emkay switch idea on agri

7/31/2019 Emkay Switch Idea on Agri

1/17Emkay Global Financial Services Ltd 1

December 28, 2011

Company Reco CMP TP

Chambal Accu 75 98

Coromandel Hold 278 286

Deepak Buy 125 250

GNFC Buy 75 135

GSFC Accu 355 530

Tata Chem Accu 313 400

Rallis Hold 122 120

UPL Buy 132 215

Source: Emkay Research

Decline in food grain prices (refer to our report on Rural

steroid is ebbing) have affected farmers profitability and is

likely to put pressure on agri input consumption

We believe that complex fertiliser players will be affected

more than the urea players while in agro chemicals domestic

players will face severe impact than exports based players

We prefer Chambal fertiliser (urea base player) over

Coromandel (complex fertiliser base) and United Phosphorous

(Agrochem exports) over Rallis India (domestic focus)

Downgrade earnings and target price for Rallis India and

Coromandel, maintain for Chambal and United Phosphorous

Complex fertiliser based players to be affected more than urea, Prefer

Chambal fertiliser over Coromandel

Growth moderation in agri input consumption may have adverse impact on fertiliser

consumption also (as witnessed in FY03, kindly refer to chart on next page). However

domestic urea production is unlikely to be affected due to drop in demand (if any) since

imports contribute ~23% total urea consumption and any reduction in demand is likely to

reduce imports while keeping the domestic production intact. Complex fertilisers have

been brought under NBS and companies have increased prices significantly to pass on

higher input cost. However contraction in fertiliser demand may put pressure on

complex fertiliser manufacturers and squeeze companies margins. As a result we

prefer urea based players like Chambal Fertiliser over complex fertiliser players like

Coromandel International.

Agrochemicals - export based players to benefit while domestic players

may see demand pressure, prefer UPL over Rallis

Projecting a weak demand environment for agri input, we expect pesticide consumption

to come under pressure and companies may also see contraction in margins. Exports

oriented players may benefit from buoyant global demand environment and currency

depreciation. Under the current circumstances, we prefer United Phosphorous which is

largely a global player since India account for


2/17

Agri Sector Sector Update

Emkay Research 28 December 2011 2

Agri impact Fertiliser

Fertiliser volumes may come under pressure as historical evidences indicate

drop in fertiliser consumption

Moderation in rural growth and squeezed purchasing power of the farmers may have

adverse impact on fertiliser consumption. Though fertiliser consumption may not decline

sharply but historical evidence suggests that fertiliser volumes contracted in FY03. Ureaconsumption declined by 7% yoy while DAP declined by 11% owing to slower agri demand.

Fertiliser volumes

(mn tonnes) FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Urea

Capacity 20.8 20.7 20.8 20.8 21.0 21.0 21.0 21.3 22.2 22.2

Production 19.0 18.6 19.0 20.2 20.1 20.3 19.8 19.9 21.1 21.0

Consumption 19.9 18.5 19.8 20.7 22.3 24.3 26.0 26.6 26.7 27.1

Imports 0.2 0.1 0.1 0.6 2.1 4.7 6.9 5.7 5.2 6.1

% yoy -7% 7% 5% 8% 9% 7% 3% 0% 2%

DAP

Capacity 6.1 7.3 7.3 7.1 7.0 7.0 7.0 7.0 7.0 7.0

Production 5.1 5.2 4.7 5.2 4.7 4.7 4.2 3.0 4.2 3.6

Consumption 6.2 5.5 5.6 6.3 6.8 7.4 7.5 9.2 10.5 11.2

Imports 0.9 0.4 0.7 0.6 2.4 2.9 2.7 6.2 5.4 7.5

% yoy -11% 3% 11% 8% 9% 2% 23% 14% 7%

Complex

Capacity 5.2 5.2 5.3 5.7 6.3 6.3 6.3 7.1 7.1 7.1

Production 4.9 4.9 4.5 5.3 6.8 7.3 5.8 6.9 8.1 8.1

Consumption 5.0 4.9 4.8 5.5 6.7 6.8 6.7 7.0 8.2 11.2

SSP

Capacity 7.7 6.5 6.1 6.1 6.7 6.9 7.5 7.7 8.0 8.0

Production 2.5 2.4 2.5 2.5 2.8 3.0 2.2 2.5 3.1 2.2

Consumption 2.6 2.5 2.5 2.5 2.8 2.9 2.3 2.6 2.7 3.0

MoP

Capacity - - - - - - - - - -

Production - - - - - - - - - -

Consumption 2.0 1.9 1.8 2.4 2.7 2.6 2.9 4.1 4.6 3.9

Imports 2.8 2.6 2.6 3.4 4.6 3.4 4.4 5.7 5.3 3.9

Total

Capacity 39.8 39.8 39.5 39.7 41.0 41.2 41.8 43.2 44.3 44.3

Production 31.5 31.1 30.8 33.1 34.3 35.3 32.1 32.3 36.5 34.8

Consumption 35.7 33.3 34.6 37.4 41.2 44.0 45.3 49.6 52.6 56.4

Imports 4.0 3.1 3.5 4.7 9.1 11.0 14.1 17.5 15.9 17.5

Source: CRISIL, Ministry of Fertilisers, Emkay Research

Decline in fertiliser consumption adversely affected industry profitability

Historical data indicates that decline in fertiliser consumption has adversely affected

companies profitability in FY03. Aggregate revenues (based on 10 leading fertiliser

companies) of the industry declined by 3% in FY03 while EBITDA margins crashed by 700

bps and industry incurred losses in FY03.


