Hold Coromandel International - PINC Result Review

Coromandel International's (CIL) Q2FY11 results were better than our expectations as net sales grew by 63.6% to Rs27.6bn. OPM expanded by 37bps to 18.7% and consequently net profit surged by 86.4% YoY to Rs3.5bn. There is an extraordinary income of Rs1972.3mn in the quarter corresponding to FY10's subsidy and hence adj OPM and net profit stands at 12.4% and Rs2.2bn (our estimate was 12.5% and Rs1.7bn respectively).

Outlook: We are positive on the fertiliser sector & believe that there should be significant capacity addition driven by favourable policy. Complex players are better positioned due to strong push from govt for usage of balanced nutrients & huge demand-supply mismatch. We believe the story for this decade to be significantly different from the last decade which calls for strong re-rating of fertiliser sector.

VALUATIONS AND RECOMMENDATION

We have slightly increased our PAT estimate for FY12 by 2.4% on the back of higher traded volumes (Urea included in portfolio). At the CMP of Rs683, CIL trades at FY11 and FY12 P/E of 17.2x and 13.9x and EV/EBITDA of 8.8x and 8.3x respectively. Stock has outperformed index by ~160% in last 1year and current valuations looks expensive. Hence we downgrade our recommendation to 'HOLD' with a target price of Rs690 (14x FY12E EPS).

Source : Equity Bulls

Keywords