Coromandel International – Best Agriculture Stock to Buy?

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Is Coromandel International best agriculture stock to buy? Let’s deep dive into it.

Agriculture is the new Holy Grail of Dalal Street. The renewed thrust of Govt spending to farmers through DBT transfers has invigorated the sector.

Also the above average monsoon is expected to shower more on this sector. As they say-“When It Rains , It pours”. Therefore as an avid investor Coromandel International caught my eyes , hence I have presented here how I see the stock.

This article is part-1 of my detailed analysis of the stock where I have explained the business model and sectoral tailwinds operating in CIL and agriculture sector.

Background

Started in 1960s by International Minerals & Chemical Corporation  and Chevron Chemical Company and EID Parry .

In 1981, Murugappa Group took over EID Parry .In 1994,  EID Parry India Limited bought stakes from Chevron .In 2003, EID Parry India Limited Farm Input division merged with CIL and then CIL became a complete agri solution company.

Management

Chairman is M. M. Murugappan, holds Master’s in Chemical Engineering from the University of Michigan, USA. Mr. Sameer Goel (MD) holds MBA from IIM Ahmedabad (ex GSK, Cipla).

Shareholdings

The promoters sold 2 % stake in last quarter .The proceeds of sale to be used to bring down the debt of EID Parry.

Business Model

Raw Material

RM accounts for ~70% of the total revenue. The main constituents and their sourcing is detailed below:

Heavy dependence on Imports

Fertilizer’s Folly: Subsidy

Key Products

Key Products can be divided in 2 parts:

(1) Fertilisers

(2) Corp Protection

 

Revenue Break up
  1. Fertilizers

2. Crop Protection Chemicals

Coromandel is the second largest manufacturer of Malathion and is the major manufacturer of Phenthoate in Asia, largest player in neem seed extract-based ‘Azadirachtin’ segment .Is among top 5 Indian companies in Indian Pesticide Industry.

 

It will increase its focus on the Crop Protection segment through increased R&D, new launches as well as the identification of recently off-patented and to be off-patented molecules

Curious Tale of 4 TailWinds

The stock is supported by 4 strong tailwinds:

1.Above normal Monsoon

2.Softening raw material price

Its key RM Phosphoric Acid prices have crashed by ~20% as shown below:

Also India has imposed Anti-Dumping Duty on phosphoric acid of all grades and all concentrations (excluding Agriculture/Fertilizer grade) originating in or exported from South Korea for five years in order to safeguard domestic manufacturers from cheap imports.

Gujarat Alkali  & Chemical Ltd is Setting up 10,000 TPA Phosphoric Acid plants, which shall help CIL cut its import bill.

3.Favorable policy  support

As the subsidy in Urea is high at  ~80 % hence cheaply available to farmer leading to its popularity. However, In order to reduce the subsidy burden the Govt is promoting N, P, K (nutrient-based fertilizers) against Urea.

Also Incessant urea usage lead  to farm infertility, so farmers’ preference tilting in nutrient fertilizer(Complex Fertilizer) favour. Which shall support the company products in NPK segments.

4:Polavaram Project

Polavaram project: The life line project of Andhra Pradesh & Telengana: “Polavaram project dam being built on River Godavari can help divert and utilise Godavari water to Krishna and other rivers. If executed well, this project can make the state drought-free forever.”

Impact:Irrigation projects & Integration of river shall help CIL key market AP & Telangana

Conclusion

Reader is requested to watch the complete analysis video https://www.youtube.com/watch?v=_nF9egw5rFg before jumping to conclusion (pun intended)

Here it goes:

CIL is one of the better managed companies in the capital-intensive fertilizer industry. The company has developed a portfolio of products which reduces its dependence on Government subsidy as compared to its peers.

The growth in the crop protection segment (relatively low working capital intensive compared to fertilizer) provides further strength to its cash flows. The company therefore forms a very strong play in India’s agriculture and rural sector growth.

Also Read on FinMedium:  Crisis Investing – Where to hunt? – Financial Tales

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Amitabh Vatsya
Amitabh Vatsya is an active Investment Vlogger (http://youtube.com/c/Sadhansimplified) | Loves to share his ideas at http://wealthsutra.wordpress.com | Follow him @amitabhvatsya
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