The Hindu Business Line : Coromandel Fertilisers: Buy

INVESTORS with a two to three-year perspective can consider exposures in the Coromandel Fertilisers stock. The stock trades at a modest price-earnings multiple of about eight times its trailing 12-month earnings (Rs 31 per share).

Volume growth in fertilisers could continue to be robust over the next couple of years, as agricultural production benefits from the improved water storage position in the major reservoirs. Robust demand, better sourcing strategies and cost efficiencies have contributed to healthy profit growth for the company despite a difficult policy environment over the past three years.

It has substantially ramped up profitability levels after an integration exercise that has brought the farm inputs business of the Murugappa group under its fold in 2003.

Strategic moves such as the decision to acquire a stake in South Africa-based Foskor have helped secure raw material supplies, despite a tight market and rising prices for phosphatic intermediates. The acquisition of a controlling stake in Godavari Fertilisers - a state-owned fertiliser maker - has resulted in procurement efficiencies and the latter has returned to profitability.

With dividend payouts at Rs 7.50 a share in 2004-05, the stock trades at an attractive dividend yield of about 3 per cent. Given the profit outlook, there is scope for further increase in dividend payouts. An impending 1:5 stock split proposal, when it takes effect, could impart greater liquidity to the stock. These factors provide cushion against downside risk even in a declining market.

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