Coromandel International's (CIL) Q3FY11 results were inline with our expectations as net sales grew by 16.3% YoY to ~Rs20.4bn (PINCe 14.7% and ~Rs20.1bn respectively). OPM contracted slightly by 96bps to 10.8% resulting in an overall operating profit of Rs2.2bn. Other income was down 9.2% to ~Rs331mn. Consequently, net profit increased marginally by
3.8% YoY to ~Rs1.5bn.

Manufactured fertilisers volume for the quarter fell ~5% to ~7.4lakh tonnes from ~7.79lakh tonnes due to disruption in supply of phosphoric acid as one of its key suppliers "FOSKAR" faced production issues at its rock phosphate mine. Operations have resumed since then as management expects normal volumes for Q4FY11. However, better sales volume from fertiliser trading business
(Urea at ~74,000 tonnes and DAP at ~41,000 tonnes) contributed to modest rise in overall sales volumes. As a result, volume for the quarter increased by 2% YoY to ~8.62lakh tonnes vs ~8.43lakh tonnes in Q3FY10.

Outlook: Indian government has reduced subsidy for complex fertiliser under NBS scheme by ~15-20%. Despite this small blip, we believe CIL is well placed with its ability to increase fertiliser prices at farmers' level, better negotiation for raw material prices in international market and rising proportion of non-subsidy business
(micro-nutrients/ specialty fertilisers). These factors should enable CIL to maintain its margins with no major impact on profitability.

VALUATIONS AND RECOMMENDATION

We have slightly decreased our FY12 estimates by 8.5% following government's move of ~15-20% reduction in subsidy for complex fertiliser. At the CMP of Rs279, CIL trades at FY11 and FY12 P/E of 14.1x and 12.4x and EV/EBITDA of 4.1x and 4.1x respectively. We maintain our `HOLD' recommendation with a target price of Rs316 (22.5 FY12E EPS).