FY20 has been a transformational year for Coromandel. Its fertilizer segment's ROCE (pre-tax) jumped 541 bps YoYto 32.1 percent in FY20.
Coromandel International share price gained 2 percent intraday on July 2 after Emkay Global upgraded its rating on the crop protection company to buy from hold earlier, with a revised target price of Rs 910, implying 21 percent potential upside from current levels.
The stock already rallied 84 percent in the last one year and 44 percent so far in 2020. It was quoting at Rs 757.50, up 0.90 percent on the BSE at 13:32 hours IST.
"We upgrade Coromandel to buy from hold as investors take note of doubling of nutrient segment's return on capital employed (ROCE) over the last five years. As the increase in ROCE is more structural, we believe that Coromandel deserves to trade at a premium to its historical valuations," said Emkay Global.
Coromandel has increased its utilization to 86 percent over the last two years, which has helped to improve EBIT margins. In the Q4 earnings call, management guided that Coromandel can increase capacities at existing cites by de-bottlenecking to cater to higher demand. CRIN can increase 6-7 percent capacity in the near term by de-bottlenecking operations and with minimal capex. "Hence, ROCE on incremental capex should be higher, driving overall operating leverage," said the brokerage.
FY20 has been a transformational year for Coromandel. Its fertilizer segment's ROCE (pre-tax) jumped 541 bps YoYto 32.1 percent in FY20. Coromandel's strategy to push more NPK and manufactured volumes has paid off.
"Apart from a change in the product mix, ROCE and EBITDA in the fertilizer segment were aided by 1) lower raw material prices, 2) backward integration of phosphoric acid, and 3) robust acreages aided by rainfall in its key geographies (AP/TG/KA/MH)," said the brokerage.
The brokerage also increased its target multiple due 1) change in ROCE profile, 2) backward integration, 3) robust demand environment, and 4) pick up in crop protection segment.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.