Coromandel International

Result Update
Results inline, Maintain estimates

January 13, 2011 ¾ Results inline with estimates – Revenues at Rs 20.5 bn (+17%
Reco Changed from yoy), EBITDA margins at 10.9%, APAT of Rs 1.4 bn (-2% yoy)
Buy Buy
¾ Raw material prices to go up by 6% - margins likely to remain
CMP Target Price stable on the back of 8-15% increase in fertiliser prices
Rs 279 Rs 435
¾ Sales spill over to the next quarter and recent price hike in
EPS change FY11E/12E (%) NA fertilisers – to result in strong Q4FY11 performance (we
Target Price change (%) NA expect APAT growth of 64% yoy)
Nifty 5,752 ¾ Maintain estimates of Rs 22.2 for FY11E (Rs 17.4 for 9MFY11)
Sensex 19,183 and Rs 28.9 for FY12E. Re-iterate BUY with target of Rs 435

Price Performance Results inline with estimates….

(%) 1M 3M 6M 12M
(11) (10) 15 119
Q3FY11 results for Coromandel International (CIL) were inline with estimates. Adjusted
Absolute
for subsidy income of Rs 110 mn (relating to previous period), the company reported
Rel. to Sensex (8) (2) 7 99
revenues of Rs 20.5 bn, +17% yoy, ahead of estimates of Rs 17.3 bn. Extended rainfall
Source: Bloomberg
(resulting in delayed sowing) and disruption at one of FOSKAR’s (key supplier of phos
Relative Price Chart acid) rock phosphate mines – affected volumes adversely. Fertiliser sale volumes for
350 Rs % 140
Q3FY11 increased marginally by 2% yoy to 862,000 mt (inclusive of 115,000 mt on
300 112 account of trading volumes for urea and MOP) – higher than our estimates. Higher
250 84 trading impacted EBITDA margins, which contracted by 90 bps yoy to 10.9% resulting in
200 56
overall EBITDA of Rs 2.23 bn, +8% yoy. Adjusting for EO of Rs 110 mn relating to
previous period – APAT showed a marginal decline of 2% yoy to Rs 1.44 bn and was
150 28
inline with estimates. AEPS for the quarter stood at Rs 5.1 as against Rs 5.2 previous
100
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
0
year.
Coromandel International (LHS) Rel to Nifty (RHS)

Source: Bloomberg ….CIL likely to achieve implied growth for Q4FY11E

Stock Details Despite a challenging environment, CIL posted strong results for Q3FY11. Revenues for
Sector Agri-input & Chemicals 9MFY11 increased by 27% yoy to Rs 61.8 bn, while EBITDA improved sharply by 63%
Bloomberg CRIN@IN over last year to Rs 7.5 bn (EBITDA margins 12.1%). AEPS for 9MFY11 stood at Rs
Equity Capital (Rs mn) 282 17.4 vs Rs 11.1 for 9MFY10. To meet our full year estimates CIL faces implied APAT
Face Value(Rs) 1
growth of 66% over last year at Rs 1.4 bn with implied Q4FY11E EPS of Rs 4.8. Delay
in sowing of key crops caused due to extended rainfall has resulted in spillover of sales
No of shares o/s (mn) 282
to the next quarter - likely to lead to healthy overall volume growth for Q4FY11.
52 Week H/L 373/126
Improvement in volumes clubbed with price hike of Rs 800/ mt (~9%) undertaken by the
Market Cap (Rs bn/USD mn) 78/1,725
company in Dec ‘10, stabilizing of operations at FOSKAR and sustained performance
Daily Avg Volume (No of sh) 306563
from the company’s non-subsidy based business is likely to result in healthy revenue
Daily Avg Turnover (US$mn) 2.1 and profitability for next quarter.
Shareholding Pattern (%)
Maintain FY11E / FY12E estimates
D’10 S’10 J’10
64.1 64.2 64.3 In light of the above arguments, we maintain our earnings estimates for FY11E and
Promoters
9.8 8.6 8.3
FY12E at Rs 22.2 and Rs 28.9 respectively. Recently the government has reduced
FII/NRI
subsidy across complex fertilisers for FY12 by ~20%. CIL’s inability to source raw
Institutions 8.9 9.8 10.1
material at lower costs or failure to pass on increased costs to farmers – is likely to pose
Private Corp 2.3 2.2 1.8
a risk to out FY12E EPS estimates. Despite this, with strong RoCE and RoE of 37% and
Public 15.0 15.2 15.5
38% net debt-equity of 0.1x - CIL remains our preferred pick among complex fertiliser
Source: Capitaline companies. We maintain our target price of Rs 435 (15x FY12E EPS) and re-iterate
BUY on the stock.

