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Home / Markets / Mark To Market /  Coromandel may coast along on good rabi, new products

Coromandel International Ltd’s shares have underperformed so far in calendar year 2021, declining by about 9%. In comparison, the Nifty 500 index has gained as much as 28%. The erratic monsoon has hurt investor confidence. But, the company’s earnings prospects appear strong, driven by the expected traction in the upcoming Rabi crop season. Healthy water reservoir levels and soil moisture conditions favour a good sowing season, boosting Coromandel’s outlook.

Note that Coromandel International did well on the revenues front for the quarter ended 30 September (Q2FY22), registering a growth of 34% over the previous year. The nutrients and allied business, contributing about 89% of overall revenues, grew by 38% year-on-year. On the other hand, the crop protection business grew by 9% year-on-year. However, rising raw material costs posed challenges to earnings growth.

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Analysts reckon that raw material and freight costs may soften over the next two quarters, which would augur well. Further, the nutrient-based subsidy (NBS) rates announced by the government for phosphatic chemicals also help outlook. As analysts from Nirmal Bang Institutional Equities point out, “The NBS rate fixed in October ’21 for DAP and three dominant grades of NPK (nitrogen phosphorus potassium) compensates for most of the increase in input costs. The management is also increasing product prices where possible."

Additionally, new product launches in non-subsidized nutrients and single-digit growth in subsidized nutrients (NPK/DAP) can be expected to aid revenue growth. This will be supported by investments in capacities. The company’s investments in a backward integration project for 500,000 tonnes per annum sulphuric acid will be beneficial to increase supplies of this key input and cost savings too.

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