3/17



Aggregate revenue & revenue growth Aggregate EBITDA & PAT margins

-

100

200

300

400

500

600

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

Rsbn

-40%

-20%0%

20%

40%

60%

80%

100%

Revenues Revenue grow th

Aggregate revenues

declined in FY03

-5%

0%

5%

10%

15%

20%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

EBITDA Margin PAT Margins

Margins collapsed

and companies

incurred losses

Source: Capitaline,, Emkay Research

Despite weak fertiliser demand, domestic urea production to remainunaffected

Despite sluggish demand environment domestic urea production is unlikely to be affected

due to sharp increase in imports. Over a period of time, urea consumption has increasedfrom 19.9 mn mt in FY02 to 27.1 mn mt by FY11 while urea domestic production has

remained stable with marginal increase of 2.1 mn mt over the same period mainly due to

lack of any fresh investment in new capacity. As a result, urea imports have increased from

mere 0.1 mn mt (1% of total consumption) in FY02 to 6 mn mt by FY11 (comprising of 23%

of total consumption). We believe that any decline in urea consumption will reduce imports

while keeping domestic urea production intact. We also highlight that cost of domestically

produced urea is significantly lower than the imported urea and hence any drop in urea

consumption will reduce imports first.

Urea consumption vs Import of Urea as a % of total urea consumption

-

5

10

15

20

25

30

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

mnmt

0%

5%

10%

15%

20%

25%

30%

Consumption Imports as a % of consumption

Source: CRISIL, Ministry of Fertilisers, Emkay Research

. Complex fertiliser volumes may have adverse impact

Growing consumption of DAP from 6.2 mn mt in FY02 to 11.2 mn mt by FY11 has also

increased dependency on imported DAP from 7% in FY03 to 67% by FY11 due to lower

domestic availability of raw material. Sluggish demand for DAP may reduce imports of DAP

however unlike urea (where cost of domestic production of urea is significantly lower)

domestic DAP production may also come under pressure since prices are linked with

imported prices. Demand for complex fertiliser is primarily met domestically and any slow

down in demand is likely to have adverse impact on domestic production. Companies with

higher dependency on complex fertiliser are likely to be most affected in case of weak

demand.

Urea imports comprises of 23% of

total urea consumption. Any decline

in consumption is likely to reduce

imports


4/17



Urea and complex fertiliser market share by sales volume

Urea DAP MoP Complex

Chambal 6% 4% 3% 0%

Coromandel 1% 5% 4% 19%

Deepak NA NA 2% 1%

FACT NA NA 1% 8%

GNFC 2% NA NA 1%GSFC 1% 6% NA 5%

Nagarjuna Fert & Chem 8% 2% 4% 1%

Tata Chem 3% 4% 6% 3%

Zuari Industries 1% 6% 11% 5%

Source: Ministry of Fertilisers, Capitaline, , Emkay Research

Revenue contribution from urea, non urea fertilizer

As a % of consol revs FY11

Urea Non urea Others

Chambal 43% 28% 29%

Coromandel 0% 88% 12%

Deepak 0% 32% 68%FACT 0% 75% 25%

GNFC 53% 0% 47%

GSFC 5% 65% 31%

Nagarjuna Fert & Chem 65% 25% 10%

Tata Chem 10% 0% 90%

Zuari Industries 9% 91% 0%

Source: Ministry of Fertilisers, Capitaline, , Emkay Research

Valuations- Coromandel has witnessed re-rating in multiples in last 2 years

Historically, Coromandel has always commanded lower multiple than Chambal. However,

leading to the introduction of NBS, Coromandel has defied the traditional trend and

witnessed re-ratings in multiples and traded at a premium to Chambal. While Coromandel

traded at an average PE multiple of 5x during FY06-09, multiples expanded to >10x after

that. Currently, Coromandel is trading at 12x fwd earnings estimates. On the other hand,

Chambal Fertilisers has traded in the PE band of 6x-17x with an average of 9.5x during

FY06-11 based on 1 year forward earnings estimates. We expect Coromandels premium to

contract due to pressure on earnings .

1 yr fwd PE band 1 yr fwd EV/EBITDA band

2x4x6x8x

10x

12x14x16x18x

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Chambal Coromandel

2x

4x

6x

8x

10x

12x

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Chambal Coromandel

Source: Bloomberg, Emkay Research

. Prefer Chambal fertiliser over Coromandel International

Historically fertiliser companies have witnessed pressure on profitability (as discussed

above) in weak demand scenario.We believe that Chambal fertiliser is likely to be leastaffected due to its higher dependency on urea while Coromandel fertiliser is likely to be

most affected due to its dependency on complex fertiliser.

Coromandels avg multiplewas 5x

Multiples expanded to >10x

Coromandel is a proxy complex

fertilizer player with 19% market

share in NPK fertilisers

Chambal remains urea centric

player with 43% of urea

contribution to total revenues


5/17



Agri impact Agrochemicals

Agro chemical sector benefited significantly in previous five years and

reported robust growth

Agrochemical industry has witnessed steep revenue growth in past 10 years with revenue

growth of 13% CAGR while growth has been higher in past 5 years with revenue CAGR of

20% (FY06-11) as against mere 5% CAGR (FY01-06) driven by improved farmersprofitability. Increase in farming profit margins have improved cash flows of the farmers and

improved affordability for crop protection. Improved farm dynamics has also facilitated

improvement in EBITDA margins which increased from average (FY01-06) 11% to 14%

(FY06-11) and profit margins from mere 2% to 7% over the same period.

Historical evidence suggest that there may be pressure if agri produceprices come under pressure

Our analysis indicates that there has been pressure on growth and profit margins of

agrochemical companies in FY03 (kindly see exhibit below) in event of decline in agri

produce prices. Agrochem companies reported drop in revenues by 12% in FY03 while

EBITDA margins collapsed by 500 bps resulting into aggregate loss for the industry.

Revenue and revenue growth EBITDA and PAT margins

-

20

40

60

80

100

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

Rsbn

-20%

-10%

0%

10%

20%

30%

40%

Revenues Revenue grow th

Industry achieved 20%

revenue CAGR fro m FY06-11

During FY01-06, revenue

CA GR was 5%

-5%

0%

5%

10%

15%

20%

FY01

FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

EBITDA Margin PAT Margins

Source: Capitaline, Emkay Research Source: Capitaline, Emkay Research

However increased dependency on exports may facilitate some growth

Exports in agrochemicals have increased significantly at a CAGR of 27% over last ten

years. As a result on aggregate level exports now contribute to 32% of aggregate revenues

as against 12% in FY01. Under current scenario, exports are likely to benefit due to buoyant

global demand and currency depreciation.

