Coromandel Fertiliser

Coromandel Fertiliser’s valuations appear cheap in view of its stable prospects and improved industry outlook
COROMANDEL Fertilisers appears attractively valued compared to its peers in view of the improved outlook for the fertiliser industry, the company's steady growth prospects and lucrative dividend yield. Long term investors may consider it as a value buy.

Business:

Coromandel Fertilisers (CFL) is India’s leading phosphatic fertiliser manufacturer producing di-ammonium phosphate (DAP), monoammonium phosphate (MAP) and complex fertilisers. The Murugappa group company’s nameplate capacity stands at 23.1 lakh tonne per annum (TPA) of complex fertilisers, 8.15 lakh TPA of DAP and 1.32 lakh TPA of single super phosphate.

The company has also established itself in the agrochemicals industry, with 8 manufacturing / formulating units set up in North, West and Southern part of the country. It also produces watersoluble fertilisers and is planning to set up units manufacturing micronutrients.

Growth Drivers:

The government's policy change in fertiliser subsidy calculations, which linked subsidies to import parity prices, benefited CFL during FY09 and will continue to do so. The fall in commodity prices over the past 9-10 months will reduce CFL's need for working capital as well as its dependence on government subsidies, which will bring down its short-term borrowings and interest burden.

CFL has been taking strategic steps to improve its dependence on non-subsidized sectors. It recently commissioned two plants in Kakinada to manufacture water-soluble fertilisers. CFL is focusing on brand building and will expand the retail network to 400 centres under its 'Mana Gromor Centres' initiative during FY 09 from just 20 last year. These retail centres focus on rural marketing and offer agri as well as non-agri inputs.

The company has set up a subsidiary in Brazil to market its agrochemical products. Similarly, it has tied up with a Chilean company SQM for setting up a micronutrients plant at Kakinada. It has also picked up 15% stake in a Tunisian joint venture TIFERT to produce phosphoric acid - a key input for phosphatic fertilisers - which is expected to commence operations by end 2010. The company invested Rs 62 crore in this venture during FY 09. Financials: The government's decision to pay a part of subsidies by way of special bonds is a major concern. The company wrote off Rs 104.5 crore in the quarter ended March 2009 towards mark-to-market losses, thereby incurring net losses for the quarter.

Over the past 5 years, from FY 05 to FY 09, the company's revenues have risen at a cumulative annual growth rate (CAGR) of 49.9%, thanks to acquisition and subsequent amalgamation of Godavari Fertilisers with effect from 1st April 2007. The net profit during the same period has jumped at a CAGR of 63% and dividend paid by the company has increased at a CAGR of 53.3%.

Valuation:

The company ended FY09 with per share earnings of Rs 35.5. On the current market price of Rs 143, the scrip is trading at P/E of 4.0. Other comparable fertiliser companies such as RCF, Chambal Fertilisers and National Fertilisers are trading at P/E above 10, while Zuari Industries and Deepak Fertilisers are trading at a P/E between 4 and 6. CFL paid Rs 6 per share as interim dividend and has proposed an additional Rs 4 as final dividend for FY 2009, which together translate in an attractive dividend yield of 7%.