Coromandel International Limited

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Brief Description
Coromandel International Limited is engaged in the manufacture and trading of farm inputs consisting of fertilizers, crop protection, specialty nutrients and organic compost. The Company’s business divisions include Fertilizers, Specialty Nutrients, Crop Protection and Retail. It offers various products in fertilizer segment, including Nitrogen, Phosphatic and Potassic in various grades. Its specialty nutrients consist of water-soluble fertilizer, sulfur products, micronutrients and organic manure. Its crop protection products consist of insecticides, fungicides, and herbicides. Its retail outlets operate as Mana Gromor Centers. It manufactures a range of fertilizers and markets over 3.2 million tons. It operates a network of over 800 rural retail outlets under its retail business across Andhra Pradesh, Telangana, and Karnataka. It has manufacturing facilities in Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Madhya Pradesh, Uttar Pradesh, Rajasthan, Gujarat, and Jammu and Kashmir.

Sector Overview.
UPA Govt introduced Nutrient-based Subsidy Scheme( NBS ) in 2010. It was meant to reduce subsidy burden on the government. While it did not achieve the desired results, it created more problems especially its impact on farming practices and soil health. The immediate outcome of this was a sharp decline in the use of phosphoric and potassic fertilizer mix, with an increase in urea consumption. There is a prescribed usage ratio of fertilizers. Ideally, the NPK usage ratio should be 4:2:1. For the year 2013-14, NPK ratio in Punjab was 61.7:19.2:1; in Haryana, it was 61.4:18.7:1; in Rajasthan, it was 44.9:16.5:1; and in Uttar Pradesh, it was 25.2:8.8:1.

Now the government has decided to fix this issue through Direct Benefit Transfer(DBT) along with soil health cards. Direct Benefit Transfer (DBT) in fertilizers was introduced on a pilot basis, with pan India rollout likely to follow in 2018. DBT has the potential to overcome the distortion of NPK usage as the farmers will now have the choice in deciding the usage. Besides the fertilizer industry has been suffering due to the increasing receivables due to govt subsidy policies. DBT will also address this issue and benefit the companies in this industry. The 2016 Economic Survey estimated that only 35% of the subsidy reached intended beneficiaries, and as much as 41% of urea was redirected to industry or smuggled out of the country. Nearly half the farmers bought urea at above MRP in the black market. DBT will incentivize the industry to create more supply.

Also, the government is hell-bent to reduce the imports of all kinds of fertilizers especially Urea. Source

Company Overview
Coromandel belongs to murugappa group. So it has a very decent management, which is evident from its operating efficiency of previous years. In an industry which is suffering from govt policies, coromandel stands out. Its ROE and ROCE are well above the industry average. This was possible due to its product mix and continually tried to increase revenues from non subsidized fertilizers. In addition, the Company also holds 14% equity stake in Foskor Pty Limited, South Africa, through combined holding of Coromandel and CFLMauritius Limited and a 15% equity stake in TIFERT, a strategic investment of the Company to secure supply of Phosphoric acid which is the raw material for its fertilizer business. Due to this Coromandel is the lowest cost producer of Phospharic fertilizers.

Its also investing into crop protection chemicals and farm mechanization. Its 800 plus GRoMor stores will nicely complement these new ventures.

Its evident from the below graph that the stock almost traded sideways for the last seven years and looks like a strong uptrend has started.

Major risks include

  • Govt not able to implement the planned reforms.
  • problems in its subsidiaries especially the ones which are in tunisia, south africa from where it sources its raw materials.

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Disclosure: Invested 10 % capital at 500 levels.

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Thanks for the write-up. major point missing is where is the growth coming from? Apart from managememt quality, right products and right sector, i believe that growth is a major aspect. ideally, it should come from. 1) Sales Growth 2) Operating Leverage 3) Margin Expansion 4) Debt Reduction

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First of all, coming to the debt the company is virtually a zero debt company. Though it’s showing some debt in recent financials, it is yet to recover more than that amount from subsidy arrears.

I think the company is operating at full capacity right now at least in phosphatic fertilizer segment. But due to soft raw material prices and DBT, it can increase its margins further. Its export revenue is increasing due to its crop protection business, primarily aided by Mancozeb.

