Agriculture is highly cyclical and depends on monsoon, so will the industries depending on it.
Consecutive droughts leads to lower consumption of agri-inputs. That leads to higher inventory in channels. Higher inventory leads to stressed cash flow.
In terms of monsoon, First year of good monsoon goes towards inventory liquidation. From second year of good monsoon, things start showing in terms of encouraging financial performance. Also, first year of drought is not a big problem as the high level of water in the reservoir helps to mitigate the impact of low rainfall.
Coming to the raw material for P& K fertilizers are imported, if the raw material cost increased, domestic production declines, import increases.
Coromandel’s revenue also moves up and down with monsoon but over the years the dependence/ volatility has been reduced.
The return ratios of the company are excellent implying very prudent use of capital.
Fixed asset to sales varies between 7 to 9 implying for incremental growth capital incremental required will be quite low.
If you look at the quarterly numbers, the September quarter(Q2) gets the highest revenue(40% of sales) & profitability. This is due to the Kharif season(June to Oct). Also, during that time the inventory levels also goes up as the company does not want to miss out on peak demand period. Also, since the production cannot be increased significantly just for one season, so the company manufacturers evenly throughout the year maintaining inventory.
