Chambal Fertilisers Chemicals Ltd: A Challenger to Coromandel

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Comparison: Chambal Fertilisers Chemicals Ltd vs Coromandel International

“महाजनो येन गता सा पंथा “

That our ancient scriptures say, meaning follow the path led by Wise men!

Absolutely Right so if you track agriculture stocks then you know that all wise men (FII, DII i.e. Institutions cumulatively own 26%) love Coromandel International and gave a high PE multiple of 16.

But what you say to Avis billboards saying this:

Here is Chambal Fertilisers & Chemicals Limited which is almost no 2 amongst Indian private fertilizers companies.

This post explores whether they are trying harder? Even if not are they positioned for better Luck?

Also in the last part, we will check out the Jan & Feb 2021 sales of these 2 companies which helps us gain a perspective on forthcoming Q4 results.

Let us first understand the basics:

Coromandel International Ltd

It is a leading non-urea fertilizer manufacturer which is also strong in the Crop Protection segment. I have done a detailed analysis here & here

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Alternatively, You may indulge in this 20 min video (watched by over 6300 people so far)

Chambal Fertilisers Chemicals Ltd

Chambal generates most of its revenue from Urea and is exposed to the vagaries of govt subsidies. You can learn about this stock in details here

Alternatively, You may indulge in these 2 videos:

Let us get straight 2 important events that are going to shape the fertilizer landscape and hence valuation multiples. Buckle up guys!

Will the Recent Subsidy Flows be a Game-Changer for Chambal Fertilisers?

• As of April 1, 2020, the Union government required Rs 1.28 lakh crore towards fertilizer subsidy, including Rs 48,000 crore arrears pending last fiscal FY20.

• On Nov 13, 2020, Finance Minister Nirmala Sitharaman’s announcement of Rs 65,000 crore stimulus towards the Fertiliser sector.

• This would be over and above the government’s initial allocation of Rs 71,309 crore, taking the total allocation for fertilizer subsidy to over Rs 1.36 lakh crore.

• Govt. started disbursing from the latest package on Jan 21, which is expected to clear the backlog of Arrears for FY20  and current FY

Its Impact on both the companies balance sheet is shown below:

Chambal Fertilisers Subsidy

This would help Chambal Fertilisers Chemicals Ltd most in cleaning its age-old balance sheet nuance of high working capital debt, whereas due to low subsidy exposure Coromandel will remain a bystander as the debt is already low.

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Impact of Rising Raw Material Prices

Rising Phosphoric Acid Prices

The key raw materials for Coromandel International is the phosphoric acid as you can see the value chain of a typical NPK manufacturer below:

For Chambal, being mainly a urea player, the dependence on Phosphoric acid is low.

Chambal supply chain looks better against CIL in the present context. Also, Chambal Fertilisers Management has answered the question of the rising cost of Phosphoric acid below:

Chambal Fertilisers Chemicals Ltd Concall Summary

Chambal seems to be confident about Phos acid/ DAP price hike to be passed on to customers, however such assurance from Coromandel nevertheless did not come in recent interviews.

Jan & Feb 2021 Performance

Coromandel International Q4 Sales
Chambal Fertilisers Q4 Sales

9M YTD Performance Analysis

Final Conclusion

  1. Chambal Fertilisers seems to be a better place due to deleveraging theme expected to be playing out which shall lead to Earning upticks (due to substantial interest cost saving Rs 250-300 cr @9% over Rs 3000 cr debt)
  2. Jan Feb 2021 sales have been decent for both the companies, which shall continue the momentum.
  3. The rising cost might impact Coromandel more like (A) RM costs for urea players are pass-through (B) Chambal’s 33% stake in Morocco co will help it sail through more vis a vis Coromandel with a 15% stake in Tunisian JV.
  4. The valuation gap between Coromandel (PE 17) & Chambal (PE 7) shall reduce, leading to PE Rerating of Chambal.
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Amitabh Vatsya

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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