Management Meet Note. Institutional Research. STRONG BUY Current Price. November 20, Price Target. Upside Scenario.

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1 Management Meet Note Institutional Research November 20, 2018 Coromandel International Ltd. Recently, we met with Mr. Sameer Goel (Managing Director) and Ms. Jayashree Satagopan (Chief Financial officer) at Coromandel House in Secunderabad and came back very enthusiastic about the growth prospects of the company. We also visited one of their prominent Gromor centres in the same city to understand DBT processes and activities undertaken by the centre to ensure total professional support to the farming community in the area. DBT roll out has been a game changer: The management has complimented the government on the smooth roll out of DBT. The lag of receiving subsidies which was 6-8 months earlier has now come down to one month. Because of DBT, channel inventory has got cleaned up and it is easy to track the fertilisers in terms of market availability and sales. The smooth subsidy processes started only from August Old claims are still not received yet but the company is hopeful that it will be settled soon. The management is keen to see how the government will be able to continue the DBT and that there would no setbacks going ahead. They are of the opinion that the direct benefit will happen only when the subsidy is transferred directly to farmers, then the company will be free of receiving subsidy from government. Increase EBITDA share from nonsubsidy business: CRIN relies heavily on subsidies from the government. Even though DBT roll out has ensured that the subsidies will be received on time, the management is of the opinion that they need to ensure that the EBITDA share from the non subsidy part of their business needs to increase. They have, therefore, started focussing on the sales of unique grade fertiliser, non phosphatic fertilisers as well as on their crop protection business. The management has a vision of equal contribution to EBITDA from subsidy and non subsidy business segments. Crop protection: CRIN has expanded the Dahej facility by 10,000 MT taking the total capacity at both the facilities to 60,000 MT. The new R&D center is focussed on developing new molecules for the crop protection segment. Mancozeb continues to remain its main molecules and CRIN is one of the three players globally to market it. The management plans to focus on formulations and introduce 5 new combination molecules every year. This year two patented molecules have already been introduced and 3 other molecules will be introduced in March CRIN is operational in 80 markets globally. The management is of the opinion that they will enter only in those markets where they feel they can command 60% share going ahead. They will choose these markets depending upon their molecule portfolio. The management is positive on the performance of biopesticides division that they have acquired from EID Parry and also mentioned that since acquiring growth of the same has been phenomenal. Downside Scenario Industry STRONG BUY Current Price 413 Price Target % Market Data Sensex Nifty Bloomberg Code Face Value (INR) 1 Upside Scenario Agrochemicals CRIN:IN 52-w H/L 588/ 340 Market Cap (INR Crores) Valuation Data FY18 FY19E FY20E P/E (x) EV/EBITDA Coromandel International Ltd. Vs SENSEX Coromandel Share Holding Pattern Sep 18 Jun 18 Mar 18 Promoters FIIs DIIs Retail * Sensex CRIN has good presence in southern markets and also in Rajasthan and Punjab. CRIN imports 70% of its raw materials from China and they have a dedicated team in China for the same. The management also iterated that co-marketing with global companies is also one of the strategies. Domestically, CRIN co-markets with companies like Insecticide, Rallis, etc. Raw material prices: The company has taken four price hikes this year. Even though there is a cap on the MRP of products of 5%, the company can hike prices when the industry does the same to help them sustain. The company submits a cost sheet to the department of fertilisers (DoF) which contains raw material costs they have incurred during the year. DoF does this to ensure no undue advantage is taken by any company by increasing their prices. The company has taken a price increase of 34% in DAP since January. The management said that the capacity expansion in Vizag is on track and will be completed in August/ September In terms of cost, they could benefit $ from this expansion. * Read last page for disclaimer & rating rationale research@ www.