It recently acquired biopesticide business from EID Parry. The acquisition is done completely through internal accruals which will result in improving sales while maintaining balance sheet in good form.

It’s getting into farm mechanization through JV with Yanmar and Mitsui. This can be significant source of income in the future.

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The stock almost doubled in last 1 year and you are suggesting sideways movements from 7 years. Am I missing something.

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Yes, it should be six years instead of seven. But my point remains the same, 6 years of consolidation is not ordinary. Yes, it’s true that stock has doubled in last one year. But compared to the consolidation the latest move is small in my opinion.

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This company has ensured the raw material procurement for phosphatic fertilisers through its subsidiaries in Africa and also has performed well over the past few years in a tightly regulated market and has clocked a return of nearly 15 % beating the industry average . Acquisitions across the country ( around 4 ) also has put the company in a favourable position to take advantage of the reforms that is presumably about to happen in 2018. worth following ( investing ) in this co.

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Coromandel International Ltd
Highlights of Q1 FY19 results
Key Highlights

  • Minimum support price for Kharif crops has been announced in line with the vision to double the farmers’ income by 2022. The government has fixed the crop MSP by at least 1.5x to the cost of production. Government is considering MSP-based deficiency payment scheme in which the farmers are paid the difference between MSP and the market price, though finer details are yet to be evolved
  • Other welfare schemes like in the State of Telangana, the Rythu Bandhu, which is the farmer’s friend’s scheme, has been extended to 58 lakh farmers by providing investment support of Rs.4000 per acre before the crop season. Based on the initial feedback received, the funds distributed under the scheme have been utilized by the farming committee towards agriculture input purchases. The state government has further announced the plans for disbursement of the Rabi funds from the next month onwards.
  • GST Council has revised the GST rates on fertilizer-grade phosphoric acid from 12% to 5%. With this inverted duty structure, and the subsequent GST credit accumulation is likely to come down substantially, improving the working capital situation of the phosphatic industry.
  • The government has also issued clarification with respect to the additional customs duty on the phosphoric acid sourced from the U.S. in light of the ensuing trade standoff. Phosphoric acid will continue to attract the 5% customs duty, and there will not be any escalation on account of the same.
  • Major irrigation projects in home markets of Telangana and Andhra are progressing well. The Kaleshwaram-led irrigation project is expected to be partially operational from August this year. Once the project gets completed by 2022 it will be able to irrigate 37 lakh acres of land in Telangana.
  • there has been a good recovery in the crops sowing over the past month. As of July 27, the total acreage under Kharif has moved up to 738 lakh hectares, reducing the gap over the last year to 7% only. This gap was 22% by June end. With the monsoon showing signs of revival in East, Northeast and Gujarat, there is a possibility that the shortfall in the acreage will be covered in the coming weeks.
  • In home markets of AP and Telangana, sowing is up by 7%. There is a 35% increase in paddy acreage, while cotton has seen a marginal reduction of 3%.
  • India experienced an early monsoon onset, followed by a gradual slowdown in the last 2 weeks of June. Since then, rain has recovered well. As of July 29, India has received normal monsoon at 95% of the long-period average.
  • Andhra and Telangana markets have received normal rainfall, which is at 95% and 102% of longperiod average, respectively. South India reservoirs have seen a good inflow. As of July 26, their storage stood at 58% of capacity versus 25% a year ago. All major dams like Srisailam, Sriram Sagar, Tungabhadra and Almatti have seen a good inflow over the last 1-month and are well above the last year level. For the first time in 9 years, Srisailam has started producing power, which is a very good sign. And obviously, the excess water will be used for irrigation
