Coromandel International - In‐line quarter, Cautious in the near term - Prabhudas Lilladher

In‐line quarter: Coromandel International's (CRIN's) net sales grew by 132.1% to Rs27.5bn YoY (v/s PLe: Rs17.8bn) primarily on account of strong fertiliser sales volume growth of ~76% YoY to 0.78m MT during the quarter. Further, it has been supported by higher fertiliser realization that was led by higher subsidy and farm gate prices. CRIN's EBITDA grew by 149.3% YoY to Rs1.7bn (PLe: Rs1.2bn). EBITDA margin was higher by 50bps YoY to 6.1% (down 310bps QoQ and PLe: 6.6%). Sales and EBITDA were better our expectation on account of strong volume growth during the quarter. Interest cost has gone up by 118.3% YoY to Rs504m (up 65.7% QoQ) on account of debt requirement due to higher working capital. PAT grew by 96.0% YoY to Rs0.8bn (PLe: Rs0.7bn). Company has charged loss on sales of fertiliser bond for Rs100.8m during Q4FY12 (considered as exceptional item). Hence, reported PAT stood at Rs0.7bn.

Business Outlook: On account of inventory clearance, company has provided higher trade discounts and extended credit periods to distributors/retaileRs.It has adversely affected working capital requirement with increase in short-term borrowings and debtoRs.Tunisian Indian Fertilisers (TIFERT), a joint venture between Coromandel and GSFC is likely to get commissioned in FY13. TIFERT commissioning is expected to boost phosphoric acid volumes for Coromandel & meet its requirements of at Kakinada. Management indicated that TIFERT will increase availability of phosphoric acid by 90,000-100,000mt in FY13. CRIN has indicated that non-urea inventory in the domestic industry has seen an uptick to 2-3m MT. Hence, we believe that higher inventory will get released in H1FY12 that would lead to lower despatches for players.

Maintain 'BUY': We expect CRIN to post sales and PAT FY12-14E CAGR of 3.5% and 9.4%, respectively, with a strong RoE of ~30%. CRIN is trading (one-year forward P/E of 10x v/s peers P/E of 8x-10x) at a premium as compared to its domestic peers on the back of differentials in growth, ROE and robust business model. We believe that it would trade at a premium too, going forward. Considering CRIN's strong business models, future growth and return ratios, we maintain 'BUY' rating on the stock, with the target price of Rs351 (i.e. 13xFY13E EPS).

Source : Equity Bulls

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