2 Coromandel International Ltd. Management Meet Note Page 2 Gromor center visit in Shamirpet, Secunderabad: The retail arm of Coromandel was started in the year 2007 with 2 outlets in Andhra Pradesh and by the business expanded to over 800 retail centers in rural Andhra Pradesh, Telengana, Karnataka and Maharashtra. Coromandel's retail centers are located at Mandal headquarters (Mandal is a revenue unit in Andhra Pradesh, which is 1/50th of a district.) Each retail center has an average area of 1750 square feet with a catchment area of villages and about 5,000 farmer families. The centre opens in the morning around 6.00 am and remains open till 5.00 pm in the evening. Each centre has a reception, fertiliser and pesticide display, godown for storage and a soil testing area. Each centre consists of 3 people, store manager, accounts executive and business development executive (BDE). The reception area is equipped with POS machines, computer and a printer for generating the bill of purchase. In the soil testing area, the farmers when they bring the soil, can be tested for nutrients. The apparatus can also be carried by a BDE when he visits a farmer. The store that we visited clocked a annual sale of INR 2 crore. The BDE visits nearby villages in the morning till 11:30 am and leaves again for the field around 4.00 pm. They visit the villages to understand the need of the farmers with respect to fertilizers and pesticides. All employees are trained rigorously for the first three months on the use of different pesticides and fertilizers. All the employees in a gromor centre are graduates and coromandel has tie ups with local universities where they are asked to attend lectures on agricultural science. These centres have a call centre where a team of agriculture scientists sit which can help the employees of the gromor when they call with any queries. Valuation: CRIN has benefitted with the DBT rollout and that remains of one the key elements for the company going ahead. Along with the subsidised fertilisers, the management is also focussed on increasing share of unique grades which stood at 39% this year. The management is increasing focus on the non subsidised part of the business as they want to reduce dependency on the government going ahead. The management has also identified the potential of growth they can achieve from the crop protection business and hence plans to come out with 5 new molecules every year as well as identify new markets for marketing of these molecules. They are also planning many new strategies in this segment. At CMP of INR 413, the company is trading at 6.6x FY20E EV/ EBITDA and 9.8x FY20E EPS. We value the company using average of EV/ EBITDA and P.E. multiple methodology. We have given an exit multiple of 8x for EV/EBITDA and 12x for PE to arrive at an average target price of INR 512 which is an upside of 24%. Financial Snapshot (INR Crores) FY16 FY17 FY18 FY19E FY20E FY21E Net Revenues YoY - -13% 9% 14% 7% 6% EBITDA YoY - 28% 25% 38% 25% 17% PAT YoY - 33% 39% 42% 31% 18% P/E EPS (INR) EV/ EBITDA D/E research@ www.