  • DBT has been rolled out pan India. The initial challenges with respect to connectivity at farmers’ ends are resolved; however, there are still some system-related issues relating to opening stocks during Q1, which are now being addressed by the Department of Fertilizer. The subsidy payout under DBT has started, and company is seeing government settling the claims within 2 to 3 weeks. The industry and the government are engaging closely with the channel partners to ensure reporting compliance at various transaction points.
  • During the quarter, phosphatic fertilizer industry sales have seen a growth of 12%, moving from 32.8 lakh tons to 36.7 lakh tons, mainly on account of low channel inventory at the beginning of the season. There has also been a higher import of DAP at 20.6 lakh tons in Q1, which almost doubled from last year level. Higher raw material prices impacted the domestic DAP production, which went down by 40% to 8 lakh tons. Domestic manufacturers utilized the phos acid to convert into NPKs instead of using it for DAP.
  • Complex fertilizers have done well, growing at 24% on both production and sales. Raw material prices remained firm during the quarter, as plant closures in China and higher global demand impacted the availability. Phos acid prices for Q2 have been finalized at US $758 per metric ton, up by 4% from $730 level. In the last 6 months, the industry has resorted to multiple price increase. And on average, the DAP prices have moved up by 20% to 25% from Rs.21620 per metric ton to Rs.26600 per metric tons. Company is seeing a shift to lower grades from DAP, especially around grades like 20-20 and also impacting the single-support phosphate sales.
    Company Performance
  • Company had a strong performance during the quarter, improving its capacity, operational and sourcing efficiencies and customer connect initiatives despite the erratic distribution of the monsoons in our key operating markets. During the quarter, 5 new products were introduced across the businesses, which have received an encouraging response from the farming community. New product introduction includes in-house patented crop protection molecules, crop-based water-soluble fertilizer and value-added single support phosphate. Our agronomists and integrated marketing structure have supported the nutritional business in improving the customer level engagement and promoting the balanced nutritional practice.
  • R&D and tech transfer teams are being strengthened in crop protection, and company have an exciting product pipeline. Bio business has been integrated, and company is working on building business synergies in research and in the marketing area. Company is taking out a few technology initiatives in product distribution and crop advisory space that will help company is differentiating company products and service offering to the farmers.
  • On sales side phosphatic volumes are up by 5 % to 6 lakh ton . The major share of this growth has come from unique grades, which have grown by 29%. Its share in overall sales stands at 30% compared to 25% during Q1 last year
  • Sales of 6 lakh tons comprises 5.6 lakh ton on manufactured products and 40000 metric tons of DAP imported. On the traded products, MOP sales are slow by 49% to 20000 tons as business utilized the available products to maximize its in-house fertilizer production. Lower dispatches from Kandla impacted urea sales, which stand at 70000 tons versus 1.8 lakh tons last year. This was because of rake availability, and also the fact that the monsoons have got delayed in Northern India.
  • Phosphatic fertilizer plants operated at 79% capacity utilization, up from 77% a year back, recording its highest ever Q1 production of 6.8 lakh tons.
  • Captive acid production from Vizag and Ennore went up by 11%. Also, there has been a considerable improvement in the acid supplies from company joint venture, TIFERT in Q1. Phosphoric acid capacity enhancement project is on track and will come up in the second quarter of FY 2019-20.
  • In crop protection business , Sales improved by 16% to Rs.422 Cr from Rs.365 Cr last year, with growth coming across all its segments: exports, formulations, domestic B2B, bio and retail. Margins are beginning to improve as company strategic tie-up, and overall raw material availability is beginning to show signs of improvement.
  • Company has introduced in-house patented combination molecule, Mancozeb and Azoxystrobin and the core-marketing product. The initial response has been very good, and company expect to launch more differentiated products in coming quarters. Company have further strengthened R&D and tech transfer functions to speed up concept to commercialization towards developing a strong product pipeline
  • Export growth was well spread out, with APAC, Africa, South and Central America regions showing double-digit growth. Brazil market is expected to have a higher soybean acreage in the coming season, due to the impact of restriction of soybean exports from the U.S. to China. The Mancozeb capacity expansion project at Dahej is progressing well and is likely to come up by the year-end.
