Emkay Global Financial has given Buy recommendation for Coromandel International with a target price of Rs. 910 in its research report issued on Feb 02, 2021

Emkay Global Financial’s research report on Coromandel International

CRIN missed our EBITDA/PAT estimates by 2% in Q3 mainly due to lower-than-expected margins in traded complex fertilizers. However, manufactured fertilizer EBITDA increased 2.7% yoy to Rs4,160/ton (Emkay est). Gross margin improved 118bps yoy to 32.7%. Overall EBITDA margin expanded 96bps yoy to 14.1% (vs. 13.9% Emkay est). Phos acid (key RM) prices increased 15% qoq in Q4FY21 to USD795/mt from USD689/mt in Q3FY21. Our back-of-the-envelope calculations suggest a 15-20% increase in consumer prices. Management said that the industry has not yet raised prices due to low cost inventory. We believe that there could be some pressure on volumes going into FY22 as companies raise prices. We decrease our EBITDA margin estimates for FY22/23 by 32bps/9bps on the back of lower gross margin assumption in the fertilizer segment. We reduce our target P/E multiple to 17x (vs. 18x earlier) due to lack of meaningful capex in the fertilizer segment and RM price pressure.

Outlook

We roll forward our valuations to Mar’23E EPS (vs. Sep’22E EPS earlier). Our TP remains unchanged at Rs910/sh as the lower multiple is compensated by 1) roll forward, and 2) increase in EPS due to lower interest expense (lower WC assumption due to subsidy receipts). We maintain Buy with UW stance in EAP.

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