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1 10 April QFY19 Result Preview Gains Versus El Nino Headwind Holds The Key; Retain Buy We remain positive on and retain our Buy call on it based on 24% upside to our blended target price of Rs1,134 (please refer report dated 26 March 2019 titled: Leap Of Faith). 4QFY19 results expectations: has announced plans to consolidate financials for two months in 4QFY19 (February and March 2019). The 4QFY19 numbers, including, are not comparable to 4QFY18. The company s name remains unchanged as post- takeover. The results are due on 26 April pre-: We expect consolidated 4QFY19 PAT (before one-time integration costs of Rs650mn) at Rs9,485mn vs. Rs7,420mn a year ago (up 27.8%). We expect reported PAT, including above exceptional items, at Rs8,945mn vs. Rs7,730mn a year ago (up 20%). post-: Consolidated 4QFY19 PAT (excluding one-time integration costs of Rs650mn) is expected at Rs11,216mn. Potential beat or miss elements to watch out for in s 4QFY19 results: Our estimates are at the top end of the street based on Bloomberg mean street EPS estimate for the quarter at Rs (PAT Rs 7bn) We expect 10.8% YoY growth in company revenues based on muted 15% growth assumed in LatAm sales vs. YTD growth of 24.5% in the region. Lower EBITDA margin at 22.6% vs. 25% YoY on account of a 17.3% increase in employee costs and 35% increase in other expenditure. Our forecast of 27.8% growth (YoY) in 4QFY19 consolidated PAT (adjusted) for pre- is driven by the estimated 52% fall in interest expenses (finance costs), in line with the trend YTD. The FX impact on operating costs (above EBITDA) and under finance cost (which we show separately) driven largely by the INR/USD rate 7% up YoY and 2% down QoQ at Rs70.5/USD average for 4QFY19 (cross-currency movements in BRL/USD and Euro/USD also have an impact, but difficult to quantify). #Exceptional expenses towards integration costs post- takeover as per management guidance we have assumed Rs650mn in 4QFY19 and Rs1,775mn for FY19 towards this item (US$25mn over FY19 based on company guidance). Milind Raginwar Research Analyst Milind.raginwar@nirmalbang.com Price Performance (%) 1-M 6-M 1-Y Nifty Index (Rsmn) Rating TP Revenues EBITDA EBITDA margin (%) PAT (adjusted) (Rs) 4QFY19E YoY (%) QoQ (%) 4QFY19E YoY (%) QoQ (%) 4QFY18 3QFY19 4QFY19E 4QFY19E YoY (%) QoQ (%) pre- 63, , , Buy 1,134 post- 87, , , Source: Company, Nirmal Bang Research 1
2 Exhibit 1: Segment revenues of pre- 4QFY19E and FY19E Segment revenues (Rsmn) 4QFY19E (YoY) FY19E (YoY) India 4, , LatAm 20, , North America 14, , Europe 10, , RoW 12, , Source: Company, Nirmal Bang Research Key details to watch out for post results meet: pre-: 1. LatAm region s growth and share in the overall revenue pie has overshadowed other regions over the past three quarters, and indeed the past three years. 2. New product launches. 3. Inventory and receivables, and trend in bookings. 4. Traction in the US, Europe, and RoW. post-: 1. Combined revenues and key drivers volume vs. price growth and FX impact, especially crosscurrency rates. 2. Combined revenue mix across geographies, categories (if they share). 3. Cost and margin drivers, especially the split between COGS and SG&A expenses and thereby gross margin and EBITDA margin. 4. Goodwill and minority interest in the balance sheet on consolidation. 5. Impact of movements in inventory and receivables, on change in w/c and short-term debt. 6. Any increase in R&D expenses, regulatory or litigation expenses. 7. Integration costs FY19 and guidance going forward. 8. Post- synergies - any change in value or timeline. Note: All these aspects are likely to be clarified in the Capital Markets Day PPT. We expect the street to revise estimates (likely to raise than cut) once these aspects are clarified. El Nino worries could hurt the stock near term - Buy on dips: The impact of El Nino on weather patterns in India and all other geographies poses uncertainties for crop planting and pesticide demand over the next two quarters. In our view, clarity and visibility on growth prospects and integration benefits post-arsyta merger will offset this overhang. Hence, we retain our Buy call on the stock and advise clients to enter on any dip that could result from these near-term concerns. 2
