Agriculture is the new Holy Grail of Dalal Street. The renewed thrust of Govt spending to farmers through DBT transfers has invigorated the sector.Also the above average monsoon is expected to shower more on this sector. As they say-“When It Rains , It pours”. Therefore as an avid investor Coromandel International caught my eyes , hence I have presented here how I see the stock. This article is part-1 of my detailed analysis of the stock where I have explained the business model and sectoral tailwinds operating in CIL and agriculture sector.
Background
Started in 1960s by International Minerals & Chemical Corporation and Chevron Chemical Company and EID Parry . In 1981, Murugappa Group took over EID Parry .In 1994, EID Parry India Limited bought stakes from Chevron .In 2003, EID Parry India Limited Farm Input division merged with CIL and then CIL became a complete agri solution company.
Management
Chairman is M. M. Murugappan, holds Master’s in Chemical Engineering from the University of Michigan, USA. Mr. Sameer Goel (MD) holds MBA from IIM Ahmedabad (ex GSK, Cipla).
Shareholdings
The promoters sold 2 % stake in last quarter .The proceeds of sale to be used to bring down the debt of EID Parry.
Business Model
Raw Material
RM accounts for ~70% of the total revenue. The main constituents and their sourcing is detailed below:
Fertilizer’s Folly: Subsidy
Key Products
Key Products can be divided in 2 parts:
(1) Fertilisers
(2) Corp Protection
- Fertilizers
2. Crop Protection Chemicals
Coromandel is the second largest manufacturer of Malathion and is the major manufacturer of Phenthoate in Asia, largest player in neem seed extract-based ‘Azadirachtin’ segment .Is among top 5 Indian companies in Indian Pesticide Industry.
Curious Tale of 4 TailWinds
The stock is supoorted by 4 strong tailwinds:
1.Above normal Monsoon
2.Softening raw material price
Its key RM Phosphoric Acid prices have crashed by ~20% as shown below:
Also India has imposed Anti-Dumping Duty on phosphoric acid of all grades and all concentrations (excluding Agriculture/Fertilizer grade) originating in or exported from South Korea for five years in order to safeguard domestic manufacturers from cheap imports.
Gujarat Alkali & Chemical Ltd is Setting up 10,000 TPA Phosphoric Acid plants, which shall help CIL cut its import bill.
3.Favorable policy support
As the subsidy in Urea is high at ~80 % hence cheaply available to farmer leading to its popularity. However, In order to reduce the subsidy burden the Govt is promoting N, P, K (nutrient-based fertilizers) against Urea. Also Incessant urea usage lead to farm infertility, so farmers’ preference tilting in nutrient fertilizer(Complex Fertilizer) favour. Which shall support the company products in NPK segments.
4:Polavaram Project
Polavaram project: The life line project of Andhra Pradesh & Telengana: “Polavaram project dam being built on River Godavari can help divert and utilise Godavari water to Krishna and other rivers. If executed well, this project can make the state drought-free forever.”
Impact:Irrigation projects & Integration of river shall help CIL key market AP & Telangana
Conclusion
Reader is requested to watch the complete analysis video https://www.youtube.com/watch?v=_nF9egw5rFg before jumping to conclusion (pun intended)
Here it goes:
CIL is one of the better managed companies in the capital-intensive fertiliser industry. The company has developed a portfolio of products which 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 fertiliser) provides further strength to its cash flows. The company therefore forms a very strong play in India’s agriculture and rural sector growth.