MOSL: COROMANDEL INTERNATIONAL (Buy)-Higher manufacturing volumes and new phos acid plant to drive 2HFY20 performance
(CRIN IN, Mkt Cap USD2.4b, CMP INR572, TP INR677, 18% Upside, Buy)
Higher manufacturing sales drive margins for yet another quarter
- Based on data released by the Ministry of Fertilizers, Coromandel International's (CRIN) overall volumes grew 5% YoY in 3QFY20.
- While trading volumes declined 47% YoY, fertilizer manufacturing volumes, which command higher margins, grew 34% YoY. Thus, we estimate 130bp EBITDA margin expansion for CRIN in 3QFY20 (24% EBITDA growth). In 2QFY20 too, CRIN witnessed margin expansion of 140bp YoY led by 9% growth in manufacturing fertilizer volumes (despite revenue decline of 3% YoY).
- Also, CRIN is expected to report record-high absolute 3Q EBITDA of INR3.8b for the Oct-Dec'19 quarter, primarily due to (a) higher sales volume due to better acreage in the Rabi season, (b) benign raw material prices, (c) higher share of manufacturing fertilizer, and (d) cost savings on recently commenced phos acid plant.
- Further, manufacturing of di-ammonium phosphate (DAP) fertilizers surged 5.9x YoY in 3QFY20, while DAP trading declined a steep 86% YoY due to drop in phos acid prices. NPK increased 28% YoY while single super phosphate (SSP) declined 2% YoY.
- In the fertilizer trading segment, Muriate of Potash (MOP) and urea volumes declined 9% and 42%, respectively.
Acreage movement in CRIN's key markets drive fertilizer consumption
- CRIN's key markets - Andhra Pradesh (AP), Telangana, Maharashtra and Karnataka - cumulatively accounted for 66% of total fertilizer volumes and 47% of total manufactured fertilizer volumes in FY19 (NPK volumes from the above states form 75% of NPK sales).
- As on 10th Jan'2020, all-India Rabi acreage was up 8% YoY, which comes on the back of higher reservoir levels across the country.
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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