MOSL: COROMANDEL INTERNATIONAL (Buy)-Challenging quarter for volumes and margins
COROMANDEL INTERNATIONAL: Challenging quarter for volumes and margins; Silver-lining in market share gains across states
(CRIN IN, Mkt Cap USD1.8b, CMP INR432, TP INR571, 32% Upside, Buy)
- In-line revenues; marginal beat on EBITDA/PAT: CRIN’s revenue increased 11.5% YoY to INR30,495m (est. INR30,645m) in 3QFY19. EBITDA margin contracted 200bp YoY to 10% (est. 9.3%). EBITDA declined 7.2% YoY to INR3,039m (est. INR2,855m). EBIT margin contracted by 210bp to 9.2% in Nutrient and other allied business and by 70bp to 15.7% in crop protection business. Adj. PAT declined 14.3% YoY to INR1,546m (est. INR1,447m). 9MFY19 performance: Revenue grew 22.1% YoY to INR105,862m, while EBITDA increased 10.5% YoY to INR11,841m, with margin contracting 120bp YoY to 11.2%. Adj. PAT grew 3.6% to INR6,233m.
- Market share strengthens despite volume decline: The fertilizer industry suffered volume decline in 3QFY19 owing to subdued pan-India acreage (down 5% YoY as at Jan’19). CRIN’s NPK volumes remained flat but phosphatic volumes (NPK+DAP) declined by 5% YoY. The overall decline in volumes stood at 13% YoY. Despite the volume decline, the company’s overall market share improved to 17% for YTD FY19 v/s 16% in the same period a year ago. The company’s EBITDA/MT of manufactured fertilizers improved marginally by 3% to INR2,868/MT in 3QFY19 (assuming EBITDA/MT of INR300/MT for traded fertilizers).
- Valuation & View: We raise our earnings estimates for FY19E/20E by 9%/4% factoring in the earnings beat of 7% in 3QFY19. We, however, keep our estimates for FY21E unchanged and expect revenue/PAT CAGR of 13% each over FY18-21. We value the stock at 18x Dec’20E EPS (in line with its 5-year average trading multiple), which we believe is justified given (1) the company’s consistent outperformance vis-à-vis industry, (2) the expected revival in margins on commissioning of the phos acid plant, and (3) sustained RoE of 21%. Our TP of INR571 implies 32% upside. Maintain Buy.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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