Financial Snapshot Rs Mn
Rohan Gupta Net EBITDA EPS EPS RoE EV/
rohan.gupta@emkayglobal.com YE-Mar Sales (Core) (%) PAT (Rs) % chg (%) P/E EBITDA P/BV
+91 22 66121248 FY09 94,007 7,696 8.2 4,780 17.1 47.1 49.8 16.3 6.6 3.5
FY10 62,388 5,787 9.3 3,953 14.1 (17.5) 30.1 19.8 8.3 2.6
Pragya Bhardwaj
pragya.bhardwaj@emkayglobal.com FY11E 72,974 9,820 13.5 6,241 22.2 57.9 36.9 12.5 4.7 2.1
+91 22 66121272 FY12E 80,197 12,259 15.3 8,118 28.9 30.1 38.0 9.6 3.4 1.6

Emkay Global Financial Services Ltd 1

 Coromandel International Result Update

CIL reported reduced sales in Q3FY11 due to lower raw material availability
caused by disruption in production at FOSKAR’s mines
Sales volumes for the quarter improved marginally by 2% yoy over previous year to
862,000 mt (vs 843,000 mt in Q3FY10). Own manufactured sales volumes for the quarter
declined by ~5% mainly on account lower availability of phos acid - as one of CIL’s key
supplier of this raw material – FOSKAR – faced disruption in production at its rock
phosphate mine. Operations have resumed as the management expects normal dispatches
for Q4FY11.

Phos acid supply contracts for Q4FY11 at 6% higher levels…..

Management indicated that it finalized the contracts for the supply of phos acid for Q4FY11
at US$ 830 / mt – at 6% increase from earlier contracts for Q3FY11 at US$ 780 / mt. It
attributed this 6% hike to the strengthening of the global phos acid prices. However, prices
of other key raw materials like ammonia remained stable at US$ 425 / mt while sulphur
declined marginally by 5-6% to US$ 175 / mt from US$ 190 / mt.

… however price increase of 15-25% likely to help maintain margins

Following the introduction of NBS, CIL had increased DAP and complex fertiliser prices by
6-10% in Apr ’10. As a second round, it has announced a further hike of 8-15% from Dec
’10. Consequently, DAP prices increased to Rs 10,750 / mt (from Rs 9,350 / mt) while
phosphatic fertiliser prices increased from Rs 6,295 / mt to Rs 7,895 / mt. The management
has further indicated that this price increase has been well absorbed by the farmers as the
farmer community has benefitted from the increase in MSPs across various crops. Sharing
its outlook on the global fertiliser industry, the management indicated that due to improved
weather conditions, global fertiliser demand witnessed a rebound in FY11 and they expect
fertiliser prices to remain buoyant, going forward.

Capex plans remain on track

CIL’s expansion plans at Kakinada plant for incremental production of 200,000 mt are
progressing well and the company is likely to see the projected increase in volumes by
Q2FY12. Post the ongoing expansion, the overall capacity for CIL is expected to increase
from 3.3 mn mt to 4.0 mn mt. Company’s JV at Tunisia for phos acid at capex of Rs 1.18 bn
is also likely to commence production by Q2FY12.

Company’s focus on non subsidy based business remains intact

Management guided that CIL continues to maintain its focus on the non-subsidy business
which contributed ~10% to revenues and ~26% to EBITDA in Q3FY11. CIL maintained that
its non-fertiliser business which includes pesticides, specialty fertilisers, micro nutrients,
retail and enjoys >20% margins is likely to drive the future earnings for the company. The
company plans to increase the contribution from this business from 30% to 50% in the next
three years. Sharing guidance about the retail wing of its non-subsidy business,
management indicated that the company plans to increase the number of retail stores from
423 to 600 by the end of FY12 and has plans to further expand in near by states of
Karnataka, Tamil Nadu etc.

Raw material price negotiations for FY12 likely to materialize by Mar ’11
Management also guided that although the company has finalized phos acid contracts with
suppliers at US$ 830 (+6% or +US$ 50 over Q3FY11) – negotiations for FY12 are still
underway and are likely to shape up and finalize by Mar ’11. In light of the recent reduction
in subsidy rates for nutrients by the government - for FY12 (ref to our Fertiliser Policy
Update - Impact of revised NBS scheme on Nov 23, 2010) - these raw material
negotiations are critical and are likely to have a strong impact on the company’s margins for
FY12E.

