Ken-Betwa River Linking And New Plants Will Strengthen Fertilizer Market Position

Key Takeaways

• Strategic investments in phosphoric and sulfuric acid plants and retail expansion are set to enhance operational efficiency and profitability.
  
• New market opportunities through shifts in fertilizer offerings and niche bio-products collaborations are expected to drive revenue growth.
  
• Supply chain challenges, reliance on subsidies, and global competition pose risks that could impact margins, costs, and international revenue growth.

Catalysts

Provides agriculture solutions in India and internationally.

• The recent infrastructure projects, such as the Ken-Betwa River Linking and Polavaram Project, are expected to expand irrigation coverage, potentially increasing agricultural productivity in Coromandel International's core markets, positively impacting revenue growth.
  
• The ongoing shift from DAP to NPK fertilizers, with a reported 1 million tonne move, positions the company to capture more market share in the northern regions, likely improving net margins due to better resource utilization.
  
• The completion of the new phosphoric and sulfuric acid plants in Kakinada by Q4 of the next fiscal year is expected to enhance operational efficiency, leading to higher earnings due to reduced input costs and increased production capacity.
  
• Significant expansion in retail operations, including the addition of new stores, the launch of exclusive crop protection, and liquid fertilizer products, is likely to drive volume growth and enhance profitability across segments.
  
• The multipurpose plant at Ankleshwar and strategic investments in CDMO and niche bio-product collaborations are anticipated to open new revenue streams and increase earnings in the Crop Protection and Bio business segments.

Coromandel International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Coromandel International's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.2% today to 10.2% in 3 years time.
• Analysts expect earnings to reach ₹30.4 billion (and earnings per share of ₹102.98) by about March 2028, up from ₹16.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.0x on those 2028 earnings, down from 35.4x today. This future PE is greater than the current PE for the IN Chemicals industry at 23.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.53%, as per the Simply Wall St company report.

Coromandel International Future Earnings Per Share Growth

Risks

• The potential for supply chain challenges persists, particularly in rock phosphate and sulfuric acid, which could lead to unexpected costs and operational disruptions, impacting revenue and net margins.
  
• The company's reliance on government subsidies and regulatory changes presents a risk, as alterations to subsidy structures or delays could affect profitability and cash flows.
  
• Fluctuations in global commodity prices, such as sulfur and phosphatic fertilizers, may lead to unpredictability in production costs and thereby impact net margins.
  
• Export growth and expansion into new markets could face significant risk due to intense global competition and pricing pressures, potentially impacting revenue from international operations.
  
• The integration and expected profitability of the Baobab Mining and investments in new infrastructure may take time to materialize, affecting earnings and financial performance in the near term.

Valuation

• The analysts have a consensus price target of ₹2050.25 for Coromandel International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2347.0, and the most bearish reporting a price target of just ₹1575.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹299.0 billion, earnings will come to ₹30.4 billion, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 13.5%.
• Given the current share price of ₹1978.6, the analyst price target of ₹2050.25 is 3.5% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.