Reduce Coromandel International; target of Rs 676: Prabhudas Lilladher

Prabhudas Lilladher's research report on Coromandel International

CRIN has reaped benefits from 1) benign input costs (~17%/21% decline in price of Phosphoric Acid/Rock Phosphate) 2) supportive NBS regime (mere 3% cumulative decline in subsidy rates for FY20 & FY21) and 3) 8% volume CAGR in NPK between FY19-21E. However, we believe CRIN’s margins to peak out in FY21E and APAT to decline by 9% in FY22E driven by 1) increasing raw material prices of Phosphoric Acid, Rock Phosphate, Ammonia, Sulphur, etc (2) Expected lower NBS subsidy in FY22E and 3) limited volume growth due to capacity constraints (operating at +86%). While CRIN’s fundamentals remain rock solid and Crop Protection division (13% of revenue/ EBIT) is on a steady growth trajectory but headwinds emerging from the fertilizer segment (87% of revenue & EBIT) leave little room for a negative surprise given that the stock trades at near-to-peak multiples (18x Sep’22E EPS) as well as margins. Reduce.

Outlook

We initiate coverage on Coromandel International (CRIN) with REDUCE rating with a target price of Rs676 based on 15x Sept’22E EPS of Rs45.

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