Is Coromandel International The Best Agriculture Stock in India? – Part 2

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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.

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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.

The 10 year Sales CAGR have been 6% which is good for a mature industry such as fertilizer

 

Balance Sheet

 

Debt: Equity is nearing a historical low of 0.4 bringing flexibility in the balance sheet

 

Fertilizer being a high working capital cycle industry, an investor should look for Receivable + Inventory days.

 

The receivable + Inventory days have been under control and stable in the past 7-8 years

 

Cash Flow Analysis

 

CFO has been increasing yoy strengthening the company’s cash position

 

Is the profit real?

Let us check out with CFO/EBITDA ratio, whether it beats the benchmark of 0.8 or not?

 

A moderate realization of Profit in cash

 

Efficiency Ratios

 

All 3 efficiency ratios have improved over the past 10 years

 

ROCE

 

ROCE above 15% indicating good capital deployment strategy

 

Q1 FY21 Performance of Coromandel International

Valuation

Returns to shareholders are detailed below:

 

The performance of the stock has been very good over the past 10 years.

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
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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:

The video also entails the 4 tailwinds supporting the valuation of the company. Please share the video 🙂

Read the Part-1 of this post here.

Cover Image: ET

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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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