Coromandel International crop protection strength offsets near-term fertilizer margin pressure

Investment View and Valuation

Motilal Oswal Financial Services retains a Buy rating on Coromandel International with a target price of Rs 2,530, based on around 25 times FY28E EPS, versus the current market price of Rs 1,983. The broker attributes the weaker Q1 FY27 operating performance to Middle East conflict-led raw-material inflation that outpaced available fertilizer subsidy support.

Despite the near-term pressure, MOFSL sees a strong medium-term outlook, supported by crop protection growth, backward integration, new molecules, geographic expansion, the NACL acquisition and the scale-up of Baobab Mining and Chemicals Corp. in Senegal.

Q1 FY27 Financial Performance

Coromandel International reported consolidated revenue of Rs 8,165 crore in Q1 FY27, up around 16% year on year and broadly in line with MOFSL's estimate. Nutrient and other allied revenue increased 9% to Rs 6,951 crore, while crop protection revenue rose 73% to around Rs 1,251 crore.

Fertilizer Margin Pressure

Fertilizer profitability was pressured by elevated sulphur and ammonia prices, higher raw-material costs and inadequate subsidy compensation. Raw-material cost increased to 75.7% of sales from 74.4% a year earlier. Nutrient and other allied EBIT margin contracted 300 basis points to 6.9%.

Manufacturing fertilizer volumes for NPK and DAP were flat at 8.89 lakh tonnes, while total phosphate fertilizer manufacturing volume including SSP increased 3% to 7 lakh tonnes. Overall phosphatic volume for NPK and DAP rose 6% to 11 lakh tonnes.

Crop Protection and NACL Momentum

Crop protection was the key positive in the quarter. Standalone crop protection revenue, excluding NACL, rose 20% to Rs 870 crore. Standalone EBIT increased 44% year on year, while the EBIT margin expanded by 300 basis points.

Management said crop protection achieved a record quarter despite subdued domestic demand, driven by export and B2B sales, a favourable product mix and stronger demand. New products contributed 32% of domestic B2C sales, compared with 20% a year earlier. Three crop-protection products were launched, and key active-ingredient capacity expansion is expected by September 2026.

Management cited improved active-ingredient pricing and the relative insulation of key molecules from Chinese competition. NACL EBITDA rose 9% to Rs 41 crore, and its margin improved to 11% from 8%. Management believes the first turnaround phase is substantially complete and sees further upside from new products, backward integration and higher-value intermediates.

Backward Integration and Capital Investment

Management stated that the roughly Rs 7,000 crore investment cycle across backward integration, acquisitions and crop protection is largely complete. The focus is now shifting to monetisation, asset utilisation and return on capital.

• Newly commissioned phosphoric-acid and sulphuric-acid facilities have stabilised and internally secure nearly 60% of acid requirements.
• Management targets fertilizer EBITDA of around Rs 6,500 per tonne, compared with historical levels of around Rs 5,000 per tonne, as integrated assets reach a steady state.
• The green-ammonia project remains scheduled for commissioning in Q4 FY27.
• Senegal produced more than 1.10 lakh tonnes during the quarter and is viewed as strategic phosphate backward integration.
• Annual maintenance capex is expected to normalise near Rs 300 crore.

Earnings Outlook and Estimates

MOFSL expects FY26–28 revenue, EBITDA and adjusted PAT compound annual growth rates of 10%, 18% and 21%, respectively. The broker reduced its FY27E estimates while broadly maintaining its FY28E estimates.

Management expects raw-material markets to stabilise as supply improves. Timely subsidy revision remains important for industry profitability and production normalisation.

Key Risks and Monitorables

• Volatility in global raw-material prices.
• Insufficient fertilizer subsidy support.
• Elevated working-capital requirements.
• Continued pressure on fertilizer margins.