Coro­man­del In­ter­na­tional Ltd

Money Times - - NEWS -

(BSE Code: 506395) (CMP: Rs.399.95) (FV: Re.1) By Amit Ku­mar Gupta

In­cor­po­rated in 1961, Se­cun­der­abad based Coro­man­del In­ter­na­tional Ltd (CIL) is a sub­sidiary of E.I.D. Parry (In­dia) Ltd which man­u­fac­tures and trades in farm in­puts. It op­er­ates through two seg­ments: Nutri­ents and Other Al­lied Busi­nesses; and Crop Pro­tec­tion. It of­fers phos­phatic fer­til­iz­ers; crop pro­tec­tion prod­ucts in­clud­ing in­sec­ti­cides, fungi­cides and her­bi­cides; spe­cial­ity nutri­ents such as wa­ter sol­u­ble and or­ganic fer­til­iz­ers, ben­tonite sul­phur, mi­cronu­tri­ents and or­ganic com­post. It op­er­ates 800 stores un­der the ‘Mana Gro­mor’ name in Andhra Pradesh, Te­lan­gana and Kar­nataka, which of­fer farm in­puts and farm mech­a­niza­tion ser­vices. It of­fers its prod­ucts un­der the fol­low­ing brands: Gro­mor, Go­davari and Dou­ble Horse. It ex­ports its crop pro­tec­tion prod­ucts to Latin Amer­ica, Africa, Europe and Asia.

Dur­ing Q1FY19, CIL’s vol­umes de­clined 7.1% YoY while rev­enue grew 11.8%, pri­mar­ily on ac­count of mul­ti­ple price hikes taken over the past few months (Di Am­mo­nium Phos­phate [DAP] prices rose ~25%). More­over, the Min­istry of Fer­til­iz­ers’ data re­veals a strong trac­tion in Q2FY19 vol­umes so far. Sales vol­ume for July and Au­gust stood at over 1.2 MMT, which is ~81% of our vol­ume es­ti­mate for Q2FY19.

So far in Q2FY19, CIL has achieved 99% of the vol­ume es­ti­mate for urea, 86% for DAP, 80% for ni­tro­gen, phos­pho­rus and potas­sium (NPK) and 74% for sin­gle su­per phos­phate (SSP). The only dis­ap­point­ment comes from potas­sium chlo­ride (MOP), where CIL has clocked only 17% of our es­ti­mated vol­umes. How­ever, given the rel­a­tively low vol­ume mix of MOP, we be­lieve that its slug­gish­ness is un­likely to ham­per the over­all growth es­ti­mates.

We ex­pect the strong acreage trend in key crops to con­tinue aid­ing growth. Fur­ther, good rain­fall in key states of Andhra Pradesh, Te­lan­gana, Kar­nataka, Ma­ha­rash­tra and Odisha also pro­vides com­fort. We ex­pect over­all vol­ume growth of 7% and rev­enue growth of 16.8% in FY19.

Key mar­kets for CIL are Andhra Pradesh, Te­lan­gana, Ma­ha­rash­tra, Kar­nataka, West Ben­gal and Odisha, which to­gether ac­count for 93% of its NPK/DAP vol­umes and 73% of its over­all vol­umes. On the on­set of the 2018-19 Kharif sea­son, we had es­ti­mated that the sow­ing area un­der paddy, soy­bean and sug­ar­cane is set to rise in these six states while that un­der cot­ton and pulses is likely to dip. We had also es­ti­mated that the over­all fer­til­izer con­sump­tion will in­crease given that paddy, soy­bean and sug­ar­cane are rel­a­tively high-fer­til­izer-con­sum­ing crops. Ac­cord­ing to the Depart­ment of Agri­cul­ture and Co­op­er­a­tion, the over­all acreage grew 5% in Te­lan­gana, 7% in Kar­nataka and 11% in West Ben­gal, but de­clined by 1% in Andhra Pradesh and 2% in Ma­ha­rash­tra. On the other hand, the acreage of paddy, soy­bean and sug­ar­cane grew across these six states.

The acreage of soy­bean was up 6%, paddy 2% and sug­ar­cane 4%. On the other hand, the acreage of cot­ton and pulses was down by 2% each. The av­er­age four-year fer­til­izer con­sump­tion of pulses and cot­ton across the key states is 1.4-2.1 t/ha and 1.1-2 t/ha, re­spec­tively while con­sump­tion is much higher in paddy (1.5-2.1 t/ha), soy­bean (~2.6 t/ha) and sug­ar­cane (1.6-2.7 t/ha). We be­lieve that the crop mix change has been in­stru­men­tal in driv­ing vol­ume growth for CIL in Q2FY19 so far and the com­pany is well on track to achieve its full-year vol­ume growth es­ti­mate of 7%. We be­lieve that CIL has fared well so far in FY19 and that the out­look for vol­ume growth is pos­i­tive. The mix shift to­wards higher-fer­til­izer con­sum­ing crops is ex­pected to boost its vol­umes by 12% in Q2FY19 and 7% in FY19. Fur­ther, mul­ti­ple price hikes taken in the past few months are likely to aid rev­enue growth. We keep our es­ti­mates un­changed and ex­pect 12%/11% rev­enue/PAT CAGR over FY18-20.

Tech­ni­cal Out­look: The stock looks good on the daily chart for medium-term in­vest­ment. It has formed a down­ward chan­nel pat­tern on the daily chart and a close above Rs.425 with vol­umes will push the stock higher. The stock trades be­low all im­por­tant mov­ing av­er­ages like the 200 DMA level placed at Rs.480 on the daily chart. Start ac­cu­mu­lat­ing at this level of Rs.399.95 and on dips to Rs.350 for medium-to-long term in­vest­ment and a pos­si­ble price tar­get of Rs.490+ in the next 12 months.

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