  • Company have integrated the biopesticide business and is showing good turnover and margin growth. Going forward, bio business, with its promising microbial pipeline and the complementary markets, will provide synergies for our crop protection portfolio
  • The retail business had a slow start to the year. Erratic rains and lower sowing in June in AP and Telangana impacted its turnover, while Karnataka stores have progressed well during Q1. With better rains in July, the situation has improved. Overall sales share from non-fertilizer segment has moved up to 50%. It was 47% last year. Business has opened up 16 stores in Maharashtra and is testing out technology-based new delivery approaches in the markets. Company custom hiring and service centers opened in partnership with the AP government for providing farm mechanizations are progressing well and are seeing a good demand from the farming community. While retail turnover has been a bit slow, but the margin improvement is there, and company is inline with budget expectations.
  • Specialty Nutrient business continues to show a very strong performance and continues its approach towards introducing crop-based solutions. During the quarter, the business launched two water-soluble fertilizer, targeting sugarcane and banana segment with the help of its JV partner, CSQM
  • Organic fertilizer volumes are close to last year level. In the city compost segment , company continue to be market leaders with a market share of 26%. Company have commenced the biomining project at Vizag and now have produced roughly 1,750 metric tons from the site.
  • Single-super phosphate has had a very good quarter. Sales volume grew by 27% to 1.07 lakh tons compared to the industry and compared to the industry growth of 18%. Business has maintained a number 1 position with a market share of 10%. The business has stabilized the new production technology at Udaipur unit, and overall production was up by 40% to 1.4 lakh tons.
    Financials
  • Revenue grew by 10 % to Rs 2528 Cr with Nutrients and allied businesses contributing to 84% share and the remaining 16% coming from crop protection business. Q1 last year, nutrients was 86%; and CPC was 14%.
  • In terms of subsidy/non-subsidy breakup, Q1 revenue share is around 75-25. Last year, it was 7624
  • EBTIDA stood at 214 Cr compare to 159 Cr last year The improved profitability in Q1 can be attributed to higher sales across the businesses and focus on unique and differentiated product offerings.
  • Manufacturing units have done well in terms of capacity utilization and operational efficiency improvements. Company raw material sourcing has been good, ensuring stock availability as per the market requirement. Sharp rupee depreciation had an impact on the raw material cost, which was partially passed on through price increases taken during the quarter
  • In terms of subsidy/non-subsidy breakup; Q1 EBITDA share was 63-37. Last year, it was 59-41. Consolidated PBIT for the quarter ended June 30, 2018, is Rs.188 Cr as against Rs.144 Cr last year. PBIT shares before unallocable expenses from nutrients and allied business was 75%, while the share of crop protection segment was 25%. Q1 last year, the ratio was 70-30
  • Consolidated net profit for the quarter is Rs.90 Cr as against Rs.73 Cr in Q1 FY2018
    Subsidy
  • The government has initiated the process of disbursing subsidy under DBT and is settling the claims. Major system issues with respect of opening stocks have been resolved now and company have received subsidy up to December 2017. As of June 30, subsidy outstanding is Rs.2388 Cr compare to last year it was 1745 Cr . Company expect these number to eas and company is in process of submitting the claims up to June 2018
    Working Capital
  • Company witnessed a higher working capital situation, primarily on account of subsidy, GST credits accumulation and a higher level of planned inventory. The collections during the quarter have been pretty good.
  • During July company has also received a GST refund up to March 2018 amounting to Rs.265 Cr. Company have further collected the GST refund orders for the month of April and May and expect the credit to our account very soon. Further, with the easing of GST rates on phos acid, company expect the credit accumulation on account of inverted duty to come down substantially, which will further ease the working capital situation.
  • The company has consciously increased its inventory during the quarter to bulk up its stock for meeting the Kharif demand And with the benefits accruing in terms of lower GST rates on phos acid and likely DBT inflows, the working capital situation is likely to improve in the coming quarters.