Export as a % of aggregate revenues

0%

5%

10%

15%

20%

25%

30%

35%40%

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Source: Capitaline, Emkay Research

Improved farmers profitability led to

strong demand for agrochemicals

resulting into strong topline &

bottomline growth

Agrochemical companies

suffered when agri produce

prices declined


6/17



Companies dependency on exports

As a % of revenues Exports Imports Exports/(Imports)

Bayer 12% 23% -11%

Bharat Rasayan 30% 16% 15%

Dhanuka Agritech NA 14% NA

Excel Crop Care 31% 24% 7%

Insecticide 0% 15% -15%

Nag. Agrichem 27% 21% 6%

Rallis India 24% 26% -2%

Sabero Organics 53% 34% 19%

Syngenta India 44% 49% -5%

UPL 48% 24% 24%

PI Ind 31% 21% 10%

Source: Capitaline, Emkay Research

Valuations- Rallis has witnessed re-rating in multiples in last 2 years

Rallis has witnessed re-rating in multiples in last 2 years with multiples expanding to 10.5xduring FY09-11 compared to 8x during FY08-09. Historically, UPL has commanded a PE

multiple of 6x-20x with an average of 13x during FY06-11 however UPLs multiple has

currently fallen to 6.5x.

1 yr fwd PE band 1 yr fwd EV/EBITDA band

2x

7x

12x

17x

22x

27x

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Rallis UPL

2x4x

6x

8x

10x

12x

14x

Aug-06

Feb-07

Aug-07

Feb-08

Aug-08

Feb-09

Aug-09

Feb-10

Aug-10

Feb-11

Aug-11

Rallis UPL

Source: Bloomberg, Emkay Research

Companies with higher dependency on domestic market to be impacted

more, Prefer United Phosphorous over Rallis India

We believe that agrochemical players with higher dependency on domestic markets are

likely to be impacted more as compared with companies having presence in exports

market. Companies enjoying exports are benefiting on account of strong global growth andhave also benefited from currency depreciation. We prefer United Phosphorous due to its

global presence and lower contribution from India over Rallis India.

Rallis has witnessed re-rating

in multiples in last 2 years

Companies with higher export

component stand to gain in the

current scenario



December 28, 2011

Reco

Accumulate

Previous Reco

AccumulateCMP

Rs 75

Target Price

Rs 98

EPS change FY12E/13E (%) NA

Target Price change (%) NA

Nifty 4,751

Sensex 15,874

Price Performance

(%) 1M 3M 6M 12M

Absolute (14) (22) (1) (11)

Rel. to Nifty (14) (20) 15 12

Source: Bloomberg

Relative Price Chart

60

73

86

99

112

125

Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11

Rs

-20

-2

16

34

52

70%

Chambal Fert il isers (LHS) Rel to Ni ft y (RHS)

Source: Bloomberg

Stock DetailsSector Agri Input & Chemicals

Bloomberg CHMB@IN

Equity Capital (Rs mn) 4162

Face Value(Rs) 10

No of shares o/s (mn) 416

52 Week H/L 119/66

Market Cap (Rs bn/USD mn) 31/585

Daily Avg Volume (No of sh) 2980861

Daily Avg Turnover (US$mn) 5.1

Shareholding Pattern (%)

Sep-11 Jun-11 Mar-11

Promoters 55.1 55.1 55.1

FII/NRI 9.6 7.0 6.7

Institutions 13.2 12.7 12.0

Private Corp 3.4 4.1 4.7

Public 18.8 21.2 21.5

Source: Capitaline

Rohan Gupta

[email protected]

+91 22 6612 1248

Balwindar Singh

[email protected]

+91 22 6612 1272

Moderation in rural growth & shrinking farm profitability is

unlikely to impact domestic urea players. Any decline in urea

consumption will reduce urea imports

Chambal is likely to benefit from incremental production

above cutoff which qualifies for IPP linked subsidy. Rupee

depreciation would further augment earnings

However, unrelated diversification in shipping, textiles & IT is

a drag to profitability. We have modeled for losses in shipping

& textiles in FY12; IT business poses risk to earnings

Chambal has traded in the PE band of 6-17x with an average

of 9.5x. Valuations remain comfortable at 8.5x fwd estimates.

Maintain Accumulate with target of Rs 98

Urea players unlikely to be hit in the current scenario; rupee depreciationto benefit IPP linked production

Chambal Fertilisers is one of the leading players in the domestic urea space comprising

of 1.85mn mt of installed capacity with 8% domestic market share (by capacity). As

discussed above in the report any moderation in demand growth is unlikely to have any

impact on domestic urea production hence keeping the companys earnings intact.

Chambal being a proxy to urea players, since 80% of profits is contributed by urea, is

likely to witness stable earnings. On the contrary it may surprise on positive side due to

benefit from rupee depreciation having favourable impact on IPP linked production.

However, unrelated diversification in shipping, textiles & IT is a drag

Chambals unrelated diversification in shipping, textiles & IT business is a drag to the

companys profitability and has always weighed on investors sentiments. Out ofChambals six vessels, only 1 vessel is currently under long term contract while the

remaining 5 ships are operating on spot rates. Textiles business is also under pressure

due to decline in cotton prices resulting into inventory losses. We believe shipping &

textiles are likely to remain laggard in the current scenario and have modeled for losses

in both these segments for FY12. IT business is also likely to post losses in FY12

creating further pressure on bottomline.

Valuations remain comfortable; Earnings might surprise in Q4 due tohigher IPP linked production;

Historically, Chambal Fertilisers has traded in the PE band of 6x-17x with an average of

9.5x during FY06-11 based on 1 year forward earnings estimates. Valuations remain

comfortable in the current scenario with the stock quoting at 8.5x currently. Earnings are

likely to surprise in Q4 due to higher IPP linked production coupled with incremental

gain from rupee depreciation. Further, any positive news flow related to implementation

of NBS in urea is likely to be a positive trigger. However continued pressure on

companys other businesses (textiles, shipping and IT) and huge debt Rs 25bn on

balance sheet leading to M-t-M loss are key concerns. We maintain our Accumulate

rating on the stock with price target of Rs 98.

