Q4FY23 Review: Coromandel Intl: Growing across multiple avenues

17 May 2023 , 11:43 AM

Coromandel delivered a steady performance in Q4 – typically the weakest quarter. Ebitda/t grew 16% YoY off a high Q4FY22 base. Crop Protection revenue grew ~11% YoY and margins expanded by ~290bps, largely driven by declining input costs. The company announced capex plans of ~Rs20bn over the next couple of years. 

Rs20bn capex over next few years: 

Management announced capital expenditure of ~Rs20bn over the next couple of years. ~Rs7-8bn is intended to be spent on expanding fertiliser capacities and setting up SSP granulation facilities. ~Rs7-8bn is expected to be spent on both brownfield and greenfield expansions in Crop Protection. The company has identified 18 products that are/going off-patent, which it plans to launch in the coming few years. While the company has announced intentions to venture out into CDMO and Industrial and Specialty chemicals, plans are currently in the nascent stage.

Launching Nano DAP in H2CY23: 

Coromandel has got its Nano-DAP registered and approved (currently undergoing farm trials). Management guided towards launching this product into the market in H2CY23. It shall finalise capacity and capex details only once it has received feedback post the ongoing trials. However, management guided that capex requirements are likely to be minimal. The company expects Nano-DAP to replace 20% of the current DAP demand over the next 5-7 years.

Crop Protection to drive growth beyond FY23: 

While FY23 PAT grew ~32% YoY due to a sharp increase in margins of manufactured fertilisers, analysts of IIFL Capital Services believe that margins are likely to normalise in FY24 as the government will likely announce a reduction in NBS rates soon. Growth post FY24 is dependent on the success of newly launched molecules in Crop Protection. They estimate EPS to grow at a Cagr of a mere ~3% from FY23-FY26. However, valuations have corrected to ~14x FY25 PE, which they believe to be fair, given the company’s strong fundamentals. Cashflows are likely to improve, once NBS rates come down and working capital stress eases.

Analysts of IIFL Capital Services raise their FY24/25 estimates marginally by 1-5% and their TP, rolled forward to Jun’24 goes up to Rs1,145.