VALUE PICKS
COROMANDAL FERTILIZER Buy
Consolidation to create value… Medium Risk Medium Return CMP: Rs.120
Consolidation to create value… Medium Risk Medium Return CMP: Rs.120
Key Data
Face Value:2 Average Vol : 100000
52 week High / Low : 144 /67 NSE Code : COROMFERT
Shareholding as on 31.12.07
Promoters : 69.69% MF, Fin Instt. FII : 11.92%
FII : 1.71% Public & Others : 14.70% Others : 1.98%
Company background
The Company was promoted by California Chemical Company (now called Chevron Chemical Company), International Minerals & Chemical Corporation of USA and E.I.D. Parry, Ltd in 1961.
• Presently, it belongs to the Rs 8500 crores (USD $ 2 Billion) Murugappa Group, EID Parry holding about 70% of the total stake.
• It is a leading company in India manufacturing a wide range of fertilizers and pesticides (technical and formulations).
• CFL's fertiliser plants are at Visakhapatnam, Ennore and Ranipet and Plant Protection Chemicals plants are at Navi Mumbai, Ranipet and Jammu.
• Along with subsidiary company Godavari Fertilisers & Chemicals Ltd. (merging in Q4 FY 08), CFL markets around 2 million tonnes of phosphatic fertilisers making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India.
• Besides, it exports to over 20 countries in Africa, America & East Asia. The company has tie up with leading global players for marketing, technical and R&D.
Business Model
=> Fertilizers
Coromandel makes & markets fertilizers under the name “GROMOR” & “PARRY” brands. Wide range of products offered by CFL include DAP, Nitrogen Phosphate, Complex Nitrogen & Phosphate, Ammonium Phosphate Sulphate, Single Super Phosphate etc. These fertilizers are suitable for paddy, wheat, cotton, groundnut, chilly, soyabean, potato etc. They are also applied for drill-sown areas, sulphur deficient soils, for controlling acidity in soil etc.
= > Plant Protection Chemicals
CFL manufactures & markets Pesticides, Insecticides, Fungicides, Herbcidies and Plant Biostimulant. CFL exports their products to various counties. . CFL have technical tie-ups with Multinationals like Dupont, BASF, FMC, Otsuka , etc for marketing their products in India. It manufactures generic products as well as formulations. Its brands include Astrazen, Pilot, Phendol, Ajanta etc.
Investment Rationale
• Govt. has emphasized on boosting the country’s agriculture output. Fertilizer sector is among the major beneficiary of expenditure to boost agriculture, as land supply is limited. Only through implementation of newer technology & fertilizers, output can be boosted.
• Government is issuing bonds to fertilizer sector to bail them out from subsidy arrear burden. Coromandal is getting Rs.2110 Million worth of 8.3% 2023 Fertilizer Bonds.
• Post amalgamation CFL would be the largest fertilizer company in Southern India. The southern markets require relatively smaller product range as compared to northern markets due to climatic factors, therefore the well-entrenched player like CFL has an advantage.
• It enjoys good brand awareness in South Indian market for its products. Besides it has an efficient distribution network to market own & others products.
• CFL is well diversified into Pesticides, Specialty Nutrients etc. sector that is not under strict control as Fertilizers & enjoys better valuation than fertilizers.
• Amalgamation of subsidiary GODAVARI FERTILIZER (GFCL), a good integration:
(1) GFCL is a Rs.2000 Crore company where CFL has 75% stake. GFCL is in the similar line of business as CFL.
(2) GFCL has net worth of Rs.134 Crore, on equity base of Rs.32 Crore (Face Value Rs.10/Share)
(3) 3 CFL shares are offered for 2 GFCL shares. CFL equity is likely to expand by 2.5 Crore (1.25 Crore shares FV 2)
(4) Combined Sales (FY 07) stand at Rs.3900 Crore & Net Rs.151 Crore. EPS post merger at Rs.10 up from current Rs.8 standalone of CFL.
(5) This merger is likely to be EPS accretive, besides bringing in synergy in business.
Risks
• Fertilizer is a strictly controlled commodity. Payment arrears have always put severe pressure on performance of the sector.
• Weather & Climatic conditions have direct impact on the demand. Seasonality of demand is too high.
• Plant protection chemicals business carry environmental & health related issues with them.
Valuation & Recommendation
Coromandel Fertilizer is a flagship company of Chennai based $2 Billion Murugappa Group. The company is into Fertilizers & Plant protection chemicals and other chemicals required by agriculture sector. Post merger GFCL, it has emerged as biggest players in South India in this filed. In FY 08 it is likely to report (post merger) Sales of Rs.52500 Million ($1.3 billion) & Net Profit of over Rs.3.4 Billion ($85 Million). At CMP Rs.120 its market cap of about Rs.17 Billion is One-third its FY 08 Estimated sales & 5 times its FY 08 Estimated Net profit. Investors can BUY at CMP for a target Of Rs.150-160 in medium term.