Financial Snapshot Rs Mn

YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY10 36,004 6,842 19.0 2,724 6.5 22.8 20.8 11.5 7.8 2.3

FY11 46,808 7,482 16.0 3,101 7.4 13.8 20.6 10.1 6.6 1.9

FY12E 51,311 8,178 15.9 3,725 9.0 20.1 20.6 8.4 5.4 1.6

FY13E 51,470 8,031 15.6 3,688 8.9 (1.0) 17.4 8.5 4.7 1.4

Comp

anyUpdate

Chambal Fertilisers

Urea business to remain buoyant


8/17

Chambal Fertilisers Sector Update


Key Financials

Income Statement Balance Sheet

Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E

Net Sales 36,004 46,808 51,311 51,470 Equity share capital 4,162 4,162 4,162 4,162

Growth (%) (21.7) 30.0 9.6 0.3 Reserves & surplus 9,738 12,071 15,716 18,430

Expenditure 29,162 39,326 43,132 43,439 Net worth 13,901 16,233 19,878 22,592

Materials Consumed 17508 25025 25142 25220 Minority Interest - - -Power & Fuel 5588 6425 8210 8235 Secured Loans 19,961 14,453 11,453 8,453

Employee Cost 986 1,145 1,203 1,263 Unsecured Loans 6,199 10,385 10,385 10,385

Other Exp 5,080 6,731 8,578 8,720 Loan Funds 26,160 24,838 21,838 18,838

EBITDA 6,842 7,482 8,178 8,031 Net deferred tax liability 2,455 2,012 2,012 2,012

Growth (%) 24.5 9.4 9.3 (1.8) Total Liabilities 42,515 43,083 43,728 43,442

EBITDA margin (%) 19.0 16.0 15.9 15.6

Depreciation 2,576 2,679 2,680 2,680 Gross Block 49,734 49,576 50,284 50,334

EBIT 4,266 4,802 5,499 5,352 Less: Depreciation 20,455 22,818 25,498 28,178

EBIT margin (%) 11.8 10.3 10.7 10.4 Net block 29,278 26,758 24,786 22,156

Other Income 407 474 657 618 Capital work in progress 479 683 25 25

Interest expenses 852 1,020 983 848 Investment 4,172 4,006 4,006 4,006

PBT 3,821 4,257 5,173 5,122 Current Assets 12,597 16,039 22,513 25,843

Tax 1,098 1,156 1,448 1,434 Inventories 2,433 4,024 4,498 4,512

Effective tax rate (%) 28.7 27.2 28.0 28.0 Sundry debtors 5,585 5,897 9,137 9,166

Adjusted PAT 2,724 3,101 3,725 3,688 Cash & bank balance 300 2,618 5,171 8,453

Growth (%) 22.8 13.8 20.1 (1.0) Loans & advances 854 1,589 1,796 1,801

Net Margin (%) 7.6 6.6 7.3 7.2 Other current assets 3,425 1,910 1,910 1,910

(Profit)/loss from JVs/Ass/MI - - - - Current lia & Prov 4,011 4,403 7,602 8,589

Adjusted PAT After JVs/Ass/MI 2,724 3,101 3,725 3,688 Current liabilities 2,277 2,636 4,217 4,230

E/O items (233) 151 - - Provisions 1,734 1,767 3,384 4,358

Reported PAT 2,490 3,252 3,725 3,688 Net current assets 8,586 11,636 14,911 17,255

PAT after MI 2,724 3,101 3,725 3,688 Misc. exp - - - -

Growth (%) 22.8 13.8 20.1 (1.0) Total Assets 42,515 43,083 43,728 43,442

Cash Flow Key Ratios

Y/E, Mar (Rs. mn) FY10 FY11 FY12E FY13E Y/E, Mar FY10 FY11 FY12E FY13E

PBT (Ex-Other income) 3,821 4,257 5,173 5,122 Profitability (%)

Depreciation 2,576 2,679 2,680 2,680 EBITDA Margin 19.0 16.0 15.9 15.6

Interest Provided 852 1,020 983 848 Net Margin 7.6 6.6 7.3 7.2

Other Non-Cash items 1,260 (517) 895 - ROCE 11.0 12.0 14.2 13.7

Chg in working cap (6,784) (731) (723) 939 ROE 20.8 20.6 20.6 17.4

Tax paid -1,084 -1,601 -1,448 -1,434 RoIC 12.2 12.7 15.6 16.3

Operating Cashflow 640 5,106 7,559 8,154 Per Share Data (Rs)

Capital expenditure (3,085) (659) (50) (50) EPS 6.5 7.4 9.0 8.9

Free Cash Flow -2,444 4,447 7,509 8,104 CEPS 12.7 13.9 15.4 15.3Other income 316 419 - - BVPS 33.4 39.0 47.8 54.3

Investments 2,978 (603) - - DPS 2.0 1.9 2.0 2.0

Investing Cashflow 3,294 -184 0 0 Valuations (x)

Equity Capital Raised - - - - PER 11.5 10.1 8.4 8.5

Loans Taken / (Repaid) - - (3,000) (3,000) P/CEPS 5.9 5.4 4.9 4.9

Interest Paid (852) (1,020) (983) (848) P/BV 2.3 1.9 1.6 1.4

Dividend paid (incl tax) (974) (925) (974) (974) EV / Sales 1.5 1.1 0.9 0.7

Income from investments 0 0 0 0 EV / EBITDA 7.8 6.6 5.4 4.7

Others 0 0 0 0 Dividend Yield (%) 2.7 2.5 2.7 2.7

Financing Cashflow -1,825 -1,945 -4,957 -4,822 Gearing Ratio (x)

Net chg in cash -975 2,318 2,553 3,283 Net Debt/ Equity 1.6 1.1 0.6 0.3

Opening cash position 1,275 300 2,618 5,171 Net Debt/EBIDTA 3.2 2.4 1.5 0.8

Closing cash position 300 2,618 5,171 8,453 Working Cap Cycle (days) 58 57 67 67


9/17


10/17

Coromandel International Sector Update


Downgrade EPS estimates by 14%/24% for FY12/13 resp. to Rs 22.6/24.7

We have revised our EPS estimates downwards to reflect lower offtake of complex

fertilizers & resultant pressure on margins. Revised EPS stands at Rs 22.6/24.7 for

