Coromandel International Limited (COROMANDEL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Coromandel International Limited Q2 and H1 FY '27 Earnings Conference Call. hosted by Systematix Shares & Stocks Limited. [Operator Instructions] I now hand the conference over to Mr. Harmish Desai. Thank you, and over to you, sir.

Thank you, Sonya. Good morning, and welcome to the Q2 and H1 FY '27 Earnings Call of Coromandel International Limited, hosted by Systematix Institutional Desk. From the management, we have Mr. Sankarasubramanian, Managing Director and CEO; Mr. Deepak Natarajan, Chief Financial Officer. I would like to thank the management for giving us the opportunity to host this call. We will begin the call with opening us from Mr. Sankarasubramanian, followed by Mr. Deepak Natarajan for update on financial performance, post which we'll have a Q&A session. Thank you, and over to you, sir.

Thank you, Harmish, for organizing the call. Good morning, everyone. I hope you had a wonderful Diwali, my belated wishes to you and to your family. I'll begin with a bold view of brief business environment experience during the quarter and also provide an update on operational performance, then I'll request Deepak to take us through the financial performance. As you all know, Q2 was unprecedentedly challenging quarter for the industry. We had multiple headwinds coming together at the same time. Deficit rainfall in key markets, rupee depreciation, elevated raw material prices, lower NPKs rates and weak consumption impacted the operating environment. In fact, rainfall deficit was around 20% to 30% in our key markets such as Andhra Pradesh, Telangana, Karnataka, Maharastra, and this has impacted the agriculture activity as well as input consumption. Also, the widening price difference between DAP and complex fertilizers influence the farmer buying behavior and impacted the offtake of NPKs. All these factors resulted in soft industry-wide decline in fertilizers volume with production and consumption of NPKs has fallen considerably by 40% during this quarter. Happy to note that government yesterday announced the NBS base rate for Rabi '26-'27 season. This is a very timely and positive intervention, particularly given the fact that there has been significant volatility in international fertilizer and raw material markets. This improved subsidiary support should help improving the viability of domestic manufacturing and restore better pricing balance between the DAP and complex fertilizers, thereby supporting the adoption of balanced nutritions. We are still awaiting detailed notification and the revised rates appeared to align with the NBS mechanism with its underlying principle of reflecting the movements in international raw materials and fertilizer prices. The government has also announced a special support to address the exceptional increase in sulfur and sulfuric acid prices, which has significantly impacted the cost of fertilizers. During the year, government launched the fertilizer sales system on a pilot business across select districts. These initiatives are very positive from the perspective of improving transparency and promoting efficient fertilizer usage and the initial implementation has also highlighted certain practical challenges, including longer purchase process performers, access to digital infrastructure and farmer choice and brand preferences. feedback with the Department of Fertilizers India hopeful that these operational aspects will be suitably addressed before the framework becomes a reality. In we continue to see regulatory tightening, including restriction around certain molecules like and However, Coromandel is expected impact is not much. With respect to nonsubsidy businesses, restriction has been imposed by certain states on the sale of nonsubsidies by fertilizers by fertilizer marketers. Industry has been engaging with the authorities in the state of UP, Bihar and Maharashtra, and we are hopeful that an appropriate framework can be evolved that protects farmer interest, while continuing to balanced nutrition and innovation. During the quarter, Andhra Pradesh has announced a major program to develop Rayalaseema as a global horticulture and food processing hub, and significant expansion is land in Given our strong presence in the region, our expected new granulation plant coming on stream in the near future, this augurs very well Coromandel. And we see this as a positive long-term opportunity across our various segments, nutrients, crop protection, specialty nutrients, especially through our retail platform. Coming specifically to Q2 performance. As I mentioned, it was a very challenging quarter. We sharpened our focus on differentiated offerings. We launched 10 new products across nutrients and crop protection segments, and reasonably, we manage the working capital well. Revenue grew by 6% to INR 10,340 crores, but however, EBITDA declined 18%, mainly due to compression in NPK fertilizer margins during this quarter. And also due to deficit in key markets on rainfall and higher input prices not adequately compensated by Kharif NBS rates, our performance, of course, the value chain got impacted. In the fertilizer fuse business, volume offtake was impacted due to monsoon, price differentials. However, we tried to increase our market share from 17% to 19%. And our primary sales for the quarter was down significantly by 30% to 10 lakh tonnes and consumption also declined 33%. It's a conscious call taken by the company to moderate the primary sale and production and manage the working capital well and tracking the consumption of the production and supplies are moderated. The government announcing the new NBS rates for the Rabi season, we do expect that part of the benefits will be passed on in correcting the MRP, which can revive consumption during the Rabi season. The production got moderated by 15% in Q2 to 7.7 lakh tonnes due to softer demand. Our newly