Why Coromandel Share Price is Falling

Imagine a world without fertilizers.

No more juicy, ripe tomatoes, no more fresh, crispy lettuce, and no more fragrant flowers. Sounds bleak, doesn't it?

Not only this, but it could also lead to food shortages, higher prices, and potentially even famine in some areas.

Additionally, without fertilizers, farmers may need to clear more land for farming, which could contribute to deforestation and other negative environmental impacts.

See, that's the role of fertilizers in our lives. Despite the thriving market, one particular fertilizer stock, Coromandel International, is facing a setback.

The company's shares witnessed a surprising 5% decline in a single day.

Here's why...

#1 Weak Q3 Results

Coromandel International witnessed a 5% decline in its shares on 30 January 2024, following the disappointing Q3 results, marking the company's third consecutive quarter of weakened performance.

For the December 2023 quarter, the company reported a 34% YoY decline in revenue at Rs 55.2 bn against Rs 83.5 bn a year back.

The company posted a 57% dip in consolidated net profit during the third quarter of the financial year 2023-24 to Rs 2.3 bn, compared to Rs 5.3 bn during the October to December period of the previous financial year.

These numbers were hurt by subdued demand in its mainstay fertilizers and nutrient chemicals business.

Sector-wise, in its nutrient and allied business, the company reported a revenue of Rs 48.9 bn, against Rs 77.1 bn, down 37% YoY.

The quarter's profit before interest and tax stood at Rs 2.6 bn, down from Rs 6.9 bn in December 2022.

Meanwhile, the crop protection business reported revenue of Rs 6.1 bn, a slight dip from Rs 6.5 bn in the same period of the previous year.

This overall fall was as the phosphatic industry's primary sales witnessed a de-growth in volumes by 17% during the quarter.

Despite challenges, Coromandel's Nutrient and Allied businesses managed to enhance their market share, and the Crop Protection business exhibited a robust 21% volume growth, showcasing resilience in both export and domestic markets.

#2 Fertilizer Pricing Guidelines

On 18 January 2024, the Department of Fertilizer (DoF) released updated guidelines concerning the pricing of non-urea-based fertilizers within the Nutrient Based Subsidy (NBS) program.

These guidelines, effective retrospectively from 1 April 2023, outline maximum allowable profit margins for fertilizer companies.

Importers will be capped at an 8% profit margin, manufacturers at 10% and integrated manufacturers involved in finished fertilizers and intermediates like phosphoric acid and ammonia at 12%.

According to the DoF, companies garnering excessive profits beyond the stipulated percentages in a financial year must refund the surplus by 10 October 2024 of the following financial year.

Failure to comply may result in an interest penalty of 12% per annum on a pro-rata basis for the refund amount. Notably, any unreasonable profits will be offset against subsequent fertilizer subsidy payments by the government.

These guidelines is seen as negative for Coromandel International, further dragging the stock down.

What Next?

Going forward, the agricultural chemicals maker Coromandel International announced that its board of directors has approved a proposal to set up new phosphoric acid and sulphuric acid plants at Kakinada in Andhra Pradesh with an investment of Rs 10.3 bn.

With the new plants, the company's capacity for phosphoric acid will increase by 750 tonnes per day, while that of sulphuric acid will go up by 1,800 tonnes per day.

Currently, the company has a capacity of 1,550 tonnes per day for phosphoric acid and 4,200 tonnes per day for sulphuric acid.

The project will be executed in 24 months and will be financed through internal accruals.

The project will help reduce dependence on imports and make Kakinada an integrated facility. The proposed investment is in line with the firm's long-term aim to secure key raw materials for its fertilizer production.

Apart from this, on 22 March 2023, the company announced that its board of directors had approved the plan to expand its operations in crop protection chemicals and foray into the contract development & manufacturing organization (CDMO) business.

The board further approved to diversify into new growth areas namely specialty and industrial chemicals.

How Coromandel Shares have Performed Recently

Coromandel shares have fallen 15% in the last one month. In past five days the stock is down 8%.

Coromandel touched its 52-week high of Rs 813.4 on 9 January 2024 and a 52-week low of Rs 548 on 24 March 2023.

At the current price, Coromandel trades at a PE multiple of 17.5 and a price-to-book value multiple of 3.5x.

About Coromandel International

Coromandel International is part of the Murugappa group. It is headquartered in Hyderabad, Telangana. Originally named Coromandel Fertilizers, the company is in the business of fertilizers, pesticides and speciality nutrients.

It is one of the leading agriculture solutions providers in India having a diverse range of products and services. The company enjoys a large market share in the field of an important business segment.

In its endeavour to be a complete plant nutrition solutions Company, Coromandel has also introduced a range of speciality nutrient products, including Organic Fertilizers.

The crop protection business produces insecticides, fungicides and herbicides and markets these products in India and across the globe.

Coromandel is the second largest manufacturer of Malathion and only the second largest manufacturer of Phenthoate.

You can also compare companies with their peers.

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