Q&A

  • In Last 2-3 years , what has been done to basically mitigate the cyclicality of the businesses ? What is company doing for more sustainability of growth ? What is the kind of revenue company have in Phosphatic fertilizer and SSP ? Kindly provide break up of the Specialty Nutrients and organic fertilizer side and the retail side ?
    o On the phosphatic side monsoon play a role. But the good thing is that government is doing a lot to address the cyclic nature of this monsoon, and a lot of activities have been done. Company have ensured the end-to-end planning across businesses and SBUs. So no longer , company will have a shortage in a particular material like phos acid. the manufacturing and marketing know what acid is available and therefore, how to convert. Company have a full end to end visibility. With unique grades and products company is giving what the farmer wants and are continuing to build that base. And that has really helped the business in increasing the share of unique grades. The other thing, which has been done, is to improve plant efficiency and to ensure that company capacity utilization keeps going up. . There is a lot more emphasis on company own manufactured products , including phos acid and other intermediates. Usage of alternate rocks and acid strategy has helped to diversify company own risks. Company is increasing operating efficiencies across the plants.
    o On marketing side , Company have integrated its marketing structure for nutrients. Earlier company SBUs have separate marketing So SND had a separate marketing, SSP had a separate marketing. Company consolidated them into an integrated nutritional marketing structure, thereby getting closer to the farmer. And this is also helping company in the DBT implementation. Company have built up an agronomist structure, which helps company to manage the pyramid of influence. This is done crop-wise to create demand at the farmer level and has helped company in increasing company market share in captive markets. Company is also able to increase the consumption levels.
    o On the retail side , company increase profitability by stores and also reduce the lossmaking stores and increase focus in non fertilizer. The fertilizer actually gets company the footfall and along with it, the farmer is buying the non fertilizer products. Further, adjacent categories, including insurance and credit, helps to increase the farmers’ footfall. Company retail business has been turning profitable quarter-on-quarter .
    o At the same time, there is an increased importance on non subsidy businesses and these businesses have been growing faster like specialty business and crop protection business. On the crop protection side, one of the things which company is doing is to increase our capability in technology transfer speeding up the introduction of products from concept to commercialization. This year company have number of new product introduction contributing to roughly 8% of the turnover. Company strategy continues to be providing the best solution for the farmers and increasing our customer connect.
    o The retail and specialty business is growing in high double digit numbers and company intent in the long run is to take company subsidy to non-subsidy business to 50-50 on the bottom line.
  • Kindly give the break up of the current EBITDA how much is subsidy versus non-subsidy ?
    o Subsidy versus non-subsidy is 63-37. Nutrient and other allied business versus crop protection is 77-23. Prior year subsidy versus non-subsidy EBITDA is 59-41, and the nutrient and other allied businesses versus crop protection was 72-28
  • Is the 800 Cr pending Subsidy is outstanding or is it come in and How much cash flow company actually expect this year based on receiving subsidy outstanding. So what is the end of year figure should look like? And how much will be the working capital benefit because of the credit accumulation going away ?
    o The credit accumulation of inverted duty is likely to benefit about Rs.200 Cr in terms of working capital on an annual basis. And as far as subsidy is concerned, company had a total of Rs.2388 Cr outstanding as of June, out of which around Rs.1000 Cr relate to DBT. Currently, company have generated claims up to January 2018. And once the issues with this site are sorted out, it is a question of a couple of weeks that company will be able to generate claims upto June 2018. What company understand is once these bills are generated and submitted, the government is actually clearing up DBT at a faster pace in, say, about 2 weeks time company have received DBT claims of close to about Rs.98 Cr so far.
    o The good thing is that after this all the DBT claims will be through the POS machine. There will no longer be 90%-10% and a backlog on the balance 10%. Company have already seen that in the case of urea., the government is clearing it within 7 days, which is a very good sign. There are enough funds currently available with the government for the NPK sector. So once this process is streamlined, that will get cleared within 14 days. So now this is all electronically driven through POS machines. Company is seeing good level of recording on the POS machines. Company have also set up a full team to ensure that company educate the dealers and retailers in markets so that they can use the POS machines. In terms of POS machine sales, company market share is going up.
  • On Phos Acid there was an fair amount of inventory buildup and part of it is largely coming in from the raw material side. So going further will company will continue benefit of getting low cost inventory ? or for the price increase that company has taken as well as rupee-dollar movement ? And if not than what is the probability of taking another rise as company as already taken Rs 2000 odd ?