commissioned phosphoric acid and sulfuric acid plant at Kakinada has committed the right time to ensure availability of these key raw materials, even though we operated the plant at a lower capacity until we got the sulfur subsidiary notification sometime in August. With sulfur subsidy coming in, this new project is back on track and started operating at full capacity and this will support the value accretion in a highly volatile operating environment, thanks to the timely government intervention. Our plant project is progressing well in Kakinada though we hope to commission this by February of this year, and this capacity should be available for the next year. Overall, we can see a moderation in the global raw material prices. While urea has come off sometime back, we have seen softening approach in sulfur as well. Sulfur is now likely to go below $900 due to stiff resistance from metal segment as well as in the fertilizer segment. I do expect sulfur used to be a disposal problem and this can become opportunity to bring it down below $500 as well if we sustain our approach in terms of smart purchases. DAP continued to remain more or less at the same level in the last 2 months. prices have been rolled over at $1,700 as sulfur prices remained high during this period. Volumes again got moderated by 13% to 1.9. But our focus on differentiated grades in terms of and urea has been quite helpful and help us to improve the contribution on margins. Moving on to Crop Protection segment. Crop Production demand remained soft during the quarter. The impact of rainfall has cascading effect on the routes as well. Exports demand has been gradual as farm economics was impacted due to high fertilizer like prices. Encouragingly, we are seeing improvement in the price of certain agriculture commodities globally, and that should improve the offtake of as well. Crop Protection business delivered 22% revenue growth during the quarter, supported by strong performance in export market. Our diversified global presence continue to provide opportunities to deepen our presence across key graphs. Domestic market, we continue to invest in portfolio development and differentiated offerings with new products contributing 36% during the year. During the quarter, we introduced 6 new products across the group chemicals and biologicals. There has been some impact on margin for a few molecules, but it broadly remains at comparable level given the variability in proven intermediates experience in H1, customers have deferred the purchases and it has had a bearing on the production of product offtake as well. We are expanding the capacity of one of key molecules that will come on scene by this month end. We're also planning to establish plant in place or actually strongly believe chemistry is going to be the next major intervention and agrochemicals value chain. And after the successful trial of the launch plan, hopefully, it should pave the way for ultimate the commercial budget for the specialty chemicals, which we envisaged 2 years before. On the subsidiary NACL, as you may have seen the numbers, revenues are at INR 374 crores, down 18% and EBITDA at INR 12 crores, significantly lower than corresponding quarter of the last year. One-off abrasion that company witnessed due to significant margin pressure after carryover high-cost inventory and the corresponding pass-on could not happen due to market compression and prices of written molecules came down, and the company has to take a significant impact on the margins. A lot of initiatives have been taken up to have a synergistic approach between crop protection business of Coromandel and NACL in terms of portfolio, in terms of sourcing strategies, optimizing the production capacities, leveraging on the product portfolio capabilities. Product initiatives are underway, and we hope to see a robust comeback of initial performance in the coming quarters. Our retail business had a very strong quarter, supported by continued focus on farmer engagement and cross-specific campaigns across markets. We are seeing good traction on our proprietary product portfolio, some of our retail white label brands scaling up well and expected to cross INR 100 crores in annual sales this year. We also continue to expand our physical reach adding 80 stores during Q2 and taking the overall network 2,300 stores across Andhra Pradesh, Telangana, Karnataka, Tamil Nadu and Maharashtra. story been going out very well for us. The team has done an job in terms of monsoon situation. They provided alternate products, organic fertilizers, specialty neutrals, which help them to achieve the bottom line. And some of the new stores have reached the breakeven much faster than what we initially expected. The new stores have started contributing meaningfully, reinforcing our confidence in scalability of the model, and we are journey to finance the network to 2,000 stores over the next 2 years. As specialty nutrients organic and biological business also performed well in this stressful situation, the adoption of order water solubles and the specialties are gaining traction and Coromandel is rightfully positioned in terms of making these product offerings differentiated solution to the farmers, and it is more relevant during this water stress conditions and the growing emphasis on sustainable agriculture. So overall, I think with a better policy support through the revised NBS rates improved farm economics, moderating on the input cost and the seasonal pickup in Rabi activity. I do expect operating environment is going to be much better H2, which improved our bounce back on the production, sales consumption. Of course, I'm cautiously optimistic at this point of time. And I'm sure if no predictions are coming through by year-end, ending our foot move to a neutral position, which provides very optimism for the forthcoming current season as well. I'll request Deepak to talk about the financial performance.