52 week High / Low : 144 /67 NSE Code : COROMFERT
Shareholding as on 31.12.07
Promoters : 69.69% MF, Fin Instt. FII : 11.92%
FII : 1.71% Public & Others : 14.70% Others : 1.98%
Company background
The Company was promoted by California Chemical Company (now called Chevron Chemical Company), International Minerals & Chemical Corporation of USA and E.I.D. Parry, Ltd in 1961.
• Presently, it belongs to the Rs 8500 crores (USD $ 2 Billion) Murugappa Group, EID Parry holding about 70% of the total stake.
• It is a leading company in India manufacturing a wide range of fertilizers and pesticides (technical and formulations).
• CFL's fertiliser plants are at Visakhapatnam, Ennore and Ranipet and Plant Protection Chemicals plants are at Navi Mumbai, Ranipet and Jammu.
• Along with subsidiary company Godavari Fertilisers & Chemicals Ltd. (merging in Q4 FY 08), CFL markets around 2 million tonnes of phosphatic fertilisers making it a leader in its addressable markets and the second largest phosphatic fertiliser player in India.
• Besides, it exports to over 20 countries in Africa, America & East Asia. The company has tie up with leading global players for marketing, technical and R&D.
Business Model
=> Fertilizers
Coromandel makes & markets fertilizers under the name “GROMOR” & “PARRY” brands. Wide range of products offered by CFL include DAP, Nitrogen Phosphate, Complex Nitrogen & Phosphate, Ammonium Phosphate Sulphate, Single Super Phosphate etc. These fertilizers are suitable for paddy, wheat, cotton, groundnut, chilly, soyabean, potato etc. They are also applied for drill-sown areas, sulphur deficient soils, for controlling acidity in soil etc.
= > Plant Protection Chemicals
CFL manufactures & markets Pesticides, Insecticides, Fungicides, Herbcidies and Plant Biostimulant. CFL exports their products to various counties. . CFL have technical tie-ups with Multinationals like Dupont, BASF, FMC, Otsuka , etc for marketing their products in India. It manufactures generic products as well as formulations. Its brands include Astrazen, Pilot, Phendol, Ajanta etc.
Investment Rationale
• Govt. has emphasized on boosting the country’s agriculture output. Fertilizer sector is among the major beneficiary of expenditure to boost agriculture, as land supply is limited. Only through implementation of newer technology & fertilizers, output can be boosted.
• Government is issuing bonds to fertilizer sector to bail them out from subsidy arrear burden. Coromandal is getting Rs.2110 Million worth of 8.3% 2023 Fertilizer Bonds.
• Post amalgamation CFL would be the largest fertilizer company in Southern India. The southern markets require relatively smaller product range as compared to northern markets due to climatic factors, therefore the well-entrenched player like CFL has an advantage.
• It enjoys good brand awareness in South Indian market for its products. Besides it has an efficient distribution network to market own & others products.
• CFL is well diversified into Pesticides, Specialty Nutrients etc. sector that is not under strict control as Fertilizers & enjoys better valuation than fertilizers.
• Amalgamation of subsidiary GODAVARI FERTILIZER (GFCL), a good integration:
(1) GFCL is a Rs.2000 Crore company where CFL has 75% stake. GFCL is in the similar line of business as CFL.
(2) GFCL has net worth of Rs.134 Crore, on equity base of Rs.32 Crore (Face Value Rs.10/Share)
(3) 3 CFL shares are offered for 2 GFCL shares. CFL equity is likely to expand by 2.5 Crore (1.25 Crore shares FV 2)
(4) Combined Sales (FY 07) stand at Rs.3900 Crore & Net Rs.151 Crore. EPS post merger at Rs.10 up from current Rs.8 standalone of CFL.
(5) This merger is likely to be EPS accretive, besides bringing in synergy in business.
Risks
• Fertilizer is a strictly controlled commodity. Payment arrears have always put severe pressure on performance of the sector.
• Weather & Climatic conditions have direct impact on the demand. Seasonality of demand is too high.
• Plant protection chemicals business carry environmental & health related issues with them.
Valuation & Recommendation
Coromandel Fertilizer is a flagship company of Chennai based $2 Billion Murugappa Group. The company is into Fertilizers & Plant protection chemicals and other chemicals required by agriculture sector. Post merger GFCL, it has emerged as biggest players in South India in this filed. In FY 08 it is likely to report (post merger) Sales of Rs.52500 Million ($1.3 billion) & Net Profit of over Rs.3.4 Billion ($85 Million). At CMP Rs.120 its market cap of about Rs.17 Billion is One-third its FY 08 Estimated sales & 5 times its FY 08 Estimated Net profit. Investors can BUY at CMP for a target Of Rs.150-160 in medium term.
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