3 Coromandel International Ltd. Management Meet Note Page 3 Gromor Center in Secunderabad: research@ www.

4 Coromandel International Ltd. Management Meet Note Page research@ www.

5 Coromandel International Ltd. Management Meet Note Page 5 Company Profile: Coromandel International Ltd (CRIN), formerly Coromandel Fertilisers Ltd, was established in The company went public in It is promoted by the Murugappa group. Coromandel was formed by the joint efforts of two major companies of the US, namely Chevron Chemical Co and International Minerals and Chemicals Corp. Coromandel is a leading manufacturer of a wide range of fertilisers and pesticides. The company has phosphatic fertiliser plants at Visakhapatnam & Kakinada in Andhra Pradesh and Ennore & Ranipet in Tamil Nadu. It produces phosphatic fertilisers, plant protection chemicals, speciality nutrients, sulphur bentonite and potash. Some of the major products of the Coromandel International Limited are complex fertilisers, including di-ammonium phosphate (DAP), single super phosphate (SSP), speciality fertilisers etc. CRIN has two business segments: a) Nutrient & other allied businesses b) Crop Protection Phosphatic Fertilisers: CRIN has 16% market share in phosphatic fertilisers. They have gained magnitude by means of expansion and acquisition and current capacity stands at 3.5 million tons. They account for around 22% of the domestic manufacturing capacity. Its production facilities at Visakhapatnam, Kakinada and Ennore provides considerable presence in South, East and West India markets. Coromandel, with its integrated manufacturing facilities at Visakhapatnam and Ennore, features among the lowest cost producers in India. In addition, Coromandel markets imported DAP & MOP and along with its Urea handling contracts at Kakinada in Andhra Pradesh and Kandla in Gujarat, offers complete nutrient solutions to the Indian farmers. After the DBT roll out and introducing neem coated Urea a year ago, government has mandated the industry to market Urea in 45 kilogram (kg) bags instead of traditional 50 kg bags from onwards. The Phosphoric acid project for captive consumption, envisaged to add another 1 lakh tons of acid at Visakhapatnam unit will be completed in Speciality nutrients: Coromandel has a speciality nutrients division (SND) to market speciality nutrients. This compliments their efforts in improving the Indian farm productivity by upgrading the quality of Indian soils and focuses on the marketing of concept products for Indian agriculture. New crop specific water soluble fertiliser products were introduced during the year which have received good response from the market. With the government s thrust towards promoting balanced nutrition and water use efficiency, the business expects significant growth opportunities in coming years. Recently, Coromandel has entered into a joint venture agreement with Sociedad Quimicay Minera, Chile to set up a water soluble fertiliser (WSF) plant for manufacturing WSF at Coromandel's Kakinada Plant. Retail: The retail arm of Coromandel was started in the year 2007 with 2 outlets in Andhra Pradesh and by the business expanded to over 665 retail centers in rural Andhra Pradesh and Karnataka. Coromandel's retail centers are located at Mandal, Andhra Pradesh. Each retail center has an average area of 1750 square feet with a catchment area of villages and about 5,000 farmer families. Currently, they operate a network of around 800 rural retail outlets across Andhra Pradesh, Telangana, Karnataka and Maharashtra. To improve farm advisory services, Gromor Advisory Council comprising of scientists from leading agriculture universities was constituted and nutritional package of practices for eight crops were developed. They expanded to Western Maharashtra by opening four new stores during the year. They also partnered with the Andhra Pradesh Government to open five new Custom Hiring & Service Centres (CHSC) for providing farm mechanization services. Each retail center has an average area of 1750 square feet with a catchment area of villages and about 5,000 farmer families. Crop Protection: The company s major products in crop protection include Mancozeb, Acephate, Monocrotophos and Profenofos. These constitute 85 90% of volumes, with Mancozeb making up ~50%. Coromandel is the second largest manufacturer of Malathion and is the major manufacturer of Phenthoate in Asia. By taking over M/s Sabero Organics in 2011, Coromandel has added many technicals to its range of products and is currently among the top 5 Indian companies in Indian Pesticide Industry. The Company has global registrations in 62 countries and has strong presence in export markets of Latin America, SE Asia & Africa. The company s crop protection chemicals (CPC) business has three R&D centers at Ankleshwar, Sarigam and Hyderabad. The newly established Hyderabad R&D center is concentrating on development of new off patent molecules, synthesizing impurities for various products to ease the registration process. During FY 17-18, they acquired the Bio pesticide business from E.I.D Parry (India) Limited which would enable the business to gain entry in high growth bio pesticide segment in Indian, North American and European markets. The transaction is valued at INR 338 crore and includes purchase of bio-pesticides business of E.I.D. Parry together with its R&D unit, captive plantations and its whollyowned subsidiary Parry America, Inc research@ www.

6 14% 16% 21% 26% 29% 30% 14% 18% 20% 27% 30% 32% % ,235 1, ,227 1,687 2,116 2,480 INR Crores % INR Crores % Coromandel International Ltd. Management Meet Note Page 6 Coromandel Phosphatic Fertiliser Sales (Lakh tons) Revenue from operations (INR Crores) FY FY FY FY FY Manufactured Imported Revenue from operations PAT & PAT Margin EBITDA & EBITDA Margin 1,600 1,400 1,200 1, % 9.3% 7.6% 6.1% 4.8% 3.1% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 3,000 2,500 2,000 1,500 1, % 17.5% 13.6% 11.2% 9.8% 6.7% 20.0% 15.0% 10.0% 5.0% 0.0% PAT PAT Margin EBITDA EBITDA Margin D/E Ratio Margins 40% 30% 20% 10% D/E Ratio 0% Gross Margins EBITDA Margin EBIT Margin PAT Margin RoE RoCE RoE RoCE Source: NSPL Research, department of fertilisers research@ www.