FY12/13 resp. (previous Rs 26.4/32.3)

FY12E FY13ERs mn Old

EstimatesNew

Estimates% Change

OldEstimates

NewEstimates

% Change

Net sales 97619 86,272 -11.6% 112,424 88,282 -21.5%

EBITDA 11250 9,486 -15.7% 13,785 10,426 -24.4%

EBITDA % 11.5% 11.0% -53 12.3% 11.8% -45

APAT 7,419 6,350 -14.4% 9,069 6,917 -23.7%

AEPS 26.4 22.6 -14.3% 32.3 24.7 -23.7%


11/17

Coromandel International Sector Update


Key Financials



Net Sales 62,388 73,410 86,272 88,282 Equity share capital 281 282 282 282

Growth (%) (33.6) 17.7 17.5 2.3 Reserves & surplus 14,735 19,286 22,681 26,644


Materials Consumed 48,875 56,951 67,437 58,224 Minority InterestPower & Fuel 694 763 839 1762 Secured Loans 5,946 5,802 5,802 5,802

Other Manufacturing Exp 1,706 1,877 2,065 4,336 Unsecured Loans 14,523 10,836 10,836 5,836

Employee Cost 1,450 1,595 1,754 3,683 Loan Funds 20,470 16,638 16,638 11,638

Other Exp 3,876 4,264 4,690 9,850 Net deferred tax liab 855 815 815 815

EBITDA 5,787 7,961 9,486 10,426 Total Liabilities 36,339 37,020 40,416 39,379

Growth (%) (24.8) 37.6 19.2 9.9

EBITDA margin (%) 9.3 10.8 11.0 11.8 Gross Block 13,074 13,529 16,944 18,444

Depreciation 594 619 827 964 Less: Depreciation 4,962 5,515 6,341 7,306

EBIT 5,193 7,342 8,659 9,462 Net block 8,112 8,015 10,603 11,139

EBIT margin (%) 8.3 10.0 10.0 10.7 Cap work in progress 1,464 3,415 1,500 2,000

Other Income 1,362 821 1,267 1,178 Investment 1,693 1,705 1,705 1,705

Interest expenses 782 839 723 615 Current Assets 35,101 42,277 44,175 41,286PBT 5,773 7,324 9,203 10,025 Inventories 9,264 15,138 14,378 14,754

Tax 1,819 2,164 2,853 3,108 Sundry debtors 1,398 2,052 2,443 3,144

Effective tax rate (%) 31.5 29.5 31.0 31.0 Cash & bank balance 9,605 9,605 14,413 10,145

Adjusted PAT 3,953 5,160 6,350 6,917 Loans & advances 14,834 15,481 12,941 13,242

Growth (%) (17.3) 30.5 23.1 8.9 Other current assets - - - -

Net Margin (%) 6.3 7.0 7.4 7.8 Current lia & Prov 10,031 18,392 17,568 16,751

(Profit)/loss from JVs/Ass/MI - - - - Current liabilities 9,069 17,070 16,245 15,428

Adj. PAT AfterJVs/Ass/MI

3,953 5,160 6,350 6,917 Provisions 962 1,322 1,322 1,322

E/O items 736.0 1,805.4 - - Net current assets 25,070 23,885 26,607 24,535

Reported PAT 4,689 6,965 6,350 6,917 Misc. exp - - - -

PAT after MI 3,953 5,160 6,350 6,917 Total Assets 36,339 37,020 40,416 39,379

Growth (%) (17.3) 30.5 23.1 8.9




Depreciation 594 621 827 964 EBITDA Margin 9.3 10.8 11.0 11.8

Interest Provided 782 868 723 615 Net Margin 6.3 7.0 7.4 7.8

Other Non-Cash items 2,115 3,772 - - ROCE 20.0 22.3 25.6 26.7

Chg in working cap 526 (3,065) 2,085 (2,196) ROE 30.1 29.8 29.9 27.7

Tax paid -1,819 -2,949 -2,853 -3,108 RoIC 21.9 32.0 38.4 39.2

Operating Cashflow 6,608 9,051 8,719 5,123 Per Share Data (Rs)

Capital expenditure (2,210) (2,439) (1,500) (2,000) EPS 14.1 18.4 22.6 24.7

Free Cash Flow 4,398 6,612 7,219 3,123 CEPS 16.2 20.6 25.6 28.1

Other income 1,362 - 1,267 1,178 BVPS 53.5 69.4 81.5 95.5

Investments (60) 67 - - DPS 10.0 7.0 9.0 9.0

Investing Cashflow 1,302 67 1,267 1,178 Valuations (x)

Equity Capital Raised (600) 60 - - PER 19.7 15.1 12.3 11.3

Loans Taken / (Repaid) 3,271 1,360 - (5,000) P/CEPS 17.2 13.5 10.9 9.9

Interest Paid (782) (849) (723) (615) P/BV 5.2 4.0 3.4 2.9

Dividend paid (incl tax) (1,399) (1,944) (2,954) (2,954) EV / Sales 1.4 1.1 0.9 0.9

Income from investments - - - - EV / EBITDA 15.1 10.5 8.3 7.5

Others - (5,305) - - Dividend Yield (%) 1.8 2.5 3.2 3.2

Financing Cashflow 490 -6,678 -3,678 -8,569 Gearing Ratio (x)

Net chg in cash 6,190 1 4,808 -4,268 Net Debt/ Equity 0.6 0.3 0.0 (0.0)

Opening cash position 3,415 9,605 9,605 14,413 Net Debt/EBIDTA 1.6 0.7 0.1 (0.0)Closing cash position 9,604 9,605 14,413 10,145 Working Cap Cycle (days) 9 1 2 10



December 28, 2011

Reco

Hold

Previous Reco

BuyCMP

Rs 122

Target Price

Rs 120

EPS change FY12E/13E (%) -13/-22

Target Price change (%) -40

Nifty 4,751

Sensex 15,874

Price Performance

(%) 1M 3M 6M 12M

Absolute (20) (27) (19) (12)

