Q1FY24 Review: Coromandel Intl: Fertiliser margins keep surprising

31 Jul 2023 , 01:27 PM

Coromandel delivered a steady performance in Q1 – as it managed to improve margins despite the cut in NBS rates. Despite the high base, Ebitda/t remained flattish. Crop Protection experienced headwinds, as revenue declined ~17% YoY and margins contracted by ~310bps. Now, the company’s focus shifts towards Specialty Chemicals, CDMO and adjacent businesses. Analysts of IIFL Capital Services raise their FY24-26 estimates marginally by 2-3% and their TP, rolled forward to Sep’24, goes up to Rs1,195. 

Fertiliser remains strong, but challenges in Crop Protection: 

Fertiliser business surprised us with a manufactured volume growth of ~18% YoY (vs IIFLe of ~12%).  Despite the reduction in NBS rates, margins too remained strong. Analysts of IIFL Capital Services believe that margins were likely supported by the continued decline in raw material prices. Conversely, the domestic Crop Protection business faced challenges on account of channel de-stocking, pricing pressures and a delayed monsoon. Management expects recovery in agri-inputs in Q2, given that the monsoon has now picked up.

Focus shifts to Specialty Chemicals, CDMO and adjacencies: 

Management highlighted that the company is on track to introduce a few specialty chemical products in Q2. Some of its existing products find enduse in the Specialty Chemical industry; thus, the company is first starting off with these. Coromandel is also in talks with various Japanese and European innovators for contract manufacturing. However, the gestation period for this to be converted into revenue is a bit long. The company is exploring scaling up its financial services offerings and other adjacent verticals (such as drone-based application). 

Valuations are comforting for the quality offered: 

While analysts of IIFL Capital Services expected margins to moderate in FY24, this has not been the case so far. However, growth post FY24 rests on the success of newly launched molecules in Crop Protection and Specialty Chemicals. They estimate EPS to grow at a Cagr of a mere ~4% from FY23-FY26. However, valuations of ~14x FY25 PE are comforting, given the company’s strong fundamentals. Quick ramp-up of revenue from CDMO or Dhaksha (Drone business) is an upside risk to their estimate.