The Hindu Business Line : Coromandel Fertilisers: Buy

LONG-TERM investors may add the stock of Coromandel Fertilisers to their portfolio. The stock appears to carry limited downside risk at an undemanding price-earnings multiple of eight times its trailing 12-month per share earnings.

With Godavari Fertilisers and the farm inputs business of EID Parry having come under its fold, the company has the scale and the operational efficiency to capitalise on the growing demand-supply gap for phosphatic fertilisers. Arrangements with material suppliers in South Africa and Tunisia could help in cost effective procurement.

The company's financials in the first half of FY05 have been impacted by rising input costs, which have not been fully compensated by the subsidies. Going forward, the base effect and the cooling off of crude oil prices could moderate costs. The strong growth in sales volumes of DAP and complex fertilisers in its target markets in the ongoing rabi season will also augment revenue growth.

With its good procurement strategy, substantial scale economies and large footprint in the southern and eastern markets, the company scores high on competitiveness. Policy changes relating to the subsidy regime for fertilisers constitutes the principle risk to our recommendation.

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