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Budget Buy – Coromandel International

March 3, 2011

Coromandel is the largest domestic manufacturer of phosphatic fertilisers among private players. It has manufacturing units in Andhra Pradesh and Tamil Nadu. Apart from farm inputs comprising fertilisers, pesticides and specialty nutrients, the company also entered the rural retail business in Andhra Pradesh through its Mana Gromor Centres and Mithra centres.

The company also entered into a licence agreement with Shell Research Ltd. for manufacturing sulphur enhanced fertilisers, which are expected to be margin accretive.

Expect the company’s fertilizer earnings to grow at steady 8% CAGR led by capacity and as we bake in a conservative150bps margin decline in fertilizers to account for unforeseen pricing pressures in raw material.

Coromandel is expected to benefit the earliest among fertiliser companies on account of their capex outlay for capacity expansion in the next 12-18 months. Non subsidy segments (pesticides, organic manure, farm mechanization etc) form ~24% of Coromandel’s FY11e EBITDA. With its focus on scaling up these segments, this proportion will likely rise to 36% by FY13E.

Coromandel is expected to report an EPS of Rs 25 and Rs 30 for FY 11 and FY 12 respectively. Investors can add the scrip to their portfolio with a 12 month target price of Rs 350.

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