Motilal Oswal
Coromandel International (Buy)
Target: ₹1,090
Buy: ₹838.20
We believe the earnings growth momentum is likely to sustain in Q3 FY21. We expect Coromandel to report revenue/EBITDA/ adj. PAT growth of 15 per cent/17 per cent/29 per cent y-o-y on the back of a strong, ongoing rabi season. We expect manufacturing EBITDA/mt to grow 10 per cent.
Absolute EBITDA from the trading segment would grow 5.8x y-o-y on account of higher volumes and better trading margins.
We believe key levers, which would drive growth for the company, going forward, are: a focus on increasing penetration in existing markets; debottlenecking to increase capacity; its efforts to find a way to lower the cost of raw material (rock) while maintaining the same level of quality, and to establish an alternative sourcing destination (which would aid in saving cost); the launch of 3–4 molecules in the crop protection segment; inorganic growth; and focusing on profitable growth in the retail business by reorganising stores depending on the consumption pattern. The structural story remains intact with regard to increasing farmers’ awareness about having balanced nutrients in crops.
This is likely to aid the shift from urea to complex fertilisers, and Coromandel thus stands to be a key beneficiary. However, the key monitorable in the near future shall be RM prices.