1 SYNOPSIS Coromandel International Limited is in the business segments of Fertilisers, Speciality Nutrients, Crop Protection and Retail. The Company is manufactures a wide range of fertilisers and markets around 2.9 million tons making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 18% over 2010 to 2013E respectively. The Company clocked a turnover of Rs.7,528 crore in 2010-11 (USD 1.68 billion as on March 31, 2011). Coromandel is a part of the Rs.17,051 crores (USD 3.8 billion as on March 31, 2011) Murugappa Group. Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate. The Company has signed an agreement with Qatar Fertiliser Company (QAFCO) for supply of Urea. Coromandel International Limited has signed definitive share purchase agreement to acquire promoters stake in 'Sabero Organics Gujarat Limited. Years Net sales EBITDA Net Profit EPS P/E FY 11 76363.80 11344.20 6944.60 24.64 13.80 FY 12E 80945.63 11126.74 7199.33 25.55 13.31 FY 13E 87421.28 11731.64 7595.72 26.95 12.61 Stock Data: Sector: Fertilizers Face Value Rs. Rs.1.00 52 wk. High/Low (Rs.) 746.05/217.50 Volume (2 wk. Avg.) 14000 BSE Code 506395 Market Cap (Rs.In mn) 95812.00 Share Holding Pattern 1 Year Comparative Graph Coromandel International Ltd BSE SENSEX C.M.P : Rs.340.00 Target Price : Rs.384.00 Date : 16 th July 2011 BUY COROMANDEL INTERNATIONAL LTD Result Update: Q4 FY 11
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Basic EPS of the company stood at Rs.2 - Myirisbreport.myiris.com/firstcall/CORFERTI_20110716.pdf · 2011. 7. 22. · 2011) Murugappa Group. Coromandel is the second largest manufacturer
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SYNOPSIS
Coromandel International Limited is in the business segments of Fertilisers, Speciality Nutrients, Crop Protection and Retail. The Company is manufactures a wide range of fertilisers and markets around 2.9 million tons making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 18% over 2010 to 2013E respectively. The Company clocked a turnover of Rs.7,528 crore in 2010-11 (USD 1.68 billion as on March 31, 2011). Coromandel is a part of the Rs.17,051 crores (USD 3.8 billion as on March 31, 2011) Murugappa Group. Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate. The Company has signed an agreement with Qatar Fertiliser Company (QAFCO) for supply of Urea. Coromandel International Limited has signed definitive share purchase agreement to acquire promoters stake in 'Sabero Organics Gujarat Limited.
Years Net sales EBITDA Net Profit EPS P/E
FY 11 76363.80 11344.20 6944.60 24.64 13.80
FY 12E 80945.63 11126.74 7199.33 25.55 13.31
FY 13E 87421.28 11731.64 7595.72 26.95 12.61
Stock Data:
Sector: Fertilizers
Face Value Rs. Rs.1.00
52 wk. High/Low (Rs.) 746.05/217.50
Volume (2 wk. Avg.) 14000
BSE Code 506395
Market Cap (Rs.In mn) 95812.00
Share Holding Pattern
1 Year Comparative Graph
Coromandel
International Ltd BSE SENSEX
C.M.P : Rs.340.00 Target Price : Rs.384.00 Date : 16th July 2011 BUY
At the current market price of Rs.340.00, the stock is trading at 13.31 x FY12E and 12.61 x FY13E respectively.
Price to Book Value of the stock is expected to be at 3.65 x and 2.83 x respectively for FY12E and FY13E.
Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.25.55 and Rs.26.95 respectively.
The Company is manufactures a wide range of fertilisers and markets around 2.9 million tons making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India.
Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 18% over 2010 to 2013E respectively.
The Company clocked a turnover of Rs.7,528 crore in 2010-11 (USD 1.68 billion as on March 31, 2011).
Coromandel is a part of the Rs.17,051 crores (USD 3.8 billion as on March 31, 2011) Murugappa Group.
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Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate.
The Company has signed an agreement with Qatar Fertiliser Company (QAFCO) for supply of Urea.
Coromandel International Limited has signed definitive share purchase agreement to acquire promoters stake in 'Sabero Organics Gujarat Limited.
On the basis of EV/EBITDA, the stock trades at 8.61 x for FY12E and 8.17 x for FY13E.
We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.384.000 for Medium to Long term investment.
Industry Overview
Fertilizer sector
� The Indian fertilizer industry has succeeded in meeting almost fully the demand
of all chemical fertilizers except for MOP. The industry had a very humble
beginning in 1906, when the first manufacturing unit of Single Super
Phosphate (SSP) was set up in Ranipet near Chennai with an annual capacity of
6000 MT. The Fertilizer & Chemicals Travancore of India Ltd. (FACT) at Cochin
in Kerala and the Fertilizers Corporation of India (FCI) in Sindri in Bihar were
the first large sized -fertilizer plants set up in the forties and fifties with a view
to establish an industrial base to achieve self-sufficiency in food grains.
Subsequently, green revolution in the late sixties gave an impetus to the growth
of fertilizer industry in India. The seventies and eighties then witnessed a
significant addition to the fertilizer production capacity.
� Fertilizer sector is a very crucial for Indian economy because it provides a very
important input to agriculture. The fertilizer industry in India has played a
pivotal role in achieving self – sufficiency in food grains as well as in rapid and
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sustained agriculture growth. India is the third largest producer and consumer
of fertilizers in the world after China and the United States. The growth of the
Indian fertilizer industry has been largely determined by the policies pursued by
the government. The government exercised extensive controls on the pricing,
distribution and movement of fertilizers. The industry is capital intensive and
the production process energy intensive with the combined cost of feedstock
and fuel accounting for anywhere between 55 and 80 per cent of cost of
production, depending on the type of fertilizers.
