Buy Coromandel International; target of Rs 1222: Sharekhan

Sharekhan's research report on Coromandel International

Q2FY2024 PAT of Rs. 755 crore (up 2% y-o-y) was 6% below our estimate due to continued margin pressure in the CPC business, which offsets resilient performance from nutrients and other allied business. Nutrient and other allied business and CPC segments reported revenue decline of 33% y-o-y due to reduction in subsidy rates but reported much higher EBIT margin of 15.7% (up 563 bps) due to stable raw-material prices and benefit of backward integration. The CPC segment reported muted revenue growth of 3% y-o-y as volume growth was offset by weak realisation and EBIT margin declined by 297 bps y-o-y to 11.9% amid pressure on realisation. Management expects full-year fertiliser margin to sustain at Rs. 5,000/tonne. Focus on new business stream i.e., specialty chemical/CDMO and future technology (drone for the agrochemical space) and innovative products (Nano-DAP), strong margin for fertilisers makes us constructive on growth prospects.

Outlook

We maintain a Buy rating on Coromandel with a revised PT of Rs. 1,222, given a healthy earnings growth outlook and reasonable valuation of 11.9x its FY2026E EPS. Focus on CDMO, specialty chemical and Drone business is the right step and could drive meaningful growth in the medium to long term apart from strong contribution from the core fertiliser/CPC business.