MOSL: COROMANDEL INTERNATIONAL (Buy)-Softening RM prices provide a breather
COROMANDEL INTERNATIONAL: Softening RM prices provide a breather; Plant closure and mancozeb prices dent crop protection margins
(CRIN IN, Mkt Cap USD1.6b, CMP INR382, TP INR475, 24% Upside, Buy)
- Operating performance in line, but sales/PAT below estimate: Revenue declined 16% YoY to INR21.3b (our estimate: INR23.1b) in 1QFY20. EBITDA margin expanded 70bp YoY to 9.2% (our estimate: 8.1%). EBITDA declined 9% YoY to INR1,953m (our estimate: INR1,872m). Consequently, adj. PAT was down 31% YoY to INR624m (our estimate: INR714m).
- Crop protection margins under pressure: CRIN contracted phos acid at USD655/mt in 1QFY20 (v/s USD728 in 4QFY19), indicating a decline in RM prices. During the quarter, plant protection revenue declined 36% YoY to INR2,710m, with the EBIT margin shrinking 10pp YoY to 2.2%, primarily on account of the shutdown at the Sarigam plant (revenue/EBITDA impact of INR700-800m/INR400-450m) and the softness in mancozeb prices. Additionally, EBITDA/mt for the fertilizer segment stood at INR2,979 - up 49% YoY owing to forex gain (INR300m) and lower RM cost.
- Key concall takeaways: (i) MRP across fertilizers declined by 8-10% owing to a decrease in RM cost. (ii) Company guided for 8-12% revenue growth in FY20, with EBITDA margin of 14-15% in the plant protection business. (iii) Capex guided at INR4.5-5b in FY20 and INR3-4b in FY21.
- Valuation and view: We cut our earnings estimate by 6%/7% for FY20/21, mainly on account (a) a cut in the EBITDA estimate for the crop protection business by 12%/6.5% for FY20/21 and (b) an increase in depreciation and interest cost. We expect revenue/PAT CAGR of 6%/9% over FY19-21 and value the stock at 16x FY21E EPS (it has traded at 17x P/E over last the five years). Our TP of INR475 implies a 25% 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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