Coromandel stock zoomed 88% in a year. Will MSCI entry push it further?

Though it still trails Paradeep Phosphates' 109% surge in stock price, Coromandel has significantly outperformed its other listed peers. Sumitomo Chemical India shares rose 27%, Zuari Agro Chemicals 18.5%, and Gujarat State Fertilizers & Chemicals, Rallis India, Bayer CropScience, and Dhanuka Agritech declined 20%, 13%, 12%, and 8% respectively.

Now, with a possible inclusion in the MSCI Global Standard Index on the horizon, analysts expect the stock to see another leg up.

Abhilash Pagaria, head of Nuvama Alternative & Quantitative Research, said Coromandel is a strong contender for the index and its inclusion could trigger passive inflows of around $210 million into the stock. The official announcement is expected on 14 May, with the index rebalancing scheduled for 30 May.

As the broader market declined, with the Nifty 50 falling about 9% from October to March, mutual funds that held approximately 17% of Coromandel’s total share capital at the end of October saw their stake decrease to 15% by the end of March, according to the Prime Mutual Funds Database. Despite the reduced stake, the market value of their holdings did not change significantly— ₹8,734.01 crore in March compared to ₹8,345.26 crore in October, the data showed.

Stellar performance

The Murugappa Group company delivered a blockbuster March quarter. Its consolidated revenue from operations climbed 27% year-on-year to ₹4,988 crore. Ebitda shot up 56% to ₹426 crore, but the real stunner was the bottomline—profit after tax skyrocketed 253% to ₹578 crore.

The nutrient segment led Coromandel’s performance, posting a 28% year-on-year revenue jump to ₹4,321 crore, driven by a healthy 24% uptick in volumes. The crop protection segment wasn’t far behind either—raking in ₹699 crore in revenue, up 24%—as stronger demand and higher volumes kept the momentum going.

Given the strong operational performance and volume growth led by market share gain, Antique Stock Broking has raised its FY26 and FY27 earnings per share estimates for the company by 1% and 6%, respectively.

“The company isn’t just riding a wave; it is steering the ship with better earnings visibility and smart capital allocation," said Himanshu Binani, research analyst for agrochemicals & fertilizers at Anand Rathi Institutional Equities.

After nailing backward integration, it is now shifting gears toward forward integration, which could open up fresh growth avenues, he added.

Forward integration means a company expands by buying or merging with businesses that are closer to the final customer, like distributors or retailers. Backward integration is when a company acquires firms that provide raw materials or basic components it needs to make its products.

Binani sees a solid case for earnings upgrades in the coming quarters and feels the stock’s premium valuation will hold up, thanks to stronger operational efficiency. Compared to rivals like Paradeep Phosphates—also a player in the non-urea fertilizer space—this company stands out with much better operating performance.

Bloomberg data shows that Coromandel's stock is trading at a price to earnings ratio of 33.3 times, notably higher than Paradeep Phosphates’ 21.2 times.

Also Read: Coromandel bets on backward integration to boost profitability

Strategic bets

Improved earnings visibility in the core businesses (which is nutrient and crop protection business) coupled with the possible turnaround of the recently acquired NACL Industries Ltd, are seen as key growth drivers for the stock.

In mid-March, Coromandel announced its plan to acquire a 53% stake in Hyderabad-based crop protection firm NACL. According to a Nuvama Institutional Equities report dated 2 May, some of NACL’s facilities could also support Coromandel’s entry into the contract development and manufacturing (CDMO) space.

This acquisition could help the company make better use of its planned ₹1,000 crore capex for CDMO and specialty chemicals, as NACL already has relevant infrastructure in place. Nuvama estimates the deal could add about 3% to Coromandel’s EPS by FY27E.

Since CEO S. Sankarasubramanian took charge, analysts note a marked improvement in growth visibility across all business segments. “These growth plans are likely to improve profitability for all the divisions and up their contribution to the overall profit pool," said Prashant Biyana, vice president, Institutional Equity Research, Elara Securities.

While Binani of Anand Rathi sees a meaningful upside potential in the scrip, he cautions that after a good run, the counter could pause for breath or enter a healthy consolidation phase.

Also Read: The Tatas of South India deserve your attention, dear investor—here’s why

Risks remain

The fertilizer industry is heavily regulated in India, with subsidies being a big component of profitability. According to a Crisil report dated 25 March, the phosphatic fertilizer segment has been operating under the nutrient-based subsidy (NBS) regime since 1 April 2010. Under this system, the government sets the subsidy for nutrients for the entire fiscal year (with an option to review this every six months), while the retail prices remain market-driven.

So, any material revision in NBS rates and its impact on margin will be a key factor to watch in the medium term.

Besides, manufacturers of phosphatic fertilizers rely heavily on imported raw materials like rock phosphate and phosphoric acid–inputs that make up nearly 75% of their operating costs. Because of this, the industry remains vulnerable to fluctuations in global raw material prices, the report highlighted.

“The regulated nature of the industry and susceptibility of complex fertiliser players (including Coromandel) to raw material price volatility under the NBS regime continues to be key rating sensitivity factors," Crisil said.

A weak monsoon could dampen demand, making it another key risk to watch out for, analysts said.

Disclaimer: The views above are those of individual analysts, experts and broking companies. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.