Coromandel is a flagship company of the Murugappa Group

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Please find below mentioned short term fundamental stock for delivery purpose.

 

Company	CMP	Target	BSE Code	NSE Code
Coromandel International Ltd	771	990	506395	COROMANDEL

 

Coromandel is a flagship company of the Murugappa Group and is a subsidiary of E.I.D Parry (India) Limited which holds 58.4% of stake in the Company. Coromandel is India’s second-largest Phosphatic fertilizer company. The company apart from Phosphatic fertilizer is in the business of Specialty Nutrients, Crop Protection, and Retail. The Company manufactures a wide range of fertilizers and markets around 5.0 million tons making it a leader in its addressable markets. The current market cap is Rs22,730 crore while Its five-day average volume on NSE is 20% higher than 30 days average volume. Virtually all mutual fund AMC hold share of Coromandel with DSP, Kotak, UTI, and L&T are amongst the largest holders.
 

Investment rationale
 

India’s largest private-sector Phosphatic Fertiliser company: The Company operates through two major segments viz Nutrients & other allied business and Crop Protection. The farm solution offerings comprising of Fertilisers, Crop Protection, Specialty Nutrients, and Organic Compost. Started with 1.8 Lakh MT capacity of Phosphatic Fertiliser in 1961 has now accumulated to over 5 million MT (NKP+SSP). The company is the second-largest player in India with 60% market share in AP and Telangana. It is also India’s fifth largest crop protection company and world’s largest neem-based Biopesticide manufacturer. It has diversified global sourcing of raw materials like Potash, Ammonia, and Sulphur and has leadership in processing at low cost due to strategic plant locations and strong connectivity. It has captive jetty at Vizag and its storage tanks and pipeline for raw materials. It has ventured into backward integration in manufacturing the intermediate - phosphoric acid from the rock. It also has captive power plants at Vizag and Ennore. It became the first Company in India to be granted 'Pymetrozine' (technical) and 'Picoxystrobin' (technical) registrations for indigenous manufacturing.

 

Strong reach towards both domestic and global markets: The Company has 16 manufacturing facilities located in Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Uttar Pradesh, Rajasthan, Gujarat, and Jammu & Kashmir. The Company operates a network of around 800 rural retail outlets under its retail business across Andhra Pradesh, Telangana, Karnataka, UP, Rajasthan, and Maharashtra. The Company's products are marketed all over the country through an extensive network of dealers and its retail centers. The company has 8 subsidiaries and has a presence in 81 countries generating >41% export sales in the crop protection segment. The company has over 1000 product registrations with a significant presence in B2B and B2C. It caters >20,000 dealers and 2000+ strong market development teams.

 

Huge opportunity to tap: With a cultivated land area of around 150 million hectares, India ranks 2nd in global agricultural output in value terms. It is also the 2nd largest producer of food grains and the 8th largest exporter of agricultural produce. The crop protection consumption, while comparing with the global peer, is grossly low at 0.6 kg/hectares versus China 13kg / hectares. Farm mechanization is also low at 40% versus near 100% in some developed countries. Going ahead, with the target to double farm income, rising food demand and mechanization will help drive the demand for fertilizers and crop protection solutions. The global trade of agricultural produce is likely to be impacted by COVID-19 pandemic in two important ways. Firstly, food-importing nations would vie for creating buffers while food-exporting countries too will like to hold on surplus produce to some extent. Then there could be supply chain constraints on both inter-country and intracountry front. Indian agriculture is poised to reap rich dividends of good reservoir levels and forecast of a normal monsoon, the number of policy and industry level developments mentioned above. India is the 2nd-largest consumer of fertilizers and the 3rd-largest producer of fertilizers in the world. The Indian fertilizer ecosystem comprises of the private, government, and cooperative sectors. Urea accounts for about 60-65% of the overall fertilizer consumption and enjoys a dominant share in the country's fertilizer production. The government plans to achieve self-sufficiency in Urea production by 2022. With close to 3.5 million-ton capacity of fertilizers, Coromandel accounts for ~22% of the domestic production capacity in India.

 

Attractive financials: The Company has a strong balance sheet with minimal debt (D/E <0.5x) backed by AA rating. >75% of debt is short term in nature which is meant for working capital requirements. The company generates a strong EBITDA margin of 13% and has a +20% return profile. The quarterly earnings since the last few quarters are also attractive. At the current price, the stock is trading at 18x of its TTM June 2020 consolidated earnings.
 

Duration of recommendation: Short to Medium term.
 

Best Regards,

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