Rel. to Nifty (21) (26) (5) 11

Source: Bloomberg


100

120

140

160

180

200


Rs

-10

6

22

38

54

70%

Rallis India (LHS) Re l to Nifty (RHS)

Source: Bloomberg

Stock DetailsSector Agri-input & Chemicals

Bloomberg RALI@IN


Face Value(Rs) 1


52 Week H/L 186/117

Market Cap (Rs bn/USD mn) 24/453





Promoters 50.8 50.7 50.7

FII/NRI 6.8 6.5 4.2



Public 19.9 19.3 20.4

Source: Capitaline

Rohan Gupta

[email protected]

+91 22 6612 1248

Balwindar Singh

[email protected]

+91 22 6612 1272

Rallis higher dependency on domestic agrochem markets

(70% of revenues) will lead to moderation in earnings in near

term due to declining farm incomes & shrinking farm

profitability

During FY08-11, Rallis witnessed revenue / PAT CAGR of 17%/

43%, respectively. However near term growth to moderate at

Revenue / PAT CAGR of 21% / 15% during FY11-13E

Potential ramp up in recently acquired seed business coupled

with Dahej plant (catering to exports) is likely to contribute

to revenue growth in long term

Downgrade FY12/13E EPS estimates by 12.8%/22% to Rs 7/8.5

and lower target multiple to 14x from 18x. Downgrade to Hold

from BUY with target price of Rs 120 (previous Rs 197)

Higher dependency on domestic markets might lead to moderation inearnings in the short term

Rallis is largely domestic agrochemical focus company with revenue contribution of

~70% from domestic markets and balance from exports. Higher agrochemical

consumption with growing preference for branded products has helped Rallis to report

revenue CAGR (FY08-11) of 17% while improved product portfolio driving EBITDA

margins resulted into PAT CAGR of 43%. We believe pressure on farmers profitability

is likely to squeeze affordability for agrochemicals and put pressure on companys

earnings in the near future.

Ramp up of seed business and Dahej plant to support long term growth

Acquisition of seed company - Metahelix has helped Rallis to capture the opportunity in

fast growing seeds market. Rallis is confident of boosting its revenues from Metahelixfrom Rs ~1 bn at present to Rs 4-5 bn over next 3-4 years on back of its strong brand

equity and distribution network. Companys Dahej plant (largely to cater exports market)

was commissioned in Q1FY12 and it is currently operating at 40-50% capacity

utilization. Planned ramp up at Dahej plant to 100% by end of FY13 is also likely to

support revenue growth for the company.

Reduce earnings and target price, downgrade to HOLD

Due to increasing pressure on domestic farm incomes and shrinking farm profitability,

we have cut our FY12/13 EPS estimates by 12.8%/22% to Rs 7.0/8.5, respectively in

anticipation of increasing pressure on margins and growth in near term. Rallis witnessed

significant re-rating in FY11 to P/E of 14x from 8 x in FY08-10 driven by higher earnings

growth and improved return ratios (RoE 27%). However with recent moderation inearnings we have trimmed our target multiple to 14x from 18x. Subsequently we reduce

our target price from Rs 197 to Rs 120 and downgrade the stock from BUY to HOLD.


YE-Mar Net EBITDA EPS EPS RoE EV/

Sales (Core) (%) PAT (Rs) % chg (%) P/E EBITDA P/BV

FY10 8,787 1,562 17.8 1,114 5.0 62.2 26.1 23.7 15.4 5.6

FY11 10,657 1,713 16.1 1,259 6.5 29.2 27.1 18.8 14.3 4.7

FY12E 13,442 2,352 17.5 1,357 7.0 7.8 24.5 17.5 10.3 3.9

FY13E 15,704 2,870 18.3 1,653 8.5 21.8 24.9 14.3 8.4 3.3

Comp

anyUpdate

Rallis India

Domestic market under pressure - Downgrade to HOLD


13/17

Rallis India Sector Update


Downgrade EPS estimates by 13/22%in FY12 & FY13 resp. to Rs 7.0/8.5

We have revised our estimates downwards to reflect pressure on domestic agrochemical

companies. Revised EPS stands at Rs 7.0/Rs 8.5 (previous Rs 8.0/10.9) for FY12 & FY13

resp.

FY12E FY13E

Rs mn OldEstimates

NewEstimates

% ChangeOld

EstimatesNew

Estimates% Change

Net sales 13,950 13,442 -3.6% 17,607 15,704 -10.8%

EBITDA 2,624 2,352 -10.4% 3,525 2,870 -18.6%

EBITDA % 18.8% 17.5% -131 20.0% 18.3% -174

APAT 1,551 1,357 -12.5% 2,124 1,653 -22.2%

AEPS 8.0 7.0 -12.8% 10.9 8.5 -22.0%


14/17

Rallis India Sector Update


Key Financials




Growth (%) 5.5 21.3 26.1 16.8 Reserves & surplus 4,115 4,855 5,838 7,078


Materials Consumed 5,034 6,283 7,986 9,191 Minority Interest 0 21 21 21

Employee Cost 667 696 877 1,015 Secured Loans 16 1,087 1,087 1,087

Other Exp 1,524 1,762 2,227 2,628 Unsecured Loans 65 85 85 85

EBITDA 1,562 1,713 2,352 2,870 Loan Funds 81 1,172 1,172 1,172

Growth (%) 45.9 9.7 37.3 22.0 Net deferred tax liability (53) 32 32 32

EBITDA margin (%) 17.8 16.1 17.5 18.3 Total Liabilities 4,272 6,275 7,301 8,529

Depreciation 183 175 277 320

EBIT 1,378 1,539 2,075 2,550 Gross Block 3,091 4,057 5,751 6,151

EBIT margin (%) 15.7 14.4 15.4 16.2 Less: Depreciation 1,564 1,743 2,020 2,340

Other Income 275 340 17 40 Net block 1,527 2,314 3,732 3,812

Interest expenses 27 40 157 265 Capital work in progress 1,120 1,695 400 400

PBT 1,626 1,839 1,935 2,325 Goodwill - 1,236 1,236 1,236

Tax 512 580 578 672 Investment 1,402 256 256 256

Effective tax rate (%) 31.5 31.6 29.9 28.9 Current Assets 3,263 4,666 5,196 6,383

