Shares of Coromandel International Ltd have underperformed so far in calendar year 2021, falling by around 9%. In comparison, the Nifty 500 index gained up to 28%. The erratic monsoon has shaken investor confidence. But the company’s earnings outlook looks strong, thanks to the traction expected in Rabi’s next crop year. Healthy water reservoir levels and soil moisture conditions promote a good planting season, enhancing Coromandel’s prospects.
It should be noted that Coromandel International performed well on the revenue front for the quarter ended September 30 (T2FY22), recording growth of 34% compared to the previous year. The nutrients and related products business, which accounts for around 89% of overall sales, grew 38% year-on-year. On the other hand, the crop protection activity grew by 9% over one year. However, rising raw material costs posed challenges to earnings growth.
Analysts believe that raw material and freight costs could decline over the next two quarters, which would bode well. In addition, the nutrient-based subsidy rates (NBS) announced by the government for phosphate chemicals are also contributing to the outlook. As analysts at Nirmal Bang Institutional Equities point out, “The NBS rate set on October 21 for DAP and three dominant grades of NPK (nitrogen phosphorus potassium) offsets most of the increased input costs. Management is also increasing product prices where possible. “
Additionally, new product launches in Unsubsidized Nutrients and Single Digit Growth of Subsidized Nutrients (NPK / DAP) are expected to contribute to revenue growth. This will be supported by investments in capacity. The company’s investments in an upstream integration project of 500,000 tonnes per year of sulfuric acid will be beneficial in increasing supplies of this key input and also in achieving savings.
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