Thank you, Shankar. Good morning, all, Diwali greetings and seasons greetings to all. The company recorded a consolidated total income of INR 10,348 crores during the quarter compared to INR 9,771 crores in Q2 of last year, registering a growth of 6%. The revenue increase has been mainly on account of higher subsidy rates versus last year and growth across the various businesses. It is pertinent to note that last year's Q2 results includes NACL numbers effective 8th August 2025 onwards. . Overall, the subsidy share of the business stands at 81% during the quarter, which compares with 83% in the last year. As far as profitability is concerned, the company reported a consolidated EBITDA for the quarter of INR 944 crores as against INR 1,147 crores last year registering a degrowth of 18%. The decrease in EBITDA is mainly due to higher input prices on account of ongoing Middle East crisis. and not commensurate with some of the revisions in NBS rates and the retail prices, MRP. The profitability share of subsidy business stands at 58% compared to 72% last year. Net profit after tax for the quarter was INR 523 crores in comparison to INR 793 crores last year. Moving on to the financial performance of the first half of the year. The company recorded a consolidated total income of INR 18,566 crores during H1 versus INR 16,897 crores in H1 of last year, registering a growth of 10%. The subsidy share of the business stands at 79% compared to 83% last year. With regard to profitability in H1, the consolidated EBITDA was reported at INR 1,705 crores against INR 1,929 crores last year, registering a degrowth of 12%. Profitability share of the subsidy business stands at 53% compared to 70% last year. The net profit after tax for H1 was INR 905 crores compared to INR 1,295 crores in the previous year. As far as subsidy is concerned, during the quarter, company received INR 3,086 crores towards subsidiary claims. Government has been from an clearing all the subsidy dues. As of today, we have received subsidy claims till the September 4 week in October, the company further received subsidy of about INR 1,200 crores. During H1, the company has received INR 4,478 crores towards subsidy claims. Subsidy outstanding as of September was INR 3,535 crores compared to INR 3,199 crores in previous year. With regard to ForEx. During the Q2, rupee traded in a range of about INR 94.5 to INR 96.6. Coromandel continues to hedge exposure on a conservative basis. Thank you. With that, I hand over to the Harmish.

[Operator Instructions] The first question is from the line of Prashant Biyani from Elara Securities Private Limited.

Diwali greetings to the management. Sir, what kind of MRP reduction is expected maybe gradually or at once after the subsidy increase?

Very difficult to put the number. We need to get the notification and then we'll respond. But at least, I feel like 2020 have seen a very sharp increase from 1,350 per to there, we expect moderation to happen. Can be minimum 10% to 15% of moderation is possible in those levels. But let's not forget the fact the companies were incurred huge negative margins. The subsidy will partially offset that. And if still there is a scope, we may be able to do this MRP correction because again, ammonia started So we need to wait and see. Definitely, we will look for some moderation in prices as it's not sustainable to continue to have wide

Sure. Sir, how much of sulfur subsidy have you considered in our Q2 results?

See, we -- you know the notification clearly says actually is applicable at a flow price of $800. So when winter we decided to curtail our purchases. So whatever shipments we have got beyond this price level, are on eligible for the subsidy. It's not very significant, but it has been quite helpful, especially for August and September. It would be difficult for me to put the number, but this came handy especially for our Kakinada new plant. Production was moderate and after the actually announcing it back on track.

Sure. And just lastly, sir, along with the Rabi subsidy notification, has this also been approved by cabinet or it is yet to be approved by cabinet?

See, yesterday the cabinet approval. There is no more further approval required. It's all finally approved and clear.

Even for sulfur?

Yes, yes.

The next question is from the line of Riju from Antique Stockbroking Private Limited.

So my first question is regarding the nonsubsidy EBITDA. So if you look at the subsidy that was very much lower compared to last year, but the nonsubsidy business EBITDA seen a sharp jump in the H1 as well as in the 2Q. So what explains that if you could give some on this?

In non-subsidiary business, the major share comes from crop protection business, where one of the molecules we had a challenge because of the carryover inventory, what is sulfur-based derivatives, which influences the input cost, but slowly there has been a correction in the market price. Initially in the first quarter, the prices all went up. But naturally, the global agriculture prices have remained soft for a major portion of Q2. Hence, the uptake for the price increase was not there. So there is a high cost input cost, not adequately compensated and the prices have happened. That has compressed the margin. A lot of corrective actions have happened in terms of input price correction moderated repayment fee. And we are getting back on track. But the rest of the businesses, whether it is bio products or retail or specialty nutrients or SSP, they've all done well. Another major reason which is an aberration for this quarter, the ban on what the company is doing sale of subsidized, nonsubsidized products, especially in these key states of Maharashtra, Bihar and UP, has impacted the business. Hopefully, if that desolation comes back, we should track -- we should come back on track. I think it's a temporary aberration. We should get restored.

