Axis Direct is bullish on Coromandel International has recommended buy rating on the stock with a target price of Rs 570 in its research report dated November 01, 2017.
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Axis Direct's research report on Coromandel International
Over FY17-20E, Coromandel’s EBITDA/PAT will grow at 16%/29% p.a. and RoE expand to ~25% (vs. 17% in FY17). The growth will be led by high-margin/ high-RoCE non-fertilizer business (EBITDA CAGR at 22%), whose share in overall EBITDA is likely to grow to ~50% (38% currently). Higher share of non-fertilizer biz in overall profit pool will improve firm-wide margin and return ratios.Fertilizer biz (62% of EBITDA) will achieve sustainable EBITDA of Rs 8.5 bn+ (12% CAGR) by FY20 led by (a) ~90% capacity utilization and (b) EBITDA margin of Rs 2,500/tn.
OutlookCheap valuation merits good entry point; BUY: Current valuation at 16x FY19 EPS is cheap given Coromandel’s strong financials and improving operating environment. Agri-chem players with EPS CAGR of sub-20% and similar RoE trade at 1-yr P/E of ~22x.We revise TP to Rs 570/sh (Rs 510/sh earlier), as we hike EV/EBITDA for fertilizer/ non-fertilizer biz to 8x/17x (7x/16x earlier) to reflect strong operational outlook.
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