerating in valuation compared to the 12-15x it enjoyed in the past. However, considering the near term growth prospects (20% earnings CAGR over FY17-19E), we retain our Neutral recommendation, with the revised target price of Rs494 (18x FY18E).
Coromandel International Limited is engaged in the manufacture and trading of farm inputs consisting of fertilizers, crop protection, specialty nutrients and organic compost. The Company's business divisions include Fertilizers, Specialty Nutrients, Crop Protection and Retail. It offers various products in fertilizer segment, including Nitrogen, Phosphatic and Potassic in various grades. Its specialty nutrients consist of water soluble fertilizer, sulfur products, micro nutrients and organic manure. Its crop protection products consist of insecticides, fungicides and herbicides. Its retail outlets operate as Mana Gromor Centers. It manufactures a range of fertilizers and markets over 3.2 million tons. It operates a network of over 800 rural retail outlets under its retail business across Andhra Pradesh, Telangana and Karnataka. It has manufacturing facilities in Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Uttar Pradesh, Rajasthan, Gujarat, and Jammu and Kashmir.
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