    o Company commercial team run well in term of forecasting how the price increases are happening and if company find that the price may go up than company do contract earlier and that is why the inventories have gone up for not just phos acid, but for other raw materials also. So that is something that company have done and it get reflected in high inventory. The other thing is that company is looking at the exchange rate also. In DAP, company has 3 price increases . In the NPK side, only 2 increases have been given. Company will watch how is the situation and take action toward price increases.
  • What was the average cost of Phos acid ?
    o Around $ 700 MT.
  • Did company had put additional 10,000 tones for Mancozeb CAPEX in agri side ?
    o Yes
  • On product level how the import compare to business product increasing for India ? What is the utilization level ?
    o Planned capacity utilization during the quarter was 79%, which is up from 77% a year back.
    o In terms of DAP import went up from 10.98 lakh tons to 20.63 lakh tons, which was an increase of 88%, while the production actually came down by 40% on DAP. The main reason here was that the companies were keeping the phos acid mainly for NPK production and contracting imported DAP. There were some traders who imported DAP because they did not import this in the month of February-March. As far as NPK is concerned, the production grew by 24%, while the import growth was 11%.
  • In overall production how much is NPK compare to DAP ?
    o In terms of overall sales, company unique grade stands at 30% compared to 25% last year.
    o DAP manufacturing during this quarter so far is 1.32, and complex is 5.52. Total production is 6.84.
  • Company mentioned on DBT that the new DBT outstanding is quite high as of now. But company also mention that within 7 days of bill raising , company get money from the government so is there a delay from government side ?
    o When the DBT is claimed through the POS machine, which is basically all system-driven, then the government has promised that they will settle the bills within 7 to 14 days. That is once the entire POS system kicks off. Currently, as per the old scheme company getting claims- -10% balance claims and freight and others. And even on the DBT submission company is doing month per month where there are system issues at the government level, and company is trying to get that rectified. Company have submitted up to the month of January, and now going to submit until the month of June. This is not a delay from our side as much as the 2 government systems, which are being integrated. Company have added problem as far as AP and Telangana is concerned. One was that when AP-TG got bifurcated, then Telangana government actually ended up increasing the number of districts from 23 to 46. So that became the additional problem
  • On the overall EBITDA percent which company always give in terms of the overall guidance going ahead, this increasing price of phos acid do company believe that last year performance can be maintained. ?
    o Yes company estimate in terms of EBITDA remain same.
    o Company will continue to do two things one is increase our share of unique guide and also to convert more of rock into phos acid.
  • What the company NPK volume number for the quarter ?
    o It is 5.6 lakh tons and imported is 0.4 lakh tons NPK.
  • Is there any urea traded ?
    o Company had 0.72 lakh tones urea.
  • Does manufactured in volume includes SSP volume, right of Liberty as well as company standalone ?
    o No only NPK
  • What was the SSP volume ?
    o Sales is 1.07, production is 1.17.
  • What was the impact of reduction of customs duty and asset leading to Rs.200 Cr of working capital reduction ?
    o When company end up paying higher import duty on inputs, and 5 % GST on fertilizers output, the differential can be claimed by way of refund from the government. And company is filing GST refund returns on a monthly basis from July 2017 since GST was implemented. The sites had numerous problems, and company was able to submit claims up to March 2018, only in April 2018. . Company have received the credit for that account last day. There is a lock up of working capital, though one will eventually get the money, it has taken more time to get the refund credits into the account. Working capital could free up to the extent of Rs.200 Cr.
  • Rs.200 Cr is the reduction in working capital or it is the cost of servicing that working capital?
    o It is a reduction in working capital
  • Due to reduction in working capital the impact on P&L would be around 8 % ?
    o Yes
    o Early on, the duty on phos acid was 18%. Company made representation through the industry body to get it down. And finally, they agreed at the first meeting to get it to 12%. Now that has reduced to 5%, so no longer company will have this issue of inverted duty structure, more or less it will get nullified.
  • So for all the grades of NPK as well as MOP and SSP, output GST is 5%?
    o Correct
  • And for the input, which is phos acid, it is now at 5%, ammonia is 1% to 5%?
    o No ammonia is 18 %.
  • Is there any inverted duty structure on ammonia ?
    o There is 18 % of input for ammonia , based on the total sales that happens within the state of AP, company will have enough credit to utilize , there will be some small amount of inverted duty, company claim it. Or company can plan the timing of their return in such a way that they will be able to utilize the credit accumulation. In any case, that’s not a substantial sum.
  • How much DAP will be there from 5.6 lakh tons of manufacture ?
    o 1.28 is DAP, complex is 4.33.
