Emkay retains hold rating on Coromandel

4989 Investors following Coromandel Int. Share this News with them.

0

Like this story, share it with millions of investors on M3

Emkay retains hold rating on Coromandel

Emkay Global Financial Services has come out with its report on fertilizer space. The research firm recommends hold rating on Coromandel.

Post your opinion here

 

0

Tweet

Share on Tumblr

RELATED NEWS Angel Broking neutral on South Indian Bank Reduce Chambal Fert, says PINC Research Accumulate Chambal Fert; target of Rs 89: PLilladher Coromandel Int BSE | NSE 31/05/12 Are Mutual Funds betting on Coromandel Int?

Emkay Global Financial Services has come out with its report on fertilizer space. The research firm recommends hold rating on Coromandel .

Panel proposes to reduce subsidy on DAP / MOP by 24% / 6%: An inter-ministerial panel has approved a proposal to reduce subsidies on complex fertilisers like Di-ammonium phosphate (DAP) and muriate of potash (MoP) however a final decision on this issue will be taken by Cabinet. The committee has agreed to reduce the subsidy on DAP by Rs 4,763 per tonne (24%) to Rs 15,000 / mt and on MoP by Rs 1,054 per tonne to Rs 15,000 / mt for FY13. The government has fixed a subsidy of Rs 19,763 per tonne of DAP and Rs 16,054 a tonne of MoP for the 2011-12 fiscal.

Proposed subsidy reduction is in line with decline in global prices: We believe that proposed subsidy reduction of 24% in DAP is in line with decline in global prices. Though DAP prices declined by ~14% yoy to US$ 535 / mt, in INR term prices declined by ~4% due to currency depreciation. However companies have already increased retail prices to the farmers by ~Rs 5000 / mt to Rs 18,500 / mt till Dec'11 to pass on higher input cost. As a result proposed subsidy reduction of Rs 4,763 / mt should keep the retail prices at current level without affecting companies' profitability.

Companies will need to negotiate for raw material supply contracts at ~15% discount: Though DAP prices have recently declined by 24%, phos acid prices have not corrected (refer to chart below) and hovering around at US$ 1080 / mt. With reduced subsidy, companies will need to negotiate with their raw material suppliers, failing to which there may be pressure on companies' margins. We estimate that under the prevailing currency rates, companies need to bring down phos acid prices by ~15% to US$930 / mt from currently US$ 1080 / mt assuming ammonia prices continue to remain at current level.

Subsidy cut may help the government reduce its subsidy by Rs 80-100 bn: Due to sharp rise in global fertiliser prices, government subsidy bill for FY12 is expected to go up to Rs 900 bn (source - Minister of Finance) as against budgeted Rs 500 bn for FY12. Increase in urea consumption in current year due shift from high cost complex fertiliser to economical urea along with high global urea prices (aggravated by currency depreciation) have bloated government subsidy outgo on imported urea in current financial year. We estimate that subsidy under imported urea fertiliser to increase from budgeted Rs 70 bn to Rs 180 -200 bn in FY12 contributing to ~ 30% of additional subsidy burden. Increase in gas price has also spurred subsidy outgo in indigenous urea production. With estimate that proposed reduction in subsidy on complex fertiliser should help the government reducing its subsidy bill by Rs 80-100 bn in next financial year primarily driven by reduced subsidy on DAP. Fertilizer Subsidy Details

We retain our Hold rating on Coromandel due to near term uncertainity: We believe that current weakness in DAP prices is likely to have adverse impact on phos acid prices in near future and should help complex fertiliser players to negotiate with raw material suppliers. With current environment we maintain our cautious outlook on complex fertiliser players and maintain our Hold rating on Coromandel while other key complex fertiliser players - Zuari Industries is not under coverage.

FIIs holding more than 30% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment