COROMANDEL INTERNATIONAL LTD

Result Update: Q1 FY 12

C.M.P Target Price Date

: Rs.318.00 : Rs.360.00 : 23rd Aug 2011

BUY
SYNOPSIS

Stock Data: Sector: Face Value Rs. 52 wk. High/Low (Rs.) Volume (2 wk. Avg.) BSE Code Market Cap (Rs.In mn) Fertilizers
Rs.1.00 376.00/217.50 44000 506395 89676.00

Coromandel International Limited is in the business segments of Fertilisers, Speciality Nutrients, Crop Protection and Retail. The Company is manufactures a wide range of fertilisers and markets around 2.9 million tons making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 22% over 2010 to 2013E respectively. Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate.

Share Holding Pattern

1 Year Comparative Graph

The Company has signed an agreement with Qatar Fertiliser Company (QAFCO) for supply of Urea. Coromandel International Limited has signed definitive share purchase agreement to acquire promoters stake in 'Sabero Organics Gujarat Limited. During the quarter, the company has reported Net Profit decreased to Rs.1593.50 million from Rs.1214.50 million in previous year same quarter.

Coromandel International Ltd

BSE SENSEX

Years FY 11 FY 12E FY 13E

Net sales 76363.80 84000.18 92400.20

EBITDA 11344.20 11757.50 12798.98

Net Profit 6944.60 7635.46 8402.44

EPS 24.64 27.08 29.80

P/E 12.90 11.74 10.67

Peer Group Comparison

Name of the company Coromandel Intl National Fert Rashtriya Chem Gujarat State Fert CMP(Rs.) 318.00 78.40 81.45 384.05 Market Cap.(Rs.Mn.) 89676.00 38461.3 44935.0 30607.1 EPS(Rs.) 24.64 2.58 4.16 98.23 P/E(x) 12.90 30.39 19.58 3.91 P/Bv(x) 4.71 2.30 2.16 1.08 Dividend (%) 700.00 8.50 11.00 70.00

Investment Highlights

Q1 FY 12 Results Update Coromandel International Ltd disclosed results for the quarter ended June 2011. Net sales for the quarter moved up 16% to Rs.17956.70 million as compared to Rs.15528.20 million during the corresponding quarter last year. During the quarter, the company has reported Net Profit increased to Rs.1593.50 million from Rs.1214.50 million in previous year same quarter. The Basic EPS of the company stood at Rs.5.65 for the quarter ended June 2011.

Quarterly Results - Standalone (Rs in mn)

As At Net sales PAT Basic EPS

June-11
17956.70

June-10
15528.20

%change
16

1593.50

1214.50

31

5.65

8.64

(35)

Basic EPS of the company stood at Rs.5.65

Break up of Expenditure Expenditure for the quarter stood at Rs.15458.50 mn, which is around 13% higher than the corresponding period of the previous year. Consumption of Raw Materials cost of the company for the quarter accounts for 71% of the sales of the company and stood at Rs.12803.40mn from Rs.11846.90mn of the corresponding period of the previous year. Other Expenditure Cost increased 5%YoY to Rs.2045.8mn from Rs.1953.00mn and accounts for 11% of the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 15% and 9% respectively from 14% and 8% respectively of the same period of the last year.

FY11 Performance Net profit of the company has increased at 48% yoy Rs.6944.60mn from Rs.4682.00mn of same period of last year. Total revenue for the year stood at Rs.76363.80 mn from Rs.63947.30 which is 19% increased than that of a year ago. Total Income has increased from Rs 77161.40 million for the year ended March 31, 2011 to Rs 65268.40 million for the year ended March 31, 2010.EPS for the year stood at Rs.24.64 per equity share of Rs.1.00 each. Operating profit of the company stood at Rs.11344.20mn. OPM for the year stood at 14.86%. Expenditure of the company increased 16% YoY to Rs.65817.20 mn. Interest expenses for the year stood at Rs.842.20mn.

Board recommends Dividend

Coromandel International Ltd has recommended Final dividend of Rs. 3.00 on the face value of Rs.1.00 for the year 2011.

Allotment of Equity Shares under ESOP Coromandel International Ltd has informed BSE that the Share Transfer & Investors' Grievance Committee on July 27, 2011 allotted 66836 equity shares of Re. 1/- each fully paid to the employees pursuant to ESOP 2007. Consequent to this allotment, the issued and paid up capital of the Company stands revised to 282066516 equity shares of Re. 1/- each fully paid amounting to Rs. 282066516/-

Coromandel inks pact with QAFCO for supply of Urea

Coromandel International Limited has signed an agreement with Qatar Fertiliser Company (QAFCO) for supply of Urea. QAFCO is a leading Ammonia, Urea and Melamine manufacturer with state of art facilities for manufacturing Urea, Ammonia and Melamine using Natural Gas. Qatar Fertiliser Company is one of the largest producers of Urea and Ammonia and currently producing around 3 million tonnes of Prilled/granular Urea. With current expansion going on with Qafco 5 & 6, the Company will become the largest single-site producer of Ammonia and Urea in the world with Ammonia capacity of 3.8 million tonnes and Urea capacity of 5.6 million tonnes.

Coromandel International acquires 'Sabero Organics Coromandel International Limited has signed definitive share purchase agreement to acquire promoters stake in 'Sabero Organics Gujarat Limited', an established agrochemical manufacturer headquartered in Mumbai, India. last year. Sabero Organics is a leading producer and supplier of a variety of fungicides, herbicides, insecticides and specialty chemicals and is a significant player in Mancozeb fungicide in global markets. Current Turnover of the Company is Rs. 413 Crores in FY 11, out of which the exports contribute about Rs. 220 Crores.

Company Profile
Coromandel International Limited is in the business segments of Fertilisers, Speciality Nutrients, Crop Protection and Retail. Coromandel manufactures a wide range of fertilisers and markets around 2.9 million tons making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India. In its endeavour to be a complete plant nutrition solutions company, Coromandel has also introduced a range of Speciality Nutrient products including Organic Fertilisers. The Crop Protection business produces insecticides, fungicides and herbicides and markets these products in India and across the globe. Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate. Coromandel has also ventured into the retail business setting up more than 425 rural retail centers in the agri and lifestyle segments. The Company clocked a turnover of Rs.7,528 crore in 2010-11 (USD 1.68 billion as on March 31, 2011). Coromandel was ranked among the top 20 best companies to work for by Business Today and was also voted as one of the ten greenest companies in India by TERI, reflecting its commitment to the environment and society. Coromandel is a part of the Rs.17,051 crores (USD 3.8 billion as on March 31, 2011) Murugappa Group.

Company Products & Services

Coromandel International Limited has multi-locational production facilities and markets its products all over India and exports pesticides to various countries across the globe. It is managed by competent and committed professionals using advanced management practices. The Company is known for fostering a climate of high performance and continuous improvement.

Fertilizers Gromor 14-35-14 Gromor 28-28-0 Gromor 20-20-0-13 Paramfos 16-20-0-1 ParryGold Parry Super (Single Super Phospate) Godavari DAP Godavari 10:26:26 Godavari 12:32:16 GODAVARI 14:35:14 Plant Protection Chemicals Coromandel manufacture & market pesticides Including Insecticides, Fungicides, Herbcidies and Plant Biostimulant. The companys Pesticide portfolio includes several popular brands that enjoy leadership status in the Indian Market. Coromandel constantly Engages in reviewing its products mix , to give the best fit for the every kind and Coromandel has a strong R&D team for developing technologically superior and environmentally safe pesticides formulations like SC, WDG, Gel Micro emulsions etc's. By providing wide range of Farm inputs that cater to different types of requirements, the company has endeared itself to the farmers, deservedly earning a place in his heart as a real friend in need. Coromandel exports their products to various counties. Coromandel have technical tie-ups with Multinationals like Dupont, BASF, FMC, Otsuka , etc for marketing their products in India.

Specialty Nutrients Introduction of high yielding crop varieties (HYV), intensive cropping together with a shift in high analysis NPK fertilizers in mid sixties brought a stirring revolution in increasing crop production in the country, but at the same time heavy withdrawal of essential plant nutrients through bumper harvests made soil resource fatigue. The

deficiencies of micronutrients became a serious obstacle in achieving optimum yield.The intensification of agriculture in India has led to the increasing removal of secondary and micronutrients from the soil and multiple nutrient deficiencies, which are becoming a major constraint to further increases in production.This is essentially due to nutrient removals far in excess of nutrient additions. Greatest blame for soil nutrient depletion rests with unbalanced fertilizer application consisting of large N applications without matching amount of other nutrients. Organic Fertilisers Retail Partners Coromandel has strategic partnerships with leading companies across the globe including: FOSKOR (PTY) LTD., South Africa A Technical Assistance Agreement with Foskor (Pty) Ltd. of South Africa, one of the largest phosphoric acid producing companies, for extending Coromandel's technical assistance. Groupe Chimique Tunisian,Tunisia A joint venture agreement with Groupe Chimique Tunisien (GCT) and CPG of Tunisia to set up a phosphoric acid plant at La Skhira, Tunisia, at an estimated cost of US$ 180 million. Sociedad Quimicay Minera A 50:50 joint venture with Sociedad Quimicay Minera to set up a Water Soluble Fertiliser (WSF) plant for manufacturing WSF at Coromandel's Kakinada Plant. Subsidiary Companies Coromandel Mauritius Coromandel GETAX Phosphates Pvt.Ltd Coromandel Brasil Limited

Financial Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in million) FY10A 12m Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Equity Capital Reserves Face Value(Rs.) EPS *A=Actual, *E=Estimated 63947.30 1321.10 65268.40 -56838.00 8430.40 -753.70 7676.70 -592.30 7084.40 -2402.40 4682.00 280.50 14069.30 2.00 33.38 76363.80 797.60 77161.40 -65817.20 11344.20 -842.2 10502.00 -617.40 9884.60 -2940.00 6944.60 281.80 18759.30 1.00 24.64 84000.18 837.48 84837.66 -73080.16 11757.50 -978.01 10779.49 -598.88 10180.62 -2545.15 7635.46 282.00 26394.76 1.00 27.08 92400.20 879.35 93279.55 -80480.57 12798.98 -996.71 11802.27 -628.82 11173.45 -2771.02 8402.44 282.00 34797.20 1.00 29.80 FY11A 12m FY12E 12m FY13E 12m

10

Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 30-Dec-10 3m(A) Description Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross Profit Depreciation Profit before Tax Tax Profit after Tax Equity Capital Face Value(Rs.) EPS *A=Actual, *E=Estimated 20612.40 187.90 20800.30 -18264.20 2536.10 -211.80 2324.30 -161.40 2162.90 -660.00 1502.90 281.70 1.00 5.34 12489.60 195.60 12685.20 -11501.00 1184.20 -219.40 964.80 -148.60 816.20 -90.00 726.20 281.80 1.00 2.58 17956.70 190.80 18147.50 -15458.50 2689.00 -243.40 2445.60 -142.10 2303.50 -710.00 1593.50 282.00 1.00 5.65 27294.18 200.34 27494.52 -22381.23 5113.29 -267.74 4845.55 -149.21 4696.35 -1314.98 3381.37 282.00 1.00 11.99 30-Mar-11 3m(A) 30-Jun-11 3m(A) 30-Sep-11 3m(E)

11

Key Ratio
Particulars EPS (Rs.) EBITDA Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) EV/EBITDA (x) Debt-Equity Ratio Book Value (Rs.) P/bv FY10 33.38 13.18% 7.32% 15.94 32.63% 24.08% 8.85 1.27 102.32 5.20 FY11 24.64 14.86% 9.09% 12.90 36.47% 32.76% 7.90 0.72 67.57 4.71 FY12E 27.08 14.00% 9.09% 11.74 28.62% 27.18% 7.63 0.54 94.6 3.36 FY13E 29.80 13.85% 9.09% 10.67 23.95% 24.25% 7.01 0.43 124.39 2.56

Charts:

12

13

14

Outlook and Conclusion

At the current market price of Rs.318.00, the stock is trading at 11.74 x FY12E and 10.67 x FY13E respectively. Price to Book Value of the stock is expected to be at 3.36 x and 2.56 x respectively for FY12E and FY13E. Earning per share (EPS) of the company for the earnings for FY12E and FY13E is seen at Rs.27.08 and Rs.29.80 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 13% and 22% over 2010 to 2013E respectively. Coromandel is the second largest manufacturer of Malathion and only the second manufacturer of Phenthoate. The Company has signed an agreement with Qatar Fertiliser Company (QAFCO) for supply of Urea. Coromandel International Limited has signed definitive share purchase agreement to acquire promoters stake in 'Sabero Organics Gujarat Limited. During the quarter, the company has reported Net Profit decreased to Rs.1593.50 million from Rs.1214.50 million in previous year same quarter.

15

On the basis of EV/EBITDA, the stock trades at 7.63 x for FY12E and 7.01 x for FY13E. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs.360.000 for Medium to Long term investment.

Industry Overview

Fertilizer sector

The Indian fertilizer industry has succeeded in meeting almost fully the demand of all chemical fertilizers except for MOP. The industry had a very humble beginning in 1906, when the first manufacturing unit of Single Super Phosphate (SSP) was set up in Ranipet near Chennai with an annual capacity of 6000 MT. The Fertilizer & Chemicals Travancore of India Ltd. (FACT) at Cochin in Kerala and the Fertilizers Corporation of India (FCI) in Sindri in Bihar were the first large sized -fertilizer plants set up in the forties and fifties with a view to establish an industrial base to achieve self-sufficiency in food grains. Subsequently, green revolution in the late sixties gave an impetus to the growth of fertilizer industry in India. The seventies and eighties then witnessed a significant addition to the fertilizer production capacity.

Fertilizer sector is a very crucial for Indian economy because it provides a very important input to agriculture. The fertilizer industry in India has played a pivotal role in achieving self sufficiency in food grains as well as in rapid and sustained agriculture growth. India is the third largest producer and consumer of fertilizers in the world after China and the United States. The growth of the Indian fertilizer industry has been largely determined by the policies pursued by the government. The government exercised extensive controls on the pricing, distribution and movement of fertilizers. The industry is capital intensive and the production process energy intensive with the combined cost of feedstock

16

and fuel accounting for anywhere between 55 and 80 per cent of cost of production, depending on the type of fertilizers.

Determinants of Fertilize Demand

Rainfall and irrigation facilities Relative prices of fertilizers Cropping pattern Government policies

Rising demand for fertilizers

There has been significant growth in the consumption of fertilizers in last three years due to overall good monsoon. The growth in NPK consumption was 9.50% in 2004-05, 10.60 % in 2005-06 and 8.40% per cent in 2006-07.Against the robust growth in consumption, domestic fertilizer production has remained range bound in the last decades. The surge in fertilizers demand and stagnant to modest increase in production has widened the gap between consumption and production causing larger dependence on imports. Therefore, the rising demand for fertilizers is providing ample scope for the companies in this sector to increase their production capacity and volumes thereby, driving the growth of fertilizer sector.

The installed capacity as on 30.01.2003 has reached a level of 121.10 lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient, making India the 3rd largest fertilizer producer in the world. The rapid build-up of fertilizer production capacity in the country has been achieved as a result of a favorable policy environment facilitating large investments in the public, cooperative and private sectors. Presently, there are 57 large sized fertilizer plants

17

in the country manufacturing a wide range of nitrogenous, phosphatic and complex fertilizers. Out of these, 29 unit produce urea, 20 units produce DAP and complex fertilizers 13 plants manufacture Ammonium Sulphate (AS), Calcium Ammonium Nitrate (CAN) and other low analysis nitrogenous fertilizers. Besides, there are about 64 medium and small-scale units in operation producing SSP

The Indian fertilizer industry has come a long way since its early days post independence. India today is one of the largest producer and consumer of Fertilizers in the world. Indias production in terms of nutrients (N & P) reached a level of 155 lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly, consumption of fertilizers in terms of nutrients (NPK) has also grown from about 0.66 lakh MT in 1951-52 to nearly 184 lakh MT in 2004-05.

The Indian Fertilizer industry, given its strategic importance in ensuring self sufficiency of food grain production in the country, has for decades, been under Government control. The Government has over the years, provided subsidies/ concessions through the fertilizer companies to farmers and the manufacturers have been compensated through various schemes. Though the Government control helped in meeting the objective of ensuring creation of capacities and ultimately achieving self-sufficiency in food grain production, it did not encourage improving efficiencies in the sector.

Burgeoning subsidy bill and the need to focus on fiscal prudence, Government polices in recent times are aimed at encouraging efficiencies in the sector. Policy measures like the new pricing scheme have made the operations of less efficient players unviable. The Government polices today are oriented towards achieving the stated objective of total deregulation in the sector. However, the uncertainty over exact policy parameters and absence of a comprehensive long term policy has not augured well for the industry. The financial year 2006-07 began with practically no clarity on the policy parameters for both nitrogenous and phosphatic fertilizers.

18

Another important issue confronting the sector is with respect to the feedstock. Natural gas which is the main feedstock for production of nitrogenous fertilizers is available in limited quantities and the industry competes with the power sector for its share. With the Government policy favoring conversion to gas based units, the demand for gas is only expected to go up in the future, which may in turn lead to further shortages.

The Indian fertilizer industry has come a long way since its early days post independence. India today is one of the largest producer and consumer of Fertilisers in the world. Indias production in terms of nutrients (N & P) reached a level of 155 lakh MT in 2005-06 from 0.39 lakh MT in 1951-52. Similarly, consumption of fertilizers in terms of nutrients (NPK) has also grown from about 0.66 lakh MT in 1951-52 to nearly 184 lakh MT in 2004-05. The Indian Fertilizer industry, given its strategic importance in ensuring self sufficiency of food grain production in the country, has for decades, been under Government control.

The Government has over the years, provided subsidies/concessions through the fertilizer companies to farmers and the manufacturers have been compensated through various schemes. Though the Government control helped in meeting the objective of ensuring creation of capacities and ultimately achieving self-sufficiency in food grain production, it did not encourage improving efficiencies in the sector. With the burgeoning subsidy bill and the need to focus on fiscal prudence, Government polices in recent times are aimed at encouraging efficiencies in the sector. Policy measures like the new pricing scheme have made the operations of less efficient players unviable. The Government polices today are oriented towards achieving the stated objective of total deregulation in the sector. However, the uncertainty over exact policy parameters and absence of a comprehensive long term policy has not augured well for the industry. For instance, the financial year 2006-07 began with

19

practically no clarity on the policy parameters for both nitrogenous and phosphatic fertilizers.

Another important issue confronting the sector is with respect to the feedstock. Natural gas which is the main feedstock for production of nitrogenous fertilizers is available in limited quantities and the industry competes with the power sector for its share. With the Government policy favouring conversion to gas based units, the demand for gas is only expected to go up in the future, which may in turn lead to further shortages. Similarly, in the case of phosphates, on account of the limited availability of phosphoric acid and rock phosphate in the country, domestic units are dependent to a large extent on imports. In view of the limited availability of the main feedstock within the country, fertiliser companies today are exploring the possibility of setting up joint ventures abroad to tie up their feedstock requirements. Though a few joint venture agreements have been signed with respect to supply of phosphoric acid, only a couple of joint ventures have been established with respect to urea. Domestic players have also not been able to enter into long term gas supply agreements primarily due to differences over pricing.

_______________

____

_________________________

Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

20

Firstcall India Equity Research: Email info@firstcallindia.com C.V.S.L.Kameswari Pharma U. Janaki Rao Capital Goods D. Ashakirankumar Automobile A. Rajesh Babu FMCG H.Lavanya Oil & Gas T.Joshna Devi Diversified Dheeraj Bhatia Diversified Manoj kotian Diversified Nimesh Gada Diversified Firstcall India also provides Firstcall India Equity Advisors Pvt.Ltd focuses on, IPOs, QIPs, F.P.Os,Takeover Offers, Offer for Sale and Buy Back Offerings. Corporate Finance Offerings include Foreign Currency Loan Syndications, Placement of Equity / Debt with multilateral organizations, Short Term Funds Management Debt & Equity, Working Capital Limits, Equity & Debt Syndications and Structured Deals. Corporate Advisory Offerings include Mergers & Acquisitions(domestic and cross-border), divestitures, spin-offs, valuation of business, corporate restructuring-Capital and Debt, Turnkey Corporate Revival Planning & Execution, Project Financing, Venture capital, Private Equity and Financial Joint Ventures Firstcall India also provides Financial Advisory services with respect to raising of capital through FCCBs, GDRs, ADRs and listing of the same on International Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and other international stock exchanges. For Further Details Contact: 3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071 Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089 E-mail: info@firstcallindiaequity.com www.firstcallindiaequity.com

21