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Coromandel International - Margin expansion drives PAT growth; result update Q4FY17; Buy
Coromandel International (CRIN) reported a 25% YoY fall in revenues, mainly owing to the correction in fertiliser prices and weak fertiliser sales in the South due to poor rains. However, EBITDA and PAT surpassed our and consensus estimates on higher EBITDA margin (12.1% versus 9.0% estimate), led by fall in raw material (RM) and better performance of fertiliser business.
PAT, at INR1.4bn, zoomed 57% YoY/29% QoQ, aided by lower interest expense. Overall, we expect PAT to clock 22% CAGR over FY17-19, driven by volume growth in complex fertilisers, debottlenecking in agrochemicals, superior margins and lower interest costs. We maintain ‘BUY’ with revised TP of INR393, based on 16x FY19E EPS. DBT implementation entails further rerating potential.
Q4FY17 performance: Key highlights
1) Revenue fell 25% YoY, mainly impacted by the correction in fertiliser prices and weak fertiliser sales in the South due to poor rains; 2) EBITDA margin jumped to 12.1% (Q4FY16: 6.6%) due to lower RM prices and also fall in other expenses as production was curtailed this quarter, and favourable currency; 3) Interest cost declined 17% YoY to INR473mn; and 4) The subsidy receivable as of Q4FY17 stood at INR20.5bn ( INR5bn was settled via a special banking arrangement), compared to INR20bn as of Q4FY16.
Fertiliser shines this quarter; agrochemical drives FY17 growth
Fertiliser (nutrients and allied businesses) revenues contracted by 28% YoY whereas crop protection corrected by only 2%. CRIN manufactured ~0.6mn tonnes fertilizer this quarter. However, higher operating profit was led by the fertiliser business which delivered robust margin expansion and EBIT increased 44% YoY to INR2.2bn.
EBIT/tonne stood at INR3,800. Crop protection EBIT increased 11% YoY to INR488mn. For FY17, both segments witnessed improvement in profitability with fertiliser EBIT moving up 23% YoY to INR7.3bn and crop protection surging 59% YoY to INR2.6bn.
Outlook and valuations: Strong RoCE expansion; maintain ‘BUY’
We believe volume growth in complex fertilisers (led by lower channel inventory), de-bottlenecking in agrochemicals, superior margins (on better operating leverage and increasing contribution from non-fertiliser business) and lower interest costs (dip in debt) will bolster growth and drive 22% PAT CAGR FY17-19E.
We maintain ‘BUY’ with a revised TP of INR393 (INR392 earlier), based on 16x FY19E EPS. DBT implementation entails further rerating potential.
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