Understood, sir. And the crop protection business, if you could provide the number for the stand-alone CP business EBITDA margin, a broad indication?

EBITDA stand-alone is 16% for the current quarter and half year is 17%.

Okay. Understood. And sir, in the business, if you look at it in terms of the H1 or the 2Q performance for the industry, for the DAP volume was -- sales volume was flattish, while the decline with 38% on a Y-o-Y basis. Is this explained mainly because of the license NPKs or was there any cost of the crop sales that we have seen in the season? So first is this. And Dead second, looking at the subsidy. So there is a high probability that industry-wise price car might happen and that also we might be able to maintain our margin profile. So with that, can we expect the lift of our inventory Kharif will be cleared? And if it's, and then how do you see the overall what industrial channel inventory situation for the 2H of this year. And how will be the impact overall for the DAP and inventory?

The NPK switch DAP has happened mainly because of ultimately DAP prices peaked at INR 1,350, whereas NP fertilizers [indiscernible] the price went up to INR 2,100. And in a stressful situation, farmer never wanted to pay this sort of a price increase. Naturally, there has been a demand contraction and farmers are looking for the cheaper alternative, DAP, which is a high product. This has been 1 of the major setback for the domestic manufacturers, and that is when government intervened and announced the sulfur subsidy, and then now they have corrected the rates to reflect the market reality. So up to INR 1,500 or INR 1,800 per of the demand contraction was not happening. Once it was going beyond that, we could see demand contraction. With the announcement of NBS rates, I think in NPK volumes will come back, and that will also reduce the import of DAP to a greater extent. So I think what it used to be 60%-40% between NPK and DAP tend to be 30-70, 30 for NPKs and 70 for DAP. So that is getting set right with the new NBS In terms of the channel stock, I would say it is not very high because industry has cut down the production cut down the imports, anticipating demand contraction due to bad early new season. And thanks to that, the channel inventory buildup is not quite significant. That can be a marginal 5% to 7% higher levels compared to last year. But with the next 2, 3 months, this will continue to moderate these inventories. Consumption will pick up with correction in MRP. I think we should see reduced inventory levels as we close this year-end. I don't see a major challenge and the system can absorb these additional volumes, which has been placed in Kharif that should get consumed now. Because outlook of Rabi is also depending on Northeast monsoon. We have seen 2 cyclones, and that has revived the prospects of chilly crops in South in Andhra market. And also in the North, the stage of the peak cropping is likely to be normal that can be impacted on and pulses. But overall, Eastern region potato crop has come up well and we also expect Central Region to pick up on volumes in crop So I think there won't be any major deviation on consumption in the Rabi season and with reasonable level of inventory and the new NPL rates and the moderation prices, I do expect consumption revival to happen, and we may end up with a moderate inventory as we close this Rabi season by March.

Understood, sir. One last book-keeping question. What is the closing -- what is the inventory that we are holding as of September and out of which, how much at the dealer level and how much was the factory level?

I get back to you. Specifically, I don't put out these numbers in the -- nothing extraordinary, I would say, at this point of time, it's more or less getting maintained to the last year level as far as channel inventory is concerned. As far as factory production is concerned, we have curtailed our production considerably as I mentioned in my note. So we don't carry much of inventory in our plant

The next question is from the line of Darshita Shah from DSP Asset Managers.

Firstly, with the subsidy, with the sulfur subsidy coming through, Shankar, sir, how are you seeing the backward integration spread? Are they better than last year? Are they the same, especially given that the proportion of backward integration versus last year has now moved up -- so should we see backward integration spreads improving maybe for the second half of the year?

Absolutely. In fact, from August onwards, we are back on track. Still sulfur prices are really high, and we were not operating PA plants at full capacity, never been the case for Coromandel. And now we are back on track. And from October onwards, we should scale up our volumes and the value gap also in improved considerably. I think this improved impact on the overall performance from the value gap should kick in, in second half.

Okay. All right. Other spreads similar to -- would it be anywhere in the range of $300, $350, is that a safe assumption from make or could it be higher or lower than that?

I think it's a safe assumption to make.

Okay. Great. Secondly, sir, when we look at our EBIT, that is down about 20-odd percent, but a nonsubsidy piece has done significantly well. You mentioned that it is because of the specialty nutrient and the other businesses that we have. So is this more of a proportion of the retail business being able to sell it better or are we doing something differently to grow these brands firstly? And secondly, is there any aberration because of lower NPE sales or lower appealability that the demand for these organic fertilizers have gone up? I mean, how should we be thinking about it, especially the nonsubsidy non-CP part of the business?

