Buy Coromandel International; target of Rs 1155: Sharekhan

Sharekhan's research report on Coromandel International

Q2FY2023 PAT of Rs. 741 crore (up 43% y-o-y) was 20% above our estimate led by strong performance from nutrient and other allied business offsetting muted growth from the CPC business. OPM at 10.5% was in line with our estimate as benefit of operating leverage helped to offset lower-than-expected gross margin. Revenue/EBIT from nutrients and other allied businesses grew strongly by 73%/56% y-o-y to Rs. 9,461 crore/Rs. 955 crore led by higher subsidy support and better realisation. However, CPC revenue/EBIT growth of 0.8%/-12% y-o-y was muted as the growth in domestic sales (up 7% y-o-y) was offset by the decline in exports revenue (down 12% q-o-q) due to lower Mancozeb sales (45% of CPC revenue). The management raised its fertilizer margin guidance to Rs. 5,500/tonne for FY23 from its earlier guidance of Rs 4,500/tonne on the back of strong performance in H1FY23. Phosphoric acid price declined to $1,175/mt in Q2FY23 versus $1,715/tonne in July 2022 and the same bodes well for fertiliser margins.

Outlook

We upgrade Coromandel to Buy (from Hold) with an unchanged PT of Rs. 1,155 as margin/earnings outlook has improved as input price pressures eases and valuation of 13x/11.6x FY24E/FY25E EPS has turned reasonable post 9% correction in its stock price in last 3 months.

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Coromandel International - 05-11-2022 - khan