3 Exhibit 2: Summary financials (Rsmn) 4QFY18 4QFY19E pre- Chg. % YoY 4QFY19E post- YoY 3QFY19 QoQ pre- QoQ post- FY18 FY19E pre- Revenues 56,910 63, , , , , , Raw materials expenses 29,020 28,378 (2.2) 39, , ,120 87, , Employee costs 4,300 5, , , ,130 19, , ther expenditure 11,410 15, , , ,370 47, , Net FX loss/(gain) on trade receivable/payable YoY FY19E post- (2,030) ,800 1, ,800 1,536.4 EBITDA 14,210 14, , , ,050 39, , EBITDA margin Depreciation &amortisation 1,840 2, , , ,750 7, , Finance costs 1,840 1,980 (51.7) 2,680 (34.6) 1, ,370 7,780 (10.9) 8,480 (2.9) FX+MTM (gain)/loss 2, ,360 (220) (75.6) (220) (75.6) Other income 1,180 1, , ,140 3,120 (24.6) 3,120 (24.6) Exceptional (income)/expense (28.6) (28.6) 630 2, , PBT reported 9,390 10, , , ,980 25, , Income tax (current+deferred tax) 1,660 1, , ,540 3, , PAT reported 7,730 8, , , ,440 21, , PAT excluding exceptional item 7,790 9, , , ,070 23, , Share of profit/loss in associates (360) (40) (88.9) (40) ((8.9) (40) - (930) (180) (80.6) (180) (80.6) Minority interest , Consolidated profit adjusted 7,420 9, , , ,060 23, , Source: Company, Nirmal Bang Research YoY Exhibit 3: Consensus vs. NBIE estimates for post- (In Rsbn) NBIE 4QFY19E Consensus 4QFY19E Revenues EBITDA Consolidated profit adjusted 11 7 Source: Company, Nirmal Bang Research and Bloomberg 3
4 P/E band chart Exhibit 4: s five-year forward P/E (x) Apr-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 Source: Company, Nirmal Bang Research Forward PE 5yr median PE SD +1 SD -1 4
5 Coromandel International 10 April QFY19 Result Preview All Eyes On Crop Protection Chemicals Business Ramp-up We expect Coromandel International (CRIN) to report a sharp 70% YoY surge in PAT in 4QFY19, primarily on a beaten-down base of 4QFY18. This will be driven by 17.5% growth in revenues and a 260bps rise in EBITDA margin YoY. The QoQ trend, which is relatively more meaningful (although this is a seasonal business), is likely to be subdued on account of: (i) Lower fertiliser throughput as a result of planned shutdown for annual turnaround. (ii) The transition to direct benefit transfer (DBT)-based sales for NPK and DAP fertilisers. We are maintaining our FY20 and FY21 estimates as we await FY19 results (due on 23 April 2019). We are rolling over our valuation from September 2020E EPS to March 2021E EPS and reducing our target P/E for CRIN from 20x to 16.1x - the five-year median P/E - which, in our view, is more appropriate for its business that is still dominated by subsidy (around 80%). As a result, we have cut our target price on CRIN by 15% to Rs509 and downgraded the rating on the stock to Accumulate (10% upside from CMP) from Buy earlier. Our rationale for the downgrade: The stock is up 17% from six months ago, which, in our view, has largely priced in the positive catalysts, including the expected reduction in dues towards legacy subsidy (Rs20.2bn as of December 2018), and the potential growth from crop protection chemicals or CPC (16.5% YoY fall in the stock was in the aftermath of the steep 38% decline in 4QFY18 PAT). We have concerns regarding prospects for fertilizer and CPC revenues over the next two quarters on account of unfavorable weather conditions resulting from the return of the El Nino phenomenon. The share of the high-margin CPC business in CRIN s EBIT has declined from 30% to 22% in the past three years. We would like to see a more consistent progress in the CPC business ramp-up and margins. Finally, we also expect a lower earnings CAGR of 8.8% over FY19E-FY21E vs. 19.5% over FY15- FY18. This is based on lower revenue growth of 8%-9% we forecast over FY19E- FY21E vs. the 10.5%-21% growth over the past two years. Watch list for 4QFY19 results: Ramp-up in CPC business based on 10,000tn capacity expansion in Mancozeb commissioned in 3QFY19. Progress in sales from new launches in the CPC space announced by the company- 4 YTDFY19 and two proposed launches. Split between non-subsidy and subsidy business in revenues and EBITDA. Progress in phosphoric acid business expansion. Outlook on fertiliser