MOSL: COROMANDEL INTERNATIONAL (Buy)-In line on most fronts-expect sustained momentum

Coromandel International: In line on most fronts; expect sustained momentum; But high RM costs may pose margin headwinds

(crin IN, Mkt Cap USD1.6b, CMP INR395, TP INR557, 41% Upside, Buy)

• Largely in-line performance, but margins contract: CRIN’s revenue increased 36.3% YoY to INR50,083m (our estimate: INR48,099m) in 2QFY19. EBITDA grew 16% YoY to INR6,663m (our estimate: INR6,309m), with the margin contracting 230bp YoY to 13.3% (our estimate: 13.1%). Adj. PAT increased 8.6% YoY to INR3,785m (our estimate: INR3,731m).
• 1HFY19 performance: Revenue/EBITDA grew 27%/18% YoY to INR75,368m/INR8,802m. Margins shrank 80bp YoY to 11.7%. Adj. PAT grew 11% YoY to INR4,687m. For 2HFY19, we expect revenue growth of 25% YoY (similar to 1HFY19), but foresee increased pressure on margins (we expect contraction of 270bp) due to a spike in RM prices.
• Growth largely volumes-driven: Healthy revenues in 2QFY19 were largely driven by volumes growth of ~34% in Fertilizers. Volumes were driven by 32% growth in NPK as the industry shifted toward manufacturing NPK while DAP continued to be imported. Margins, however, took a sharp hit, primarily because of higher phos acid prices (USD758/MT v/s USD567 in 2QFY18). We expect continued margin headwinds, but revenue growth is likely to be supported by price hikes – DAP prices already raised to INR29,000/MT (from INR26,600) and NPK price hike is planned from 1st November 2018.