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Motilal Oswal Securities
Coromandel International (Buy)
CMP: ₹604.2
Target: ₹738
Although overall volume declined 8 per cent y-o-y in FY20 for Coromandel International, manufacturing volume came in higher (9 per cent y-o-y), whereas trading volume declined (48 per cent y-o-y) leading to EBITDA growth of 16 per cent in FY20; this was despite revenue de-growth of 3 per cent.
EBITDA/MT for the manufacturing segment improved 24 per cent y-o-y to ₹3,500/MT in FY20, owing to decline in phos acid and ammonia prices; moreover, Coromandel commenced operations at its own phos aid plant, resulting in cost savings.
Coromandel’s key markets are Andhra Pradesh (AP), Telangana, Maharashtra, Karnataka, West Bengal, and Odisha which account for 94 per cent of the company’s NPK/DAP (chemicals) volumes and 84 per cent of its overall volumes. Key crops grown in these regions include paddy, pulses, cotton, soyabean, and maize which are likely to do better in the upcoming kharif as normal rainfall is expected and prices for few crops are firm which bodes well for the consumption of fertilisers.
In FY21, we expect manufacturing volumes to grow 6 per cent and manufacturing EBITDA/MT of ₹3,500/MT. We have ascribed a 17x PE multiple and arrived at target oruce of ₹738. Maintain ‘buy.’
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