Adjusted PAT 1,114 1,259 1,357 1,653 Inventories 1,489 2,289 2,388 2,900

Growth (%) 64.2 13.0 7.8 21.8 Sundry debtors 755 1,064 1,261 1,677

Net Margin (%) 12.7 11.8 10.1 10.5 Cash & bank balance 119 146 380 639

(Profit)/loss from JVs/Ass/MI - - - - Loans & advances 886 1,154 1,154 1,154

Adjusted PAT After JVs/Ass/MI 1,114 1,259 1,357 1,653 Other current assets 15 13 13 13

E/O items (14) - - - Current lia & Prov 3,041 3,891 3,518 3,558

Reported PAT 1,099 1,259 1,357 1,653 Current liabilities 2,595 3,306 3,046 3,012

PAT after MI 1,114 1,259 1,357 1,653 Provisions 446 586 472 546

Growth (%) 64.2 13.0 7.8 21.8 Net current assets 222 774 1,677 2,825

Total Assets 4,272 6,275 7,301 8,529




Depreciation 183 175 277 320 EBITDA Margin 16.5 16.1 17.5 18.3

Interest Provided 23 25 157 265 Net Margin 11.4 11.8 10.1 10.5

Other Non-Cash items 9 (124) (105) 62 ROCE 36.6 35.7 31.0 33.0

Chg in working cap 1,077 (236) (556) (962) ROE 26.1 27.1 24.5 24.9

Tax paid -667 -697 -578 -672 RoIC 62.6 53.2 40.1 38.1

Operating Cashflow 2,152 987 1,131 1,338 Per Share Data (Rs)

Capital expenditure (949) (1,378) (400) (400) EPS 5.0 6.5 7.0 8.5

Free Cash Flow 1,203 -391 731 938 CEPS 6.1 7.4 8.4 10.1

Other income 8 54 - - BVPS 21.8 26.0 31.0 37.4

Investments 28 (116) - - DPS 1.2 2.0 1.7 2.1

Investing Cashflow 36 -63 0 0 Valuations (x)

Equity Capital Raised 9 - - - PER 23.7 18.8 17.5 14.3

Loans Taken / (Repaid) (744) 849 - - P/CEPS 20.0 16.5 14.5 12.0

Interest Paid (28) (39) (157) (265) P/BV 5.6 4.7 3.9 3.3

Dividend paid (incl tax) (440) (357) (339) (413) EV / Sales 2.5 2.3 1.8 1.5


Others (2) - - - Dividend Yield (%) 1.3 0.8 1.0 1.6

Financing Cashflow -1,205 453 -497 -678 Gearing Ratio (x)

Net chg in cash 35 -1 234 259 Net Debt/ Equity (0.3) 0.2 0.1 0.0

Opening cash position 84 119 146 380 Net Debt/EBIDTA (1.0) 0.4 0.2 0.1

Closing cash position 119 146 380 639 Working Cap Cycle (days) (15) 2 16 36



December 28, 2011

Reco

Buy

Previous Reco

BuyCMP

Rs 132

Target Price

Rs 215

EPS change FY12E/13E (%) NA

Target Price change (%) NA

Nifty 4,751

Sensex 15,874

Price Performance

(%) 1M 3M 6M 12M

Absolute 1 (6) (16) (17)

Rel. to Nifty 0 (5) (2) 5

Source: Bloomberg


100

115

130

145

160

175


Rs

-20

-12

-4

4

12

20%

Uni ted Phosphorus (LHS) Rel to Ni ft y (RHS)

Source: Bloomberg

Stock DetailsSector Agri-input & Chemicals

Bloomberg UNTP@IN


Face Value(Rs) 2


52 Week H/L 176/120

Market Cap (Rs bn/USD mn) 61/1,151





Promoters 26.6 26.6 26.6

FII/NRI 39.3 38.5 37.7



Public 7.8 7.7 7.3

Source: Capitaline

Rohan Gupta

[email protected]

+91 22 6612 1248

Balwindar Singh

[email protected]

+91 22 6612 1272

UPLs diversified geographical presence provide cushion

against slowing domestic rural growth. Buoyant growth in

key global markets to ensure growth for UPL

Recent acquisition in Latin American markets has

strengthened its RoW presence whose contribution has

increased to 39% of total revenues from 33% earlier

H2FY12 is likely to witness strong growth since Q4 is a

seasonally strong quarter for North America & Europe. DVA

contribution & seasonally strong Q3 for RoW to boost growth

Stock has underperformed at 6.5x 1 yr fwd earnings

compared to average of 13x enjoyed historically. Expect

valuation gap to bridge, maintain Buy with target of Rs 215

Diversified geographical spread should help UPL to beat demand

pressure in Indian agrochemical markets

UPLs diversified geographical presence (India-25%, North America-18%, Europe-7% &

Rest of World (RoW) -39% of revenues in FY12) enables the company to reap benefits

from varied geographies with different demand profiles. While domestic agrochemical

market is under pressure due to moderating rural growth, Europe and North America

remain on track. North American pipeline remains strong and company is likely to

witness organic volume growth in excess of 15% during the current year. Since, Q4 is a

seasonally strong quarter in these geographies we are likely to witness strong growth in

these regions in H2FY12. UPLs recent acquisition in Latin American markets has also

strengthened its Rest of World (RoW) presence whose contribution has increased to

39% of total revenues from 33% earlier. RoW operations remain strong with growth

being driven primarily from Latin American countries.

Pressure on domestic market and debt on balance sheets poses risk to

companys earnings

Though UPL is a diversified global players but its revenue share from India markets has

increased to 22% in FY10 to 24% in FY12E. With pressure on domestic agrochemical

demand, companys domestic revenues may come under pressure. However its global

revenues / profits are likely to gain from currency depreciation. UPL also has significant

debt of Rs 32 bn, where it may see some M-T-M loss in near term. However UPL

continue to hold has cash of ~ Rs 1 bn to support the funding of any acquisition

opportunity in future.

