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You can read the Part-1 on Coromandel International here.
For beginners, it may seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit.
But as Warren Buffett has mused, “Some Promoters can not fill your pockets so they fill your ears” When they buy such story stocks, listening as lullabies then they wake up from their dreams in a jolt only.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Coromandel International (CIL).
While key details of the stock namely Background, Business Model, Sectoral tailwinds, and Fertilizer sectoral dynamics, have already been detailed in my previous blog here.
Let us move to discuss the Quantitative part including the valuation of Coromandel International Limited.
Financial Analysis of Coromandel International
Revenue & Margins
Let us know how the company has fared in revenue and margins. The 10 year Sales CAGR has been 6% which is good for a mature industry such as fertilizer.
The operating profit margin has been consistently growing since 2016, indicating that the company is doing things right as they have moved towards Nutrient based fertilizers where the farmer’s preference has increased over a few years.
Also, the key raw material (Phosphoric Acid) prices have been soft over the past 1-2 years leading to good margins.
The margin shall remain better as the Company has set up a Phosphoric Acid plant at Vizag making its key plant self sufficient.
Balance Sheet
Fertilizer being a high working capital cycle industry, an investor should look for Receivable + Inventory days.
Cash Flow Analysis
Is the profit real?
Let us check out with CFO/EBITDA ratio, whether it beats the benchmark of 0.8 or not?
Efficiency Ratios
ROCE
Q1 FY21 Performance of Coromandel International
Returns to shareholders are detailed below:
How Markets have valued Coromandel International?
- The market has appreciated the consistency in profit growth in the counter.
- The PE of 17.7 is also less than its historical PE so the valuation is comfortable for a long term investor to enter
Conclusion
Coromandel International is one of the better-managed companies in the capital-intensive fertilizer industry.
The company has developed a portfolio of products that 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.
A detailed commentary on the Company is available in this video:
Read the Part-1 of this post here.
Cover Image: ET
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