Q1FY24 Review: Coromandel Intl: Focus shifting towards adjacencies

27 Jul 2023 , 11:13 AM

In Coromandel’s FY23 Annual Report, mgmt has stated ambitions to venture into adjacent businesses such as CDMO and Specialty Chemicals. The company has committed ~Rs10bn over the next couple of years to ramp up capacities within this space. Another focus area clearly visible is the tie ups with agriculture-based start-ups that help increase service offerings to farmers. The acquisition of Dhaksha offers an optionality. 

Venturing into CDMO and Specialty Chemicals: 

While the company plans to expand NPK and specialty nutrient capacity in FY24, a large part of its capex is likely to be spent towards enhancing crop protection capabilities, and also venture into adjacent businesses like CDMO and Specialty Chemicals. Coromandel has committed an investment of ~Rs10bn over the next couple of years to support these initiatives. The company launched ~11 new products in FY23, 2 of which were technicals to be manufactured out of the newly commissioned MPP at Ankleshwar. 

VC investments will help improve offerings: 

Coromandel’s venture capital (VC) arm made 3 investments in FY23, with the company having taken up a majority stake in one of the investments – Dhaksha Unmanned Systems. Analysts of IIFL Capital Services believe these are smart, strategic investments that will help improve the spread of solutions offered to farmers in the long run. Total investment made by Dare Ventures in FY23 amounted to ~Rs465mn. 

Growth likely to moderate, but valuations reasonable: 

While FY23 PAT grew ~32% YoY, margins are likely to normalise in FY24 – post the cut in NBS rates and destocking of generic pesticides globally. However, a continued reduction in input costs could cushion the impact on margins. Valuations have corrected to ~14x FY25 PE, which analysts of IIFL Capital Services believe to be fair, given the company’s strong fundamentals. Cashflows are likely to improve as working capital stress will ease. The company has recently taken up a majority stake in the drone start-up – Dhaksha, which provides an optionality.