Even as the benchmark indices appear pricey, select fundamentally sound stocks are still available for a bargain. The stock of complex fertiliser maker Coromandel International is one such. The stock’s price has fallen over 13 per cent in the last six months, in contrast to the Nifty’s 8 per cent gain.

This is despite Coromandel posting healthy revenue and profit growth of 18 per cent and 28 per cent, respectively, over the last nine months. The company managed to put up a good performance despite lower crop acreage during the rabi season.

Coromandel’s stock currently trades at a little over 12 times its estimated 2015-16 earnings. This implies a 15 per cent discount to its historical average valuation of about 14 times. Given the good growth prospects for the company, investors with a two- to three-year horizon can buy the stock.

Falling inventory In 2013-14, complex fertiliser producers saw their fertiliser sales decline sharply due to significantly high unsold inventory lying with the distributors.

However, healthy demand in 2014-15 led to a moderation in the inventory with the dealers from about four million tonnes a year ago to about two million tonnes now.

This has helped Coromandel post healthy primary sales over the last three quarters. The benefit from higher volumes should continue in the coming quarters.

Also, the prices of key raw materials such as ammonia have fallen significantly. Global ammonia prices which were holding firm until early 2015 despite the correction in crude prices, have fallen sharply in the last three months.

The international price of ammonia (West Asia), which is manufactured using gas, has corrected from about $600 a tonne levels to about $400 a tonne in the last three months.

Besides, the price of rock phosphate used in manufacturing phosphoric acid, another key raw material, has also remained steady over the past year.

This should help the company improve its operating profit margin.

Secure inputs Coromandel’s strategic investments in overseas companies that supply key raw materials to manufacture complex fertilisers is another positive.

This ensures uninterrupted raw material supplies and helps the company partly negate the impact of any sharp surge in the prices of these raw materials. For instance, Coromandel holds 15 per cent stake in Tunisian phosphoric acid manufacturing venture TIFERT; it is entitled to 50 per cent of TIFERT’s phosphoric acid capacity of 3.6 lakh tonnes per annum.

The company also holds 14 per cent stake in South African phosphoric acid maker Foskor Pty.

Coromandel’s crop protection subsidiary Sabero Organics, which was merged into it in January this year, has also improved steadily performance over the past two years.

Its net profit rose ten-fold from ₹2.2crore in the first half of 2012-13 to over ₹22 crore during the April-September 2014 period.

Healthy scale up in revenue and improved profitability should aid Coromandel’s performance.

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