    o Company DAP production has been lower this year Last year company had 1.77. This year it is 1.32. Total production of 6.84. DAP is 1.32 and complex is 5.52. Last year corresponding period production at 6.61, with the breakup of 1.77 and 4.84. Company production has gone up compare to last year.
  • So is the sales is down by 2 % , but the production has gone up year-over-year ?
    o Right , last year company had bit of impact which company saw because GST got implemented. So end June and specially in company retail outlets company saw pick up on sales because the farmers were actually expecting a 12% GST rate to come, which at the last minute got changed to 5%. So because of that, there was a lot of purchase which happened in preseason
  • In terms of the competitiveness of domestic manufacturing versus imports of DAP sale, how do company see the current situation ? Is the increase in phosphatic prices far outstripping the increase in DAP prices overseas? And therefore, has it become more competitive to import DAP into the market ?
    o No it was not import So with the rupee depreciating imports are actually costlier, I mean people have to take in price increases, and therefore, three price increases happening. Domestic manufacturing is always more profitable. Company endeavor was to convert more and more of acid, which company have bought into NPK because that makes more sense
  • Will the last year sales of 5.4 lakh tons DAP will be similar for the current year ?
    o Yes
    o There is still a shift from DAP to NPKs because of the high price hike and this happened 6-7 years back as well. In a way, it is good for company because it will help company to keep selling more of unique grades and increase its share.
  • Company mentioned that Rs.1000 Cr out of this Rs.2300 Cr is the DBT related subsidy. So the rest is the pre-DBT system ?
    o That is actually freight and 10% balance. The good news is the government early on was not processing the 10%, but now they have started processing and giving that. It is just a reconciliation with the government has to do in their system. Company is working with them. These things will get resolved very soon.
  • By the end of the year, would it be fair to make an assumption that 1% to 10% subsidy is hopefully clear in coming months? The year-ending subsidy outstanding could be comfortably lower than what it was last year? In last year, company ended at Rs.2600 Cr or so.
    o On Industry company need to wait and watch because obviously, there is allocation done on subsidy for urea and for NPK. The good news is that the government recognizing the fact that urea is getting diverted has decreased the subsidy on urea. As far as NPK is concerned, that subsidy ratio has gone up, so hopefully, company should have enough of subsidy to clear up this backlog. Once the DBT system stabilizes, the government expects the overall subsidy claim to come down further because any of the diversions and all gets cleared up. They are saying that they will be in a position to request the finance ministry for more budget.
  • As there were some teething problems related to DBT implementation in terms of farmer connectivity and all that. Is that having any material impact on just the offtake in the retail outlet level? Or it is not significant, and overall, industry volumes, etc., will just continue unimpeded because of all these issues?
    o System does get slowed down a bit. There are two things
    • In company own retail stores company is in touch with farmers .Company has identified 300 major stores and given them additional POS machine. In a way, it is a positive thing because then the farmers do not see any queue and use the PoS machine. As far as the system slowdown is concerned, my understanding is that the farmer keeps the bills, and does the PoS billing later. So that is something, which they do once the system opens up. Yesterday company had a meeting with the government and company will work with them in improving the robustness of the system.
  • On crop protection business what was the YOY growth in export business this quarter ?
    o YOY growth in crop protection was 17 % overall and export grew by 46 %.
  • How much of the phos acid requirement is now captive the in this quarter?
    o 52000 tons
  • Any guidance on capacity utilization ?
    o Company objective is to increase company unique grade share. And the whole thing is not about volume generation as much as quality generation in terms of selling and improving the unique grade share. Company want it to take up to 43 %.
  • Why the other expense increase significantly ?
    o There are 3, 4 reasons that other expenses have gone up. One is on account of exchange impact, which is a forward premium which have incurred in covering company exposures. and also the mark-to-market impact. Second, compared to the same quarter last year versus this year, company had a slight increase in the rental for the port. There has also been some increase in stores and space across plants. Company have seen some power cost coming up, especially in Gujarat. So these are the reasons why company is seeing increase in other expenses .
  • What was the exchange impact in Q1?
    o Exchange impact is close to Rs.35 Cr
  • The adjustment of 878 Cr is mainly in Fertilizer or crop protection also ?
    o This is mostly relating to fertilizer
  • How much is will be the fertilizer?
    o 90 %
  • How much was the total trading volume compare to 2.95 lakh tons in the first quarter 2018?
    o Last year company have urea and MOP: 1.76 of urea, and MOP of 0.34. This year, urea is 0.72 and MOP is 0.17.
  • How much was SSP ?
    o The SSP total sales last year was 0.84. This year it is 1.07.
  • What capital expenditure will company have in FY19 ?
