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Business News/ Markets / Mark To Market/  Soft input costs drive strong earnings performance at Coromandel International
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Soft input costs drive strong earnings performance at Coromandel International

The abrupt lockdown in March and subsequent easing of restrictions for agriculture sector have pushed some sales to April
  • Similarly, lockdown uncertainty and fear of shortages have prompted additional purchases
  • The slump in commodity prices pulled down the prices of phosphoric acid and ammonia, key raw materials for Coromandel International. Photo: ReutersPremium
    The slump in commodity prices pulled down the prices of phosphoric acid and ammonia, key raw materials for Coromandel International. Photo: Reuters

    Shares of farm inputs provider Coromandel International Ltd hit a new 52-week high on Wednesday, after the company reported a strong performance for the March quarter.

    Revenues grew 9%, helped by higher rabi crop sowing and recovery in sales of fertilizers. Sales of better-yielding phosphatic fertilizers constituting diammonium phosphate (DAP) and complex grade fertilizers rose 17% from a year earlier.

    Thanks to lower raw material costs, earnings grew at a faster pace. Profit after tax was at 234 crore, up 112% from last year.

    Raw material costs as a percentage of sales dropped 5 percentage points from the year-ago period to 65% last quarter, said Motilal Oswal Financial Services Ltd. This expanded operating profit margins by 380 basis points to 13.6%, driving strong growth in earnings. 100 basis points make 1 percentage point.

    Firm  margins
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    Firm margins

    “The performance was further supported by external factors such as above normal monsoon, good reservoir levels which resulted in improved sowing and agri input consumption in the company’s key markets," said Sameer Goel, managing director, Coromandel International. The company and the fertilizer industry began FY21 on a strong note. Government data indicates a 47.8% jump in sales volumes in April. Coromandel’s sales volumes jumped 194%.

    The lockdown in March and subsequent easing of restrictions pushed some sales to April.

    Uncertainty owing to the lockdown and fear of shortages have prompted additional purchases. Even so, the strong sales underscore healthy demand. “The spike seems to be principally driven by early buying—in anticipation of future shortages—combined with expectations of a normal monsoon. While April is seasonally a small month and means little from a full-year standpoint, the month’s performance does suggest that farmer demand remains healthy," IIFL Securities Ltd said.

    The trends, if they hold-up, will benefit Coromandel. The slump in commodity prices pulled down the prices of phosphoric acid and ammonia, which are key raw materials.

    The locust infestation can aid Coromandel’s crop protection business. It has two products to fight locusts. Even then, investors should watch out for adverse implications of locust attacks, as crop damages can hurt demand for fertilizer.

    That said, much depends on the progress of the upcoming kharif season. Unavailability of farm workers can impede cropping activity, especially in Punjab and Haryana. Similarly, a sharp economic contraction can erode demand, adversely affecting farm produce prices. Weather disturbances and prolonged delay in subsidy payments are other major risks.

    So, while the situation looks favourable for Coromandel, investors would do well to keep a tab on external risks.

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    Published: 27 May 2020, 11:36 AM IST
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