Capital Market

Coromandel International Limited (CIL)

CIL is a leading manufacturer of wide range of complex fertilisers (non-nitrogenous fertilizers i.e. phosphatic, potash and complex) suitable for various crops, different soils and different stages of application. Company is also a major manufacturer of different plant protection products (technicals & formulations) and specialty nutrients, meeting the needs of small and big commercial farmers through a network of 10,000+ dealers. It is one of the most efficient complex fertilizer manufacturers with backward integration and control over raw material (Phosphoric Acid). Through initiatives in rural retail, the company also integrating forward.

In order to ensure supplies of key raw material - Phosphatic Acid (PA), company has tie-ups with Fosker SA and TIFERT, a JV in Tunisia by GSFC and the Tunisian government. CIL has a 15% stake in it. It is implementing the PA project estimated to cost US$ 550 million (CIL’s equity contribution would be US$ 29 million), which would be commissioned by Dec. 2010 or Jan 2011. These strategic investments are aimed at securing uninterrupted supply of PA.

CIL has also formed a 50:50 JV with Getax Ocean Trades, Singapore to explore opportunities for rock phosphate mining.

CIL is making strategic shift to scale up the businesses of Plant Protection, Specialty Nutrient and retailing, thereby reducing its dependence on subsidy-based fertilizers business. As all segments are growing well, this high margin business is expected to grow at a rapid pace.

Company has introduced new products and will be introducing new variants with value addition. Hence, it has entered into a JV with SQM for setting up 15,000 tpa production facility for water-soluble fertilizers (NPK grades) in India. Company has made investment of Rs 200 crore as its share to start with.

Company plans to ramp up fertilizer production volume from 2.9 million tones at present to 4 million tones over the next 3 years, which will require investment of Rs 150-200 crore for putting up a granulation plant. However, company need to do some more tie-ups for RM sourcing to ramp up production.

For the 9 months ended December 2009, consolidated sales dropped to Rs 5030 crore from Rs 8518 crore due to substantial fall in raw material cost and produced items. However, operating profit margin shot up to 11.73% from 7.52% due to sharp fall in raw material cost. In the absence of extra ordinary income (Rs 158.6 core being income received in terms of Business Assistance Agreement entered into Foskor(Pty), South Africa), PAT dropped by 24% to
Rs 382.2 crore (Rs 506.1 crore).

Consolidated EPS for FY10 is expected at Rs 29.9 and this would increase to Rs 35.3. In view of good growth prospects, the stock looks attractive at the current price.

Rallis India Limited

Rallis is known for its manufacturing capabilities in crop protection chemicals and various types of chemistries with ability to develop new processes and formulations supported by the capability to register new products. Innovative products (introduced in past 4 years) contribute approx. 30% of sales and is growing well. Company has sufficient product pipeline till 2012-2013.

Company has strategic long term alliances with innovator MNC agrochemical companies like FMC, Nihon Nohyaku, DuPont, Syngenta, Makhteshim Chemical Works, Bayer, Borax International, etc., for bringing in new molecules and new formulation technologies for commercialization in India. Going ahead, Rallis will continue to focus on growing and building existing alliances, thereby continuously enriching product offering based on changing market needs and enhancing value of its service to customers.

New project at Dahej (capex approx. Rs 150 crore) has gained momentum and is scheduled to commence production by July 2010. Initially, this facility will increase existing products and later in the second phase, it will cater to new products and contract manufacturers.

Company has set up Polyether Ketone (PEKK) facility at Ankleshwar to produce advanced composites for US based Cytec Engineered Material, which will further go into new-age aircraft making. For the 100,000 kg of production facility, Rallis has invested Rs 10 crore and aims to achieve exports of approx. Rs 400 crore over the next 5 years. With major new age aircraft manufacturers booked till 2012, there will be increased usage of advanced composites in the aerospace industry and this will bring major gains to Rallis.

The company is well poised to leverage the need for substantial improvement in productivity of agro products in the domestic market in view of sustained high prices of agro commodities over the next 10-15 years and lowest usage of agrochemicals per acre in the world. Thus, company is expected to report high double digit growth. EBIDTA% likely to improve to approx.25% by FY 2013 with higher growth in domestic market, better performance in international markets, new capacities in tax haven Dahej to remove supply side bottlenecks when both domestic and export markets will grow, etc.

Rallis is debt-free and also has huge surplus assets.

It has 15% stake in Advinus Therapeutics, Bangalore, a JV between Tata Sons and Rallis and is engaged in a high value research in partnership with global MNCs. Advinus has commenced US operations.

For the 9 months ended December 2009, net sales has been at Rs 683 crore with operating profit margin of 18.4% and PBT increased by 22% at
Rs 128.6 crore. PAT at Rs 79.2 crore has recorded 29% growth over the corresponding period of the previous year.

Based on its performance, EPS for FY10 is projected at Rs 75 and this would go up to Rs 100 in FY11. Considering the growth prospects, the stock appears to have potential to go up from the current level.