    o 500 Cr of capital expenditure This is between the phos acid plant that has been put up at Vizag and some expansions planned for the CPC. Company also have have the normal capital expenditures that incur YOY basis.
  • Kindly give the break up how much will be the phos acid?
    o The total phos acid plant is about Rs.276 Cr, which spread over 3 years., For CPC, company is estimating about Rs.90 Cr to Rs.100 Cr of CAPEX. For all the other plants put together, company is estimating close to Rs.100 Cr in terms of the normal capital expenditure that company incur YOY basis.
  • On e soil health card scheme of the government kindly give feedback on side terms of its on-ground implementation. And company had also mentioned in past annual reports that the consumption has been influenced due to price gap between urea and complex fertilizer. So does soil health card scheme can converge the price difference or help it or influence healthy and the influence consumption towards complex fertilizers or correct the imbalance for that matter?
    o Over 10 Cr of soil health card were distributed between 2017 and 2018. And the government plans to also distribute another 5 Cr more cards for the second half. This is a massive education program, it is not just about the NPK, but it is also about what micronutrients, carbon and other nutrients are deficient in the soils. In retail outlets company do its own soil tests and have started this well before the government started. Company have a Nutrient management program, which basically talks about balanced fertilization and also use of organic and other inputs properly to improve the return on investment. So government objective is to reduce the ratios of N, which is leading to other environmental issues.
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- Did the farmer would be given more subsidy based on requirement for NPK in the soil as determined by your soil test?
o Probably this could be the intention of the government going forward, not immediately. When the DBT scheme is implemented in full, probably the recommendation will come for a particular crop. this is the type of balanced nutrition one need. At that point of time, they may say to farmers that this may given assuming need of just 2 bags and using 4 bags of , they can say company will get subsidy on 2 bags and not on the other 2 bags. But that will take some time, the whole DBT and E-POS have to stabilize.
- Does the softening of global commodity prices also have an influence on the consumption of complex fertilizers?
o There are various reason why the consumption happens. One have good monsoons, the irrigation increases, then the consumption itself goes up. Even in the case of this season, though the prices of the fertilizers are going up, consumption has improved. One has to see the implementation of MSP which is based on 1.5x returns on the input cost. So there are various factors that impact that. Definitely, there will be some shift, if one fertilizer is priced higher as compared to others, especially the imported DAP and farmers may shift to other fertilizers even to single super phosphate, which is what company have seen in the market.
- Company Freight cost and distribution cost has not increased so did the benefit of distribution is reflected in the profitability or it would be on realization front ?
o There are multiple factor that has result in good result. One is company is seeing good growth in the revenue per second , it is also operating efficiencies that have come at the plant Third, company have also seen the raw material sourcing has been done in a smarter way. Fourth, to compensate for some of the increases that company have seen in the base raw material as well as exchange fluctuation company have be able to take some prices increases and maintain those. So it is a combination of all these 4 that has actually resulted in the good results for the quarter.
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Coromandel has posted very good results

Coromandel%20International%20Sept%202019%20results
Coromandel%20International%20Sept%202019%20results1284×588 44.8 KB

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the cash flow from operating activities has increased. Their expansion of phosphoric acid is complete. the crop protection plant is in full operation after their shutodown last quarter. the Q3 and Q4 figures should be better than q1 and q2 due to favourable conditions where the sowing acreage has increased considerably in the South esp in Telangana

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Most of cash was tied up in WC issues industry is facing due to delayed subsidy payments, DBT(Direct benefit transfer) & GST related.

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As far as I understand , the Operating Cash flows are calculated after taking into account the receivables , Inventories etc.

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HDFC securities has come out with a report on Coromandel International. Pretty useful
HSL PCG Pick-of-the-Week - Coromandel Int - 11 Nov 19.pdf (666.3 KB)

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Saw interview of its Marketing Head in KrishiJagran. The link is given below. It talks about launch of certain products in Insecticide and Fungicide segments.

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Tamil Nadu Cultivation

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Coromandal Q4 Results

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https://finmedium.com/2020/04/coromandel-international-best-play-in-indias-evolving-fertiliser-story-just-another-investor/

Good post

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Coromandel international Q1-2021 NET PROFIT Increases by 300% YoY.