Emkay Research 13 January 2011 2

 Coromandel International Result Update

Key Financials – Quarterly Rs mn

Rs mn Q3FY10 Q4FY10 Q1FY11 Q2FY11 Q3FY11 YoY (%) QoQ (%) YTD’11 YTD’10 YoY (%)
Revenue 17,568 13,648 15,528 25,761 20,503 16.7 (20.4) 61,792 48,741 26.8
Expenditure 15,493 12,447 13,635 22,421 18,264 17.9 (18.5) 54,320 44,155 23.0
as % of sales 88.2 91.2 87.8 87.0 89.1 87.9 90.6
Consumption of RM 13,326 10,442 11,255 19,832 15,918 19.5 (19.7) 47,005 38,150 23.2
as % of sales 75.9 76.5 72.5 77.0 77.6 76.1 78.3
Employee Cost 402 498 427 467 470 17.0 0.6 1,365 1,172 16.5
as % of sales 2.3 3.7 2.7 1.8 2.3 2.2 2.4
Other expenditure 1,765 1,506 1,953 2,121 1,875 6.2 (11.6) 5,950 4,833 23.1
as % of sales 10.0 11.0 12.6 8.2 9.1 9.6 9.9
EBITDA 2,075 1,201 1,894 3,340 2,238 7.9 (33.0) 7,472 4,586 62.9
Depreciation 149 154 142 167 161 8.7 (3.1) 470 439 7.2
EBIT 1,927 1,047 1,752 3,174 2,077 7.8 (34.6) 7,002 4,147 68.8
Other Income 363 364 208 230 188 (48.3) (18.1) 625 959 (34.8)
Interest 179 148 185 223 212 18.5 (5.1) 620 612 1.3
PBT 2,111 1,263 1,775 3,180 2,053 (2.8) (35.4) 7,008 4,495 55.9
Total Tax 650 442 560 954 616 (5.2) (35.4) 2,130 1,377 54.7
Adjusted PAT 1,461 821 1,215 2,226 1,437 (1.6) (35.4) 4,878 3,118 56.4
(Profit)/loss from JV's/Ass/MI 0 0 0 0 0 0 0
APAT after MI 1,461 821 1,215 2,226 1,437 (1.6) (35.4) 4,878 3,118 56.4
Extra ordinary items 0 0 0 1296 66 1361 736
Reported PAT 1,461 821 1,215 3,522 1,503 2.9 (57.3) 6,239 3,854 61.9
Reported EPS 5.2 2.9 4.3 12.6 5.4 2.9 (57.3) 22.2 13.7 61.9

Margins (%) (bps) (bps) (bps)

EBIDTA 11.8 8.8 12.2 13.0 10.9 (89) (205) 12.1 9.4 268
EBIT 11.0 7.7 11.3 12.3 10.1 (84) (219) 11.3 8.5 282
EBT 9.9 6.6 10.1 11.5 9.1 (85) (236) 10.3 7.3 307
PAT 8.3 6.0 7.8 8.6 7.0 (131) (163) 7.9 6.4 150
Effective Tax rate 30.8 35.0 31.6 30.0 30.0 (79) - 30.4 30.6 (23)
Source: Company, Emkay Research