No, you're absolutely right. It's a combination of factors what you rightly alluded to. Retail has got its act right in terms of positioning the right product, depending on the market situation and that was quite helpful and also we improved our network in Andhra, Telangana. That has also aided in fact, most of the retail stores have improved the performance in a very short period of time. And also when the NPK prices went up, the farmer tendency is to look for an alternate and cheaper fertilizers and organic fertilizers volumes have also picked up. And also in successful condition, the natural tendency is to use more of water sellable and specialties. So a combination of multiple things, our retail connect, additional reach and scaling up of organic fertilizers. -- globally, we are able to get the volume back. Our ability to close at a competitive price. All this has been helpful in hedging products. It's increased network, improved the product and new product offering is also helpful. We launched 2 new products in organic fertilizers which was received very well in the market. And some of the white label products, which retail was doing, we are able to source it internally from our own bio business division that has scaled up well. Some of these products are reaching the size and scale of INR 100 crore brand, that was quite helpful.

Okay. Sir, thirdly, on the Nano product, is it that we are seeing increased demand because of higher NPK prices, how should we thinking -- how should we be thinking about the overall contribution for the Nano piece as well as -- for revenue as well as on EBITDA?

See, Nano has got a promising future. At least our experience has been extremely bullish and Nano not only in the domestic market but also in the global markets. Unfortunately, the ban on this nonfertilizer by in certain states has dampened the volumes. Key markets like UP, Maharashtra, we had a setback and we didn't position is materials during this quarter. Ideally this have picked up and government has been promoting alternate to chemical fertilizers, this should definitely be on the top. But unfortunately, the state ban has impacted the sale of Nano. But I think that's a temporary challenge. We should come back on track on this. Production has been very good. Over the last season, we are able to supply them season as well. We have become a market leader on Nano DAP. In fact, a lot of new customers have come in. Globally also we have started exporting certain consignments. We are in the process of registering this product in Latin markets and and southeastern countries. Hopefully, we should see traction in Nano volumes as well. And -- but it is very critical for us to this brand in these key states where the others can be filed, which we are working on. But otherwise, I think it's a promising product. It has significant margin coming in. In terms of revenue, it won't make a big impact on the top line because sizable commodity business, what we have in terms of EBITDA margins

[Operator Instructions] The next question is from the line of Somaiah V. from Avendus Spark Private Limited.

Sir, my first question is on the industry sales. For first half, what would be the complex sales [indiscernible]

DAP in NPK is around like times as against last year,

Understood, sir. And also we have the split between DAP and NPK?

NPK is 60 lakh tonnes against last year 77 lakh tonnes and DAP is flattish at 44 lakh tonnes

That's helpful. Sir, second question is on the our granulation it mentioned about so what is the expectation in mixed Kharif or what level of implications we can get up to? And also in terms of marketing, we have been already going to some of the Northern market so what is the expectation in terms of next year of this point on the market?

See, this year happened to be a very stressful season and the volumes are contracted in the current year. And always, even with this capacity last year, we had 1 form and by importing likes of DAP and PK for leases. I think the new capacity coming in, and hopefully, the season won't be this bad, like what we witnessed in guarantee and we do expect El Nino to turn neutral by year-end. I don't see any challenge in operating the plant close to the full capacity because Coromandel that has been on hallmark ensuring that all over CapEx is commissioned on time and relate the value on time. And we are expanding our retail network that will be our main channel to drive part of the volume. And also, we'll be -- we have already started the seed marketing 2, 3 years before in key markets like U.P., Rajasthan and MP. We'll try and improve our volumes going forward into next year as well. So I don't see any challenge in ensuring full utilization of the new facility next year. Having said that, we'll also be focusing on differentiated product offerings, not to repeat the same generic rates what we have been doing. The facility, which is coming up has got capability to have multiple nutrients to be added to main NPK products like Boron or zinc. During the current year due to the sort of policy changes, we could not come up with alternate products. With the way NBS policy has restored the original design principle of announcing the rates based on the prevailing cost that is giving us freedom to reasonably come up with innovation and new products and differentiated product offerings. So our aim would be to see how best we can leverage the new capacity to come up with new products, which can add value to the product and improve the productivity. So that is what we'll be focusing. To answer you in chart, our target will be to operate the plant at full capacity for the next year.

So sir, near about 70% backward integrated. So there is this 20%, 30% headroom. So is this something that we are looking forward or is there any operational challenge, is the maximum limit we can get to?