Shares of Coromandel International Limited have underperformed in the calendar year 2021 so far with a fall of nearly 9%. In comparison, the Nifty 500 index has gained up to 28%. An uncertain monsoon has hurt investor confidence. But, the earnings prospects of the company look strong due to expected traction in the upcoming Rabi crop season. Healthy water storage levels and soil moisture conditions favor a good sowing season, promoting the outlook for the coromandel.
Note that Coromandel International performed well on the revenue front for the quarter ended September 30 (Q2FY22), registering a growth of 34% over the previous year. The nutrients and affiliates business grew 38% year-over-year, contributing approximately 89% to total revenue. On the other hand, the crop protection business grew 9% year-on-year. However, rising raw material costs posed challenges to income growth.
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Analysts expect a moderation in raw material and freight costs in the next two quarters, which augurs well for. In addition, nutrient-based subsidy (NBS) rates announced by the government for phosphatic chemicals also help the outlook. As analysts at Nirmal Bang Institutional Equities point out, “The NBS rate fixed in October ’21 for DAP and the three major grades of NPK (Nitrogen Phosphorus Potassium) offset most of the increase in input costs. Management will do so where possible. Also raising product prices.”
Additionally, new product launches in non-subsidised nutrients and single-digit growth in subsidized nutrients (NPK/DAP) can be expected to aid revenue growth. This will be supported by investments in capabilities. The company’s investment in a backward integration project for 500,000 tonnes of sulfuric acid per year will be beneficial for increasing the supply of this key input and cost savings.
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