Emkay Research 13 January 2011 3

 Coromandel International Result Update

Key Financials
Income Statement Balance Sheet
Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E
Net Sales 94,007 62,388 72,974 80,197 Equity share capital 280 281 281 281
Growth (%) 147.7 (33.6) 17.0 9.9 Reserves & surplus 10,992 14,735 18,514 23,677
Expenditure 86,311 56,601 63,154 67,938 Net worth 11,271 15,015 18,794 23,958
Materials Consumed 79,288 48,875 54,656 58,589 Minority Interest
Power & Fuel 631 694 763 839 Secured Loans 2,971 5,946 5,946 5,946
Other Manufacturing Exp 1,551 1,706 1,877 2,065 Unsecured Loans 14,229 14,523 8,523 3,523
Employee Cost 1,318 1,450 1,595 1,754 Loan Funds 17,199 20,470 14,470 9,470
Other Exp 3,524 3,876 4,264 4,690 Net deferred tax liability 795 855 855 855
EBITDA 7,696 5,787 9,820 12,259 Total Liabilities 29,265 36,340 34,119 34,282
Growth (%) 57.8 (24.8) 69.7 24.8
EBITDA margin (%) 8.2 9.3 13.5 15.3 Gross Block 12,050 13,074 14,538 18,538
Depreciation 561 594 690 827 Less: Depreciation 4,409 4,962 5,652 6,479
EBIT 7,134 5,193 9,130 11,432 Net block 7,640 8,112 8,886 12,059
EBIT margin (%) 7.6 8.3 12.5 14.3 Capital work in progress 278 1,464 4,000 1,000
Other Income 1,611 1,362 1,100 1,336 Investment 1,633 1,693 1,693 1,693
Interest expenses 847 782 873 598 Current Assets 37,264 35,101 32,584 33,455
PBT 7,898 5,773 9,357 12,170 Inventories 13,475 9,264 12,196 13,403
Tax 3,118 1,819 3,116 4,053 Sundry debtors 1,043 1,398 2,599 2,856
Effective tax rate (%) 39.5 31.5 33.3 33.3 Cash & bank balance 3,415 9,605 6,113 5,166
Adjusted PAT 4,780 3,953 6,241 8,118 Loans & advances 19,331 14,834 11,676 12,030
Growth (%) 47.1 (17.3) 57.9 30.1 Other current assets - - - -
Net Margin (%) 5.1 6.3 8.6 10.1 Current lia & Prov 17,550 10,031 13,044 13,924
(Profit)/loss from JVs/Ass/MI - - - - Current liabilities 16,331 9,069 12,082 12,963
Adjusted PAT After JVs/Ass/MI 4,780 3,953 6,241 8,118 Provisions 1,220 961 961 961
E/O items - 736.0 - - Net current assets 19,714 25,071 19,540 19,531
Reported PAT 4,780 4,689 6,241 8,118 Misc. exp - - - -
PAT after MI 4,780 3,953 6,241 8,118 Total Assets 29,265 36,340 34,119 34,282
Growth (%) 47.1 (17.3) 57.9 30.1

Cash Flow Key Ratios

Y/E, Mar (Rs. mn) FY09 FY10 FY11E FY12E Y/E, Mar FY09 FY10 FY11E FY12E
PBT (Ex-Other income) 6,287 4,411 8,256 10,834 Profitability (%)
Depreciation 561 594 690 827 EBITDA Margin 8.2 9.3 13.5 15.3
Interest Provided 847 782 873 598 Net Margin 5.1 6.3 8.6 10.1
Other Non-Cash items (1,159) 2,115 (1,059) (850) ROCE 36.4 20.0 29.0 37.3
Chg in working cap (9,041) 526 2,039 (937) ROE 49.8 30.1 36.9 38.0
Tax paid -3,118 -1,819 -3,116 -4,053 RoIC 37.1 21.9 39.8 46.9
Operating Cashflow -5,622 6,608 7,684 6,419 Per Share Data (Rs)
Capital expenditure (960) (2,210) (4,000) (1,000) EPS 17.1 14.1 22.2 28.9
Free Cash Flow -6,582 4,398 3,684 5,419 CEPS 19.1 16.2 24.7 31.9
Other income 1,611 1,362 1,100 1,336 BVPS 80.6 107.0 134.0 170.8
Investments 1,880 (60) - - DPS 10.0 10.0 7.5 9.0
Investing Cashflow 3,491 1,302 1,100 1,336 Valuations (x)
Equity Capital Raised - (600) - - PER 16.3 19.8 12.5 9.6
Loans Taken / (Repaid) 7,179 3,271 (6,000) (5,000) P/CEPS 14.6 17.2 11.3 8.7
Interest Paid (847) (782) (873) (598) P/BV 3.5 2.6 2.1 1.6
Dividend paid (incl tax) (490) (1,399) (1,403) (2,104) EV / Sales 0.5 0.8 0.6 0.5
Income from investments - - - - EV / EBITDA 6.6 8.3 4.7 3.4
Others - - - - Dividend Yield (%) 3.6 3.6 5.4 6.5
Financing Cashflow 5,842 490 -8,276 -7,703 Gearing Ratio (x)
Net chg in cash 2,752 6,190 -3,492 -947 Net Debt/ Equity 1.1 0.6 0.4 0.1
Opening cash position 663 3,415 9,605 6,113 Net Debt/EBIDTA 1.6 1.6 0.7 0.2
Closing cash position 3,415 9,605 6,113 5,166 Working Cap Cycle (days) (7) 9 14 15

Emkay Research 13 January 2011 4

 Coromandel International Result Update

Recommendation History: Coromandel International – CRIN IN

Date Reports Reco CMP Target

21/10/2010 Coromandel Intnl Q2FY11 Result Update Buy 674 870

22/07/2010 Coromandel Intnl Q1FY11 Result Update Buy 508 565

27/04/2010 Coromandel Intnl Q4FY10 Result Update Buy 361 470

25/01/2010 Coromandel Intnl Q3FY10 Result Update Buy 273 329

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Emkay Global Financial Services Ltd.

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