Earnings might surprise in H2FY12, maintain Buy

UPLs expanding global footprint has enabled the company to record topline CAGR of17% and APAT CAGR of 23% over FY08-11. Historically, UPL has commanded a PE

multiple of 6x-20x with an average of 13x during FY06-11 however multiples have

currently fallen to 6.5x due to concerns on growth in global markets, high debt and

impact of currency depreciation. We believe that concerns are overdone with stock

trading at 50% discount to its historical average P/E multiple and earnings are likely to

surprise in H2FY12 driven by strong growth in North American & Latin American

markets. We maintain Buy with target price of Rs 215.


YE- Net EBITDA EPS EPS RoE EV/

Mar Sales (Core) (%) APAT (Rs) % chg (%) P/E EBITDA P/BV

FY10 54,633 10,021 18.3 5,593 12.1 (8.1) 19.7 10.4 5.8 1.9

FY11 58,045 11,106 19.1 6,620 14.3 18.3 19.7 9.2 5.6 1.6

FY12E 76,494 14,728 19.3 8,218 17.8 24.1 20.3 7.4 4.8 1.4

FY13E 82,760 16,307 19.7 9,904 21.4 20.5 20.6 6.2 3.9 1.2

Comp

anyUpdate

United Phosphorus

Global growth remains buoyant


16/17

United Phosphorus Sector Update


Key Financials




Growth (%) 10.8 6.2 31.8 8.2 Reserves & surplus 29,039 36,337 42,933 51,217


Materials Consumed 29,542 29,881 46,499 49,480 Minority Interest 140 180 380 580

Employee Cost 5,018 5,146 6,642 7,645 Secured Loans 4,044 4,646 4,646 2,646

Other Exp 10,052 11,912 8,625 9,328 Unsecured Loans 19,774 20,273 26,273 24,022

EBITDA 10,021 11,106 14,728 16,307 Loan Funds 23,818 24,919 30,919 26,669

Growth (%) 6.1 10.8 32.6 10.7 Net deferred liabilities 490 296 196 96

EBITDA margin (%) 18.3 19.1 19.3 19.7 Total Liabilities 54,366 62,655 75,352 79,484

Depreciation 2,147 2,138 2,600 2,600

EBIT 7,874 8,968 12,128 13,707 Gross Block 30,009 36,317 48,476 51,476

EBIT margin (%) 14.4 15.5 15.9 16.6 Less: Depreciation 12,286 13,109 15,709 18,309

Other Income 343 937 1,269 1,299 Net block 17,723 23,209 32,767 33,167

Interest expenses 1,938 2,309 3,000 2,500 Capital work in progress 406 658 1,500 1,500

PBT 6,279 7,596 10,397 12,505 Investments 7,612 8,232 8,232 8,232

Tax 814 731 2,079 2,501 Current Assets 43,242 49,914 58,144 63,837

Effective tax rate (%) 13.0 9.6 20.0 20.0 Inventories 10,084 14,055 19,520 21,112

Adjusted PAT 5,465 6,865 8,318 10,004 Sundry debtors 12,135 14,795 20,548 22,223

Growth (%) (7.5) 25.6 21.2 20.3 Cash & bank balance 15,778 15,659 12,671 15,097

Net Margin (%) 10.0 11.8 10.9 12.1 Loans & advances 4,693 4,662 4,662 4,662

(Profit)/loss from JVs/Ass/MI 128.2 (245.3) (100.0) (100.0) Other current assets 553 743 743 743

Adjusted PAT After JVs/Ass/MI 5,593 6,620 8,218 9,904 Current lia & Prov 14,616 19,358 25,291 27,252

E/O items - (1,006) - - Current liabilities 13,591 18,117 24,050 26,011

Reported PAT 5,593 5,614 8,218 9,904 Provisions 1,025 1,241 1,241 1,241

PAT after MI 5,593 6,620 8,218 9,904 Net current assets 28,626 30,557 32,853 36,586

Growth (%) (8.1) 18.3 24.1 20.5 Total Assets 54,366 62,655 75,352 79,484




Depreciation 2,147 2,138 2,600 2,600 EBITDA Margin 18.3 19.1 19.3 19.7

Interest Provided 1,503 2,031 3,000 2,500 Net Margin 10.2 11.4 10.7 12.0

Other Non-Cash items (970) (36) - - ROCE 16.1 16.9 19.4 19.4

Chg in working cap 4,499 (1,884) (5,285) (1,306) ROE 19.7 19.7 20.3 20.6

Tax paid -813 -885 -2,079 -2,501 RoIC 23.4 26.1 26.6 25.5

Operating Cashflow 12,302 8,023 7,364 12,500 Per Share Data (Rs)

Capital expenditure (2,285) (6,960) (13,000) (3,000) FDEPS 12.1 14.3 17.8 21.4

Free Cash Flow 10,017 1,063 -5,636 9,500 CEPS 17.6 19.0 23.4 27.1

Other income 313 125 1,269 1,299 BVPS 68.1 80.7 95.0 112.9

Investments 122 (1,391) - - DPS 2.5 2.0 3.0 3.0

Investing Cashflow 435 -1,266 1,269 1,299 Valuations (x)

Equity Capital Raised - 2,888 - - PER 10.4 9.2 7.4 6.2

Loans Taken / (Repaid) 2,840 (58) 6,000 (4,251) P/CEPS 7.5 7.0 5.6 4.9

Interest Paid (1,522) (1,095) (3,000) (2,500) P/BV 1.9 1.6 1.4 1.2

Dividend paid (incl tax) (769) (1,024) (1,621) (1,621) EV / Sales 1.1 1.1 0.9 0.8


Others -761 -1027 0 0 Dividend Yield (%) 1.9 1.5 2.3 2.3

Financing Cashflow -213 -316 1,379 -8,372 Gearing Ratio (x)

Net chg in cash 10,239 -520 -2,988 2,426 Net Debt/ Equity 0.0 0.0 0.2 0.1

Opening cash position 5,539 16,178 15,659 12,671 Net Debt/EBIDTA 0.0 0.1 0.7 0.2

Closing cash position 15,778 15,658 12,671 15,097 Working Cap Cycle (days) 57.6 67.5 76.4 76.4


17/17

Sector Update


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