and CPC over 1HFY20, given the concerns over weather and El Nino impact Long-term outlook on CPC and overall capex plan for FY20 and FY21. Trend in outstanding subsidy, and DBT receipts, and any positive impact on lower working capital/debt reduction. Milind Raginwar Research Analyst Milind.raginwar@nirmalbang.com Price Performance (%) 1-M 6-M 1-Yr Coromandel International (8.3) 17.0 (17.0) Nifty Index (Rsmn) Rating TP Revenues EBITDA EBITDA margin (%) PAT (Rs) 4QFY19E YoY (%) QoQ (%) 4QFY19E YoY (%) QoQ (%) 4QFY18 3QFY19 4QFY19E 4QFY19E YoY (%) QoQ (%) Coromandel International Accumulate , (7) 2, (4) , (2) Source: Company, Nirmal Bang Research 5
6 Exhibit 1: Our 4QFY19 estimates (Rsmn) 4Q FY18 4QFY19E YoY % 3QFY19 QoQ % FY18 FY19E YoY % Net revenues 24,118 28, ,495 (7.1) 110, , Raw material plus inventory costs 15,409 13,033 (15.4) 14,096 (7.5) 63,651 67, Purchases 1,191 6, ,202 (16.7) 12,442 25, Employee costs 927 1, , ,619 4, Freight expenses 2,146 3, , ,792 11, Other expenses 2,596 2,283 (12.1) 2,457 (7.1) 8,761 10, Operating expenses 5,669 6, , ,171 25, EBITDA 1,850 2, ,042 (4.4) 12,564 14, Depreciation , EBIT 1,612 2, ,773 (6.6) 11,573 13, Interest expenses ,783 2, Other income (39.7) (35.5) PBT 1,272 2, ,357 (7.7) 10,387 11, Exceptional income/ (expenses) (4) (100.0) - (201) - Share of JV and assoc. +/- 3 - (100.0) 14 (100.0) (6) 7 (208.3) PBT incl. exceptional 1,275 2, ,367 (8.1) 10,381 11, Current tax (23.1) 3,539 3, Deff. tax 33 (100.0) (29) (100.0) (71) (119) 67.4 PAT 896 1, ,546 (1.5) 6,913 7, PAT adjusted ,550 (1.7) 6,913 7, EPS (1.48) Source: Company, Nirmal Bang Research 6 Coromandel International
7 P/E band chart Exhibit 2: Coromandel International s five-year forward P/E (x) Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Source: Company, Nirmal Bang Research Forward PE 5 yr median PE SD +1 SD -1 7 Coromandel International
8 DISCLOSURES This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I, Mr. Milind Raginwar, research analyst and the author of this report, hereby certify that the views expressed in this research report accurately reflects my personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst is principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 8
9 Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NBEPL & its group companies to registration or licensing requirements within such jurisdictions. The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up-to-date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBEPL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. NBEPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. This information is subject to change without any prior notice. NBEPL reserves its absolute discretion and right to make or refrain from making modifications and alterations to this statement from time to time. Nevertheless, NBEPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change without any notice. Neither the company nor the director or the employees of NBEPL accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Here it may be noted that neither NBEPL, nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profit that may arise from or in connection with the use of the information contained in this report. Copyright of this document vests exclusively with NBEPL. Our reports are also available on our website Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com , Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com /8101, Michael Pillai Dealing Desk michael.pillai@nirmalbang.com /8103, Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai Board No. : /1; Fax. :
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3QCY17 Result Update Institutional Equities Crisil 18 October 2017 Reuters: CRSL.BO; Bloomberg: CRISIL IN Weak SME Rating Revenues & Currency Movement Play Spoilsport Crisil s 3QCY17 performance was below
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3QFY15 Result Update Institutional Equities Cadila Healthcare 11 February 2015 Reuters: CADI.BO; Bloomberg: CDH IN Stable Performance Cadila Healthcare s (CHL) 3QFY15 earnings were in line with our expectations
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