Spike in fertiliser sales boosts prospects for Coromandel International

While rabi season drives hopes of a strong Q3, analysts are hopeful of strong growth over the next two years

Higher off-take of fertilisers, boosted by record rabi crop this year, is seen driving earnings growth for Hyderabad-based Coromandel International in the December quarter (Q3). Beyond Q3, too, the Street is bullish on the company’s growth prospects, a reason for the consistent rise in its share price. Since its March lows, it has risen 90 per cent, including 20 per cent in the past two months.

Led by abundant rainfall and higher soil moisture, India’s rabi foodgrains production in the current crop year is expected to surpass previous year’s record of 153.27 million tonnes (MT). According to data released by the agriculture ministry on Friday, acreage under rabi (winter) crop stood at 65.2 million hectares as of January 15, up from 64.2 million hectares in the corresponding period last year.

Coromandel’s overall volumes jumped over 21 per cent in Q3, compared with the previous year, according to data from the ministry of fertilisers.

“Growth in Q3 is driven by 13 per cent year-on-year (YoY) increase in NPK (nitrogen, phosphorus, and potassium) fertilisers volumes, aided by double-digit growth in the key states of Andhra Pradesh, Telangana, and Maharashtra,” said Sumant Kumar, research analyst at Motilal Oswal Securities. This is inspiring, given last year’s high base, when rabi sowing had hit an all-time high on the back of prolonged monsoon and delayed kharif season.

Analysts, thus, expect the company to report double-digit earnings growth in Q3. “We expect Coromandel to report a 12 per cent YoY increase in revenue led by growth in both the segments. Ebitda margin could expand by 72 basis points to 13.9 per cent, while its net profit is seen rising 29 per cent to Rs 340 crore,” said Emkay Global.

Going forward, the company’s crop protection business is seen as the key driver of growth. The management is focused on new launches and driving the share of new molecules, which command higher margins, to its revenues.

Moreover, the company plans to invest Rs 450-500 crore over the next two-three years towards removing bottlenecks at its Visakhapatnam and Kakinada plants. Notably, this will be funded through internal accruals.

In this backdrop, growth momentum is expected to remain healthy over the next two years as well.

Kumar estimates the company’s revenue, Ebitda and net profit to grow at a compound annual growth rate of 10 per cent, 14 per cent and 19 per cent respectively during FY21-23. With respect to the stock, 14 of the 18 analysts polled by Bloomberg have a buy rating. Their average target price is Rs 934.