Determinants of Fertilize Demand
• Rainfall and irrigation facilities
• Relative prices of fertilizers
• Cropping pattern
• Government policies
Rising demand for fertilizers
� There has been significant growth in the consumption of fertilizers in last three
years due to overall good monsoon. The growth in NPK consumption was 9.50%
in 2004-05, 10.60 % in 2005-06 and 8.40% per cent in 2006-07.Against the
robust growth in consumption, domestic fertilizer production has remained
range – bound in the last decades. The surge in fertilizers demand and stagnant
to modest increase in production has widened the gap between consumption
and production causing larger dependence on imports. Therefore, the rising
demand for fertilizers is providing ample scope for the companies in this sector
to increase their production capacity and volumes thereby, driving the growth
of fertilizer sector.
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� The installed capacity as on 30.01.2003 has reached a level of 121.10 lakh MT
of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after
reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient, making
India the 3rd largest fertilizer producer in the world. The rapid build-up of
fertilizer production capacity in the country has been achieved as a result of a
favorable policy environment facilitating large investments in the public, co-
operative and private sectors. Presently, there are 57 large sized fertilizer plants
in the country manufacturing a wide range of nitrogenous, phosphatic and
complex fertilizers. Out of these, 29 unit produce urea, 20 units produce DAP
and complex fertilizers 13 plants manufacture Ammonium Sulphate (AS),
Calcium Ammonium Nitrate (CAN) and other low analysis nitrogenous
fertilizers. Besides, there are about 64 medium and small-scale units in
operation producing SSP
� The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of
Fertilizers in the world. India’s production in terms of nutrients (N & P) reached
a level of 155 lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly,
consumption of fertilizers in terms of nutrients (NPK) has also grown from
about 0.66 lakh MT in 1951-52 to nearly 184 lakh MT in 2004-05.
� The Indian Fertilizer industry, given its strategic importance in ensuring self–
sufficiency of food grain production in the country, has for decades, been under
Government control. The Government has over the years, provided subsidies/
concessions through the fertilizer companies to farmers and the manufacturers
have been compensated through various schemes. Though the Government
control helped in meeting the objective of ensuring creation of capacities and
ultimately achieving self-sufficiency in food grain production, it did not
encourage improving efficiencies in the sector.
� Burgeoning subsidy bill and the need to focus on fiscal prudence, Government
polices in recent times are aimed at encouraging efficiencies in the sector. Policy
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measures like the new pricing scheme have made the operations of less efficient
players unviable. The Government polices today are oriented towards achieving
the stated objective of total deregulation in the sector. However, the uncertainty
over exact policy parameters and absence of a comprehensive long term policy
has not augured well for the industry. The financial year 2006-07 began with
practically no clarity on the policy parameters for both nitrogenous and
phosphatic fertilizers.
� Another important issue confronting the sector is with respect to the feedstock.
Natural gas which is the main feedstock for production of nitrogenous fertilizers
is available in limited quantities and the industry competes with the power
sector for its share. With the Government policy favoring conversion to gas
based units, the demand for gas is only expected to go up in the future, which
may in turn lead to further shortages.
� The Indian fertilizer industry has come a long way since its early days post
independence. India today is one of the largest producer and consumer of
Fertilisers in the world. India’s production in terms of nutrients (N & P) reached
a level of 155 lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly,
consumption of fertilizers in terms of nutrients (NPK) has also grown from
about 0.66 lakh MT in 1951-52 to nearly 184 lakh MT in 2004-05. The Indian
Fertilizer industry, given its strategic importance in ensuring self– sufficiency of
food grain production in the country, has for decades, been under Government
control.
� The Government has over the years, provided subsidies/concessions through
the fertilizer companies to farmers and the manufacturers have been
compensated through various schemes. Though the Government control helped
in meeting the objective of ensuring creation of capacities and ultimately
achieving self-sufficiency in food grain production, it did not encourage
improving efficiencies in the sector. With the burgeoning subsidy bill and the
need to focus on fiscal prudence, Government polices in recent times are aimed
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at encouraging efficiencies in the sector. Policy measures like the new pricing
scheme have made the operations of less efficient players unviable. The
Government polices today are oriented towards achieving the stated objective of
total deregulation in the sector. However, the uncertainty over exact policy
parameters and absence of a comprehensive long term policy has not augured
well for the industry. For instance, the financial year 2006-07 began with
practically no clarity on the policy parameters for both nitrogenous and
phosphatic fertilizers.
� Another important issue confronting the sector is with respect to the feedstock.
Natural gas which is the main feedstock for production of nitrogenous fertilizers
is available in limited quantities and the industry competes with the power
sector for its share. With the Government policy favouring conversion to gas
based units, the demand for gas is only expected to go up in the future, which
may in turn lead to further shortages. Similarly, in the case of phosphates, on
account of the limited availability of phosphoric acid and rock phosphate in the
country, domestic units are dependent to a large extent on imports. In view of
the limited availability of the main feedstock within the country, fertiliser
companies today are exploring the possibility of setting up joint ventures
abroad to tie up their feedstock requirements. Though a few joint venture
agreements have been signed with respect to supply of phosphoric acid, only a
couple of joint ventures have been established with respect to urea. Domestic
players have also not been able to enter into long term gas supply agreements