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INVESTORS can add the Coromandel Fertilisers stock to their portfolio with a long-term investment perspective. At about Rs 200, the stock trades at a modest price-earnings multiple of about eight times its trailing 12-month earnings.

A large scale of operations, a wide geographical footprint and recent strategic moves that could help the company secure its raw material requirements are the positives for earnings growth over the long term.

After the acquisition of Godavari Fertilisers and EID Parry's farm inputs division in 2003, the company has been able to substantially ramp up both its scale of operations and profitability. Coromandel Fertilisers has emerged as one of the dominant players in the fertiliser business with a presence spanning the entire Southern and Eastern belt.

As an efficient fertiliser producer, it appears to be in a good position to capitalise on the widening deficit between the demand and supply of fertilisers. Spiralling input prices and an uncertain subsidy regime have been prime concerns for the players in complex and phosphatic fertiliser segments over the past year. However, these issues are likely to be addressed by the policy framework soon.

On its part, Coromandel has taken quite a few strategic initiatives to secure its sources of raw material. The offloading of equity stakes in Godavari Fertilisers to Foskor of South Africa and Groupe Chimique Tunisien of Tunisia (two large global suppliers of raw materials) and its recent move to acquire a strategic stake in Foskor are steps in this direction. Though subsidy-related uncertainties might lead to a volatile financial performance in the short term, the stock appears to be a sound long-term investment.

Aarati Krishnan

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