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Research
Coromandel International - Inventory overhang remains the primary concern - Prabhudas Lilladher
Posted On : 2013-04-26 10:26:14( TIMEZONE : IST )
While expectations from Q4FY13 results were already running low due to high base effect, huge inventory in system and a seasonally weak quarter, actual numbers turned out to be far lower than estimates. EBITDA margins dipped to 4.0%, which is the lowest in last 20 quarters. We believe that huge inventory in the system is likely to limit company level sales growth in FY14E and lead to extended period of pressure on margins. However, current valuations at 10x FY14E earnings leave limited room for downside. We maintain ?Accumulate? (TP of Rs 220) on the stock.
- Q4FY13 results disappointed due to lower margins: Though revenues at Rs20.8bn, -24% YoY were slightly ahead of estimates, Coromandel reported EBITDA of Rs826m, -51% YoY (against est. of Rs1.5bn) due to lower margins. EBITDA margins dipped to 4.0% (lowest in last 20 quarters) due to liquidation of high cost inventory, lower production, high transportation/warehousing costs, discounts offered to clear inventory, incentives given for receivables collection etc. Consequently, adjusted PAT for the quarter stood at Rs102m, -87% YoY (against est. of Rs702m) with earnings of Rs0.4.
- Environment remains challenging due to oversupply in system: Our channel checks suggest that complex fertiliser inventory remains high in the system at 5.5-6.0m mt (against normal level of 2.5-3.0m mt). We believe huge inventory in the system is likely to limit company level sales volumes in FY14E and lead to extended period of pressure on margins.
- Downgrade earnings by 11%/6% for FY14E/15E due to pressure on margins: We have revised our earnings estimates downward by 11%/6% for FY14E/15E to Rs18.0/22.4. We believe complex fertiliser volumes recovery is likely to be a slow-paced affair over the next two years and huge inventory in the system is likely to limit company level sales growth in FY14E. However, we maintain 'Accumulate' as current valuations leave limited room for downside from the current levels. Revised PT stands at Rs220 (previous Rs 240)