7 Coromandel International Ltd. Management Meet Note Page 7 Profit & Loss (INR Crores) FY16 FY17 FY18 FY19E FY20E FY21E Net sales 11, , , , , ,159.5 COGS 8, , , , , ,051.6 Employee Expenses Other Expenses 1, , , , , ,183.6 EBITDA , , , ,479.8 D&A Other income EBIT , , , ,429.6 Interest Expense PBT , , , ,221.5 Exceptional Items Tax Share of profit/ (loss) of joint ventures PAT , ,461.0 EPS in INR Balance Sheet FY16 FY17 FY18 FY19E FY20E FY21E EQUITY AND LIABILITIES Shareholders' Equity Other financial liabilities Provisions Deferred tax liabilities (net) Other non-current liabilities Current liabilities Borrowings Trade payables Other financial liabilities Provisions Current tax liabilities (net) Other current liabilities Total liabilities Total equity and liabilities ASSETS Non-current assets Property, plant and equipment Capital work-in-progress Goodwill Other intangible assets Intangible assets under development Financial assets Investments Investments in joint ventures Other investments Other financial assets Income tax assets (net) Other non-current assets Current assets Inventories Investments Trade receivables Government subsidies receivable Cash and cash equivalents Bank Balances Loans Other financial assets Other current assets Total assets Source: NSPL Research research@ www.

8 Coromandel International Ltd. Management Meet Note Page 8 Cash Flow (INR Crorers) FY16 FY17 FY18 FY19E FY20E FY21E PBT , , , , Operating profit before working capital changes , , , , Operating profit after working capital changes , , , , Less income tax paid Cash Flow from Operating , , (Incr)/ Decr in Gross PP&E Cash Flow from Investing Cash Flow from Financing Incr/(Decr) in Balance Sheet Cash Cash at the Start of the Year Cash at the End of the Year RATIOS FY16 FY17 FY18 FY19E FY20E FY21E Profitability Return on Capital Employed (%) 14% 18% 20% 27% 30% 32% Return on Equity (%) 14% 16% 21% 26% 29% 30% Return on Assets (%) 4% 6% 7% 9% 11% 12% Margin Trend EBITDA Margin (%) 7% 10% 11% 14% 16% 18% Net profit Margin (%) 3% 5% 6% 8% 9% 10% Solvency Total Debt / Equity Valuation Ratios P/E P/B EV/ EBITDA No. of transactions in the month of October eligible for DBT Name of the PSU/Fertilizers Company No. of Digital Transaction made in the Month CFCL 3973 CRIN 2443 GSFC 2440 PPL 1613 KRIBHCO 1443 IFFCO 1345 SPIC 1243 NFL 1190 RCF 992 HINDALCO 869 Zuari 811 GFL 732 FACT 461 Smartchem 317 MCFL 315 GNFC 211 BVFCL 144 Yara 98 MFL 36 NFCL 36 SFC 11 Source: NSPL Research, mfms.nic.in research@ www.

9 OUR RECENT REPORTS Dalmia Bharat Coromandel International Meghmani Organics IndoStar Capital Minda Industries Sharda Cropchem Heidelberg Cements Manappuram Finance IG Petrochemicals Prataap Snacks Aarti Industries Shriram Transport

10 Coromandel International Ltd. Management Meet Note Page 10 Coromandel International Ltd. Date CMP (INR) Target Price (INR) Recommendation November 20, Strong Buy October 30, 2018 (Q2FY19 Result Update) Strong Buy October 12, 2018 (Company Update) Strong Buy Rating Legend Strong Buy More than 15% Buy 5% - 15% Hold 0 5% Reduce -5% - 0 Disclaimer: This report has been prepared by Nalanda Securities Pvt. Ltd( NSPL ) and published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014, for use by the recipient as information only and is not for circulation or public distribution. NSPL includes subsidiaries, group and associate companies, promoters, directors, employees and affiliates. This report is not to be altered, transmitted, reproduced, copied, redistributed, uploaded, published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from NSPL. 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Has research analyst served as an officer, director or employee of the subject company Has research analyst or NSPL engaged in market making activity for the subject company Other disclosures NSPL is a Stock Broker registered with BSE, NSE and MCX SX in all the major segments viz. Cash, F & O and CDS segments. Further, NSPL is a Registered Portfolio Manager and is registered with SEBI SEBI Registration Number: INH No disciplinary action is / was running / initiated against NSPL No (except to the extent of shares held by Research analyst or NSPL or its relatives'/associates') Sell Less than -5% research@ www.