Valuation of Coromandel International stock captures positive outlook

The overall revenue for March quarter came in at Rs 3,910 crore and was down 29 per cent Y-o-Y, due to lower subsidy and reduced volumes in the fertilizer segment

The seasonal focus on the fertiliser and agrochem industry includes lobbying for the removal of the 5 per cent levy on fertilisers under GST. This coupled with higher minimum support prices and expected measures to support farm income helped drive a surge in agrochem stocks, with every listed company witnessing a jump in share prices.

One of the interesting stocks in the fertiliser pack is Coromandel International (CRIN). It reported weak March quarter (Q4FY24) results, which was in line with low expectations. This was due to an adverse nutrient-based subsidy (NBS) and lower fertiliser sales. Complex fertiliser sales were down 5.6 per cent year-on-year (Y-o-Y) to 590,000 tonnes. While CRIN maintained its market share, blended operating profit per tonne declined 38.5 per cent Y-o-Y in the quarter.

Recovery in FY25 could come from better volumes and better profitability. Volumes, in fertiliser and crop protection, may rise due to better monsoon prospects. Improved NBS as well as lower raw material prices globally, plus backward integration measures coupled with imports of an additional and cheaper 150,000 tonnes of rock phosphate from Senegal may be key to profitability. However, H1FY25 may be subdued with the growth back-ended to the second half.

For FY24, CRIN’s revenue declined 26 per cent to Rs 22,060 crore. Its operating profit and adjusted net profit fell 18 per cent each to Rs 2,400 crore and Rs 1,640 crore respectively. In Q4FY24, CRIN reported weak performance with operating profit declining 41 per cent Y-o-Y. Adjusted net profit came in at Rs 160 crore and was down 35 per cent Y-o-Y.

The overall revenue for March quarter came in at Rs 3,910 crore and was down 29 per cent Y-o-Y, due to lower subsidies and reduced volumes in the fertiliser segment. The weak performance was due to lower manufacturing volumes (down 10 per cent Y-o-Y) and a 26 per cent Y-o-Y decline in segment profits of the fertiliser business. The crop protection segment was also weak, with segment profit decreasing 32 per cent Y-o-Y during the quarter. The nutrient and allied business revenue declined 31 per cent Y-o-Y to Rs 3,370 crore, while the crop protection business revenue declined 8 per cent Y-o-Y to Rs 560 crore. The crop protection performance was hurt by higher global inventory.

The operating profit declined 32 per cent Y-o-Y to Rs 270 crore. The operating profit per tonne was down by over 30 per cent. The segment margin for the nutrients business expanded 50 basis points to 7.5 per cent but the margin dipped 390 basis points Y-o-Y to 11.2 per cent for crop protection.

The management has guided for higher operating profit per tonne of Rs 4,500-5,000 in FY25. It also guided for an overall capex of Rs 1,200 crore-1,500 crore in FY25 across the fertiliser business (including a new 650 tonne per day phosphoric acid plant and a 1,800 tonne per day sulphuric acid plant) as well in the crop protection business (multipurpose plant). The specialty nutrition division (bio-products and retail stores businesses) is expected to grow 10-15 per cent going forward and profitability is likely to improve over time.

The drone manufacturer, Dhaksha where CRIN holds 45 per cent stake, has an order book of  Rs 250 crore from the defence department and the agriculture segment and this will be executed in H1FY25. The new facility at Chennai can make 400 agricultural drones and 50 drones for the defence sector every month. CRIN says despite competition, Dhaksha is likely to sustain high growth. CRIN is also in the advanced stages of discussions with three innovation-centric companies for specialty chemicals manufacture and R&D and it has identified nine molecules in fluorination chemistry for R&D.  

The stock jumped 4.5 per cent on Thursday (33 per cent over the last month) indicating that valuation may be discounting the positive outlook.