Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Market / Mark-to-market/  Monsoon recovery lifts Coromandel stock
BackBack

Monsoon recovery lifts Coromandel stock

The volume recovery coincides with an improvement in rainfall, thanks to which sowing picked up, pushing up demand for fertilizers

The recent improvement in monsoon rainfall seems to have cheered investors in Coromandel International, with the stock rising above its pre-earnings level. Photo: MintPremium
The recent improvement in monsoon rainfall seems to have cheered investors in Coromandel International, with the stock rising above its pre-earnings level. Photo: Mint

The recent improvement in monsoon rainfall seems to have cheered investors in Coromandel International Ltd, with the stock rising above its pre-earnings level. The stock has reacted adversely to its June quarter results, falling by 6% in the week following its results announcement on 23 July. Weak performance was the main reason for this fall, as volume growth was tepid and margins in its fertilizer business were sharply lower than analysts’ estimates.

But those concerns are taking a backseat, at least for the time being.

An improvement in fertilizer sales may be the driving factor, rising by 73% in July from a year ago, according to data compiled by Prabhudas Lilladher Pvt. Ltd. This is much better than the 18% growth seen in the June quarter.

The volume recovery coincides with an improvement in rainfall, thanks to which sowing picked up, pushing up demand for fertilizers. Sowing in the Kharif season has crossed 87.6 million hectares last week, compared with 34.5 million hectares by 18 July, according to ministry of agriculture data. Sowing of paddy, the major crop for the current season is almost equal to the previous year’s levels. According to the government, the total sown area is now 97.7% of the historical average.

A channel check by Prabhudas Lilladher has found that usage of agriculture inputs has increased “considerably" in recent weeks. The firm notes in a research report: “Our on the ground checks indicate that farmer sentiments have improved considerably which is reflected in pick up in agri inputs consumption during the last few weeks." Companies are increasing production to meet growing demand.

Higher production should help improve Coromandel’s sales in the current quarter. But for a further improvement in valuations, margins need to improve as well. According to an analyst with a domestic brokerage firm, the stock has been trading in the 230-280 range for some time. With sales already showing signs of recovery, the stock can cross the upper end of this range, if it can turn in better margins too, the analyst says.

Margins were weighed down by low profitability of its fertilizer business because of under-utilization of its capacity. Higher demand should take care of this problem. The company’s own manufactured fertilizer sales are rising (which earns higher margins), but this growth has to sustain in the coming months, to justify the buoyancy in the stock.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 21 Aug 2014, 07:19 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App