Coromandel International
A hidden gem of the Murugappa Group. Is it a worthwhile addition to your direct stock portfolio?
Disclaimer: Please do not consider this post as an investment advice. I am not a registered financial advisor. Please consult a registered financial advisor before making any investments.
Credits: Most of the content of this post is public information that has been referred from the company website, annual reports and conference call transcripts.
In this post we are going to understand and analyze a direct play on the Indian agricultural sector - Coromandel International. So sit tight and read on.
A brief about the company
Coromandel International Ltd is one of India's leading agricultural solutions provider. It offers a diverse range of products and services across the farming value chain. It specializes in fertilizers, crop protein, bio pesticide, specialty nutrients, organic fertilizers and more agrochemicals vital for crop protection and enhancement.
The company has it’s operations in India, US, Europe, South America, Africa, Australia, Japan and many more places around the world.
Superb Parentage
While you may have heard the company’s name in business news, what you might not know is that it is a part of the renowned south India based - Murugappa Group.
The group has presence across various industries such as auto components, abrasives, financial services, transmission systems, cycles, sugars, farm inputs, fertilizers, plantations, etc. The group offers products and services under various established brands such as BSA, Hercules, Montra, Parry's, Chola, Shanthi Gears, etc.
The company in numbers
Coromandel hit a turnover of more than 19,000Cr in FY2021-22.
The latest credit rating (as of Jul 2021) of the company as per CRISIL is AA+ stable
It has more than 20,000 dealers
The company has 16 manufacturing plants
It has more than 13,000 direct + contractual employees
A brief about the management
Coromandel is a professionally managed company.
Mr. A Vellayan (Chairman)
He holds a Bachelor’s Degree in Commerce from Shri Ram College of Commerce, New Delhi, Diploma in Industrial Administration from Aston University, UK and Masters in Business Studies from University of Warwick Business School, UK. He has been conferred Doctor of Science (Honoris Causa) by Aston University, UK
Mr. Vellayan is the Chairman of Indian Institute of Management, Kozhikode and Roca Bathroom Products Private Limited. He also holds directorship in Ambadi Investments Limited, AMM Foundation and Kanoria Chemicals & Industries Limited. He held various positions in the Murugappa Group in the past.
Mr. Vellayan has vast experience in Fertilisers Business, General Management and Financial Planning.
Mr. Arun Alagappan (Executive Vice Chairman)
He has done his Graduation in Commerce from the University of Madras and completed the ‘Owner President/Management Program’ from Harvard Business School at Boston, USA
Mr. Alagappan started his career with GE Capital Services India in 1997. After a two year stint with GE, he joined the Murugappa Group in 1999 in Parryware, part of E.I.D Parry (India) Limited. Between 2005 to 2017, he served in Tube Investments of India Limited heading various divisions and functions before eventually becoming the President & Business Head of TI Cycles. In August 2017 Mr. Alagappan was appointed as Executive Director of Cholamandalam Investment and Finance Company Limited and subsequently as the Managing Director in November 2019. He held this position until February 14, 2021, prior to joining Coromandel International Limited. He holds directorship in various other companies such as Lakshmi Machine Works Limited and Roca Bathroom Products Limited.
Mr. Alagappan is acknowledged as a thought leader in the Bicycle Industry and the NBFC Industry.
Mr. Sameer Goel (MD)
He holds a Post Graduate Diploma in Management from IIM, Ahmedabad, and a Bachelor’s Degree in Economics from St. Stephens College, New Delhi.
He started his career in 1987 with GlaxoSmithKline Consumer Healthcare (GSK) as Area Sales Manager and rose from ranks in a career spanning more than 26 years. He held various positions in GSK in India, Middle East, Africa and London. Prior to joining Coromandel, he had a brief stint in Cipla Limited as Country Head – India.
He has been the Managing Director of Coromandel International Ltd since October 2015. Under his leadership, Coromandel has shown all round growth in performance and employee engagement. The Company has become debt free and it has been rewarding to all stakeholders.
Business Segments
Fertilizers
No. 1 NPK Player in India
No.1 Single Super Phosphate (SSP) player in India
15.3% market share
Strong presence in South, East and West India
4.5 MT Annual Capacity (NPK+SSP)
39% Unique Grades
Crop protection
5th Largest Indian Agro Chemical Player
Global presence across 80+ Countries
1000 + product registrations
New products and combination focus
80,000+ tons manufacturing capacity per annum
~ 60+ brand based Product portfolio
Specialty Nutrients
Market leader in Water Soluble Fertiliser (WSF) and sulphur segment
Crop specific solution
Tie-ups with Drip Irrigation, Contract Farming and Agri universities
Retail
India’s largest Agri retail chain
Wide network of 750+ stores
One-stop-shop for Agri requirements
3 million+ farmers direct connect
Organic
Largest Organic marketer in India with annual sales of 1.7 lakh tons
Wide range of products
Biologicals
Largest Azadirachtin manufacturing facility in the world
61% export share
Significant presence in US, Canada and Europe
Business Growth
Coromandel has decently grown it’s sales and profits over the years as can been seen from the following screenshot from screener.
Important Ratios
Coromandel has been able to maintain a very good Return on Equity (ROE) of more than 20% for more than 10 years.
Despite being in a sector that is often at the mercy of erratic weather fluctuations and heavily dependent on monsoon, the company has been able to manage it’s working capital very well.
It’s 10 year aggregate CFO/EBITDA is more than 80%, which basically means it is converting majority of it’s profits into cash.
Coromandel’s Return on capital employed (ROCE) has gone from 18% to 35% in the last 5 years.
Debt Management
The company’s debt has come down significantly over the past few years despite of COVID19 disruptions. It had a debt of more than 2900Cr in FY2020 which is now down to 395Cr.
The cash on the balance sheet has also grown from 159Cr to 1753Cr over the same period.
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Factors that make it a good bet
All of the previously noted points make it a decently good bet based on the financial numbers. In addition to that,
The company is currently available at a PE multiple of 18
A nice dividend yield of more than 1%
A PEG ratio below 1
The current market cap is less than 2 times sales
Government Support
Various schemes and budget allocations by the government would benefit the company:
Agricultural credit target increased to 16.5 lakh crores in FY2021-22
Rural Infrastructure Development Fund increased allocation to 40,000 crores (+33%)
Micro Irrigation Fund: 10,000 crores (+100%)
Additional Mandis to be brought under eNAM: +1000
Ensured MSP at minimum 1.5 times the cost of production across all commodities
Anti-thesis factors
Coromandel operates in the agricultural sector which is highly cyclical in nature. Adequate and timely monsoon rains are very important for it’s fortunes.
It’s sales and margins were subdued between FY2014 to FY2018 because of less rains.
It often gets late payments from the government which is one of it’s major customers, and late payments on account of government subsidies.
It’s cash flow from operations could be very less in some years due to lower sales and high receivables.
Summary
In this post we analyzed Coromandel International. The company operates in the agricultural sector and is a flagship company under the Murugappa Group. If you believe that the country will get good monsoon rains this year and have the ability to withstand it’s cyclicality it could be a nice bet.
I hope this article helped you in understanding the business of Coromandel International.
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Until next time. Take care.
Best regards,
Sahil