Coromandel International Ltd is an Indian corporation founded in the early 1960s by IMC and Chevron Companies of the USA and EID Parry. Originally named Coromandel Fertilizers, the company is in the business of fertilizers, pesticides and speciality nutrients. The Company clocked a turnover of Rs. 13,155 Crores during FY 2019-20.
The company’s shares have 52 weeks price band of INR 838-400 and a total market capitalization of INR 229 billion which makes it a Mid-Cap company. The shares have a P/E ratio of 18.24 and a dividend yield of 1.54%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ☆ ☆)
The company operates in Agriculture and AgroChem industry where market dominance comes from scale, market presence, distribution network and R&D. Coromandel International is India’s second largest Phosphatic fertilizer player. The company is in the business segments of Fertilizers, Specialty Nutrients, Crop Protection and Retail. They manufacture a wide range of fertilizers and markets around 4.5 million tons making it a leader in its addressable markets.
Coromandel is the 2nd largest manufacturer of Malathion and the sole manufacturer of Phenthoate. The company has also ventured into the retail business setting up around 800+ rural retail centres in the States of Andhra Pradesh, Telangana, Karnataka and Maharashtra. Coromandel has 16+ Manufacturing plants, 20,000+ Dealers and a presence in 81+ countries. This overall gives some level of economic moat but the nature of the industry is highly unorganized. Therefore this category gets 3 stars in Coromandel International fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ☆)
The business model of the company is such that it operates across 4 major verticals namely Fertilizers, Specialty Nutrients, Crop Protection and Retail. Coromandel strives to be a complete plant nutrition solutions company and has also introduced a range of Specialty Nutrient products including Organic Fertilizers. The Crop Protection business produces insecticides, fungicides and herbicides and markets these products in India and across the globe. It is a part of the INR 381 Billion Murugappa Group.
Coromandel is the 5th largest crop protection company in the world and has 80,000+ Tons per annum manufacturing capacity from 6 plant locations. It also has strategic collaborations with global players across the entire value chain (R&D, manufacturing & sourcing) in US, Canada, Europe, China, Japan. This overall indicates a good diversified business model with a focus on core growth.
Mr M. M. Murugappan is the Chairman of the company and represents the promoters’ interest. He has held the position of Managing Director of CUMI in the past. Besides serving as the Chairman of CUMI, Tube Investments of India, Cholamandalam MS General Insurance Company. Mr Sameer Goel is the Managing Director of the company and has extensive experience in managing businesses, driving sales across multiple geographies and building B2C businesses. Overall the management has been stable and has shown interest in minority shareholders wealth. Therefore this category gets 4 stars in Coromandel International fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ☆)
The revenue has seen a growth of 8.14% CAGR over the last 10 years. The operating income and net income has also increased by 7.33% and 4.92% CAGR respectively. The working capital has been positive which indicates a surplus of current assets to cover current liabilities. The capital expenditure has also been constant over the years indicating a linear growth for the company. Therefore this category gets 4 stars in Coromandel International fundamental analysis.
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has seen a slight growth over the years due to the increasing scale of operations. The other margins have seen also been flat over the years. The margins are also expected to improve in the future as the market becomes organized and government policies support MSP prices. Therefore this category gets 4 stars in Coromandel International fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ★)
The capital expenditure as a percentage of sales has seen a decline and the net income margin has also dipped in 2019. The free cash flow as a percentage of net income has been positive, which is a good indicator. Both the free and operating cash flow growth went positive last year. This overall indicates the good cashflow position for the company. Therefore this category gets 5 stars in Coromandel International fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The financial leverage has almost been flattened along with the debt to equity ratio for the company. The profitability has also been stable which indicates good solvency. The current ratio is way above the minimum threshold of 1, along with the quick ratio. This indicates good liquidity in the assets of the company. Therefore this category gets 5 stars in Coromandel International fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ☆)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Business efficiency has improved over the years. The inventory days have increased from 78 to 132 days along with the payable days from 25 to 171 days. The receivables period has also increased from 10 to 56 days. Overall the cash conversion cycle has been declining but is still positive. Therefore this category gets 4 stars in Coromandel International fundamental analysis.
8. Valuation Ratios (★ ★ ★ ★ ★)
The shares have started trading at higher valuation multiples as the company expanded into higher-margin products and diversified into new offerings. The valuations are also justified by fundamental factors like MSP prices, higher income in Rural regions, Government Support etc. Hence the multiples can improve further in the coming years. Therefore this category gets 5 stars in Coromandel International fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage ratio has been declining as opposed to the asset turnover for the company. The tax efficiency has remained in the same range and the interest burden ratio has also been almost stable. The operating margin has also seen some improvement over the years. Overall the company has given a stable Return on Equity over the years. Therefore this category gets 4 stars in Coromandel International fundamental analysis.
10. Future Prospects (★ ★ ★ ★ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The Inauguration of the Kaleshwaram project during FY 2020 is expected to increase water availability in the northern districts of Telangana. It is an important market for the company and would help in revenue increase in the near future.
- Recently the company launched six new products – Pymetrozine and Pyrozosulfuron, and four formulated products. All the new products have received a good response from the market.
- Out of the 20+ formulations in pesticides banned by the government, 4 molecules are manufactured by the company. Revenue from these 4 molecules is approximately INR 8.5 billion. This can give a temporary setback.
- The company has started focusing on new product developments and have seen 62 new registrations in both global/domestic markets.
Overall the company has shown good fundamentals along with good Industry growth prospects. However, the situation related to pricing power has not improved much as the company mostly operates in an unorganized industry. Hence the quantum of profit can only increase with revenue. The government initiatives are also likely to play an important part in the company’s growth in the near future. Therefore this category gets 4 stars in Coromandel International fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
COROMANDEL INTERNATIONAL SHARES (4.2/5)
Therefore it is a 4-star stock
★ ★ ★ ★ ☆
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|Economic Moat||★ ★ ★ ☆ ☆|
|Business & Management||★ ★ ★ ★ ☆|
|Growth Ratios||★ ★ ★ ★ ☆|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ★ ★|
|Liquidity & Solvency||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ★ ☆|
|Valuation Ratios||★ ★ ★ ★ ★|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ★ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ☆|
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)