Coromandel International Q3 FY26: Sequential Profit Decline Amid Volume Pressures

Following the results announcement, the stock traded at ₹2,265.40, down 16.71% from its 52-week high of ₹2,720.00 but still commanding a premium valuation of 31 times trailing twelve-month earnings. The mixed performance underscores the challenges of sustaining profitability in a sector characterised by regulatory pressures, volatile input costs, and seasonal demand patterns.

The quarter's results highlight the inherent volatility in the fertiliser sector, where Q2 typically represents the peak season driven by kharif crop demand, whilst Q3 witnesses moderation. The sequential decline in profitability was primarily driven by margin compression, with operating margins (excluding other income) contracting to 9.11% from 11.88% in Q2 FY26. However, the company's nine-month performance for FY26 remains encouraging, with cumulative net profit of ₹1,816.22 crores reflecting steady execution despite sectoral headwinds.

Financial Performance: Margin Pressure Offsets Volume Growth

Coromandel International's Q3 FY26 revenue of ₹8,779.45 crores represented a 26.59% year-on-year increase, driven by volume expansion and favourable product mix. However, the sequential decline of 9.06% from Q2 FY26's ₹9,654.13 crores underscores the seasonal nature of fertiliser demand, with the second quarter typically benefiting from peak kharif sowing activity. The company's nine-month revenue for FY26 stood at ₹25,475.88 crores, marking a robust 35.18% growth over the corresponding period last year.

The key concern emerged from margin compression across multiple levels. Operating profit before depreciation, interest, and tax (PBDIT) excluding other income declined to ₹799.64 crores in Q3 FY26, down from ₹1,146.52 crores in Q2 FY26, reflecting a margin contraction of 278 basis points to 9.11%. This margin pressure stemmed from elevated raw material costs and competitive pricing dynamics in the fertiliser market. The PAT margin similarly contracted to 5.56% from 8.22% in the previous quarter, indicating the cascading impact of operational challenges.

Interest costs rose significantly to ₹83.52 crores in Q3 FY26, though this represented a sequential decline from ₹101.79 crores in Q2 FY26. On a half-yearly basis, interest expenses surged 38.47% to ₹185.31 crores, reflecting increased working capital requirements and higher debt levels. The debt-to-equity ratio climbed to 0.12 times on a half-yearly basis, marking the highest level in recent quarters, whilst cash and cash equivalents declined to ₹1,362.74 crores, the lowest in recent periods. These metrics suggest tightening liquidity conditions that warrant close monitoring.

Depreciation expenses spiked to ₹146.55 crores in Q3 FY26 from ₹101.76 crores in the previous quarter, reflecting the company's ongoing capital expenditure programme to expand manufacturing capacity. Employee costs rose to ₹285.88 crores, up from ₹264.82 crores sequentially, indicating inflationary pressures on the wage bill. Tax expenses of ₹164.29 crores translated to an effective tax rate of 25.17%, consistent with the company's historical tax profile.

Operational Resilience: Strong ROE Amidst Cyclical Headwinds

Despite the sequential profit decline, Coromandel International continues to demonstrate strong operational fundamentals underpinned by robust capital efficiency. The company's average return on equity (ROE) of 20.41% over recent years significantly outperforms the broader fertiliser sector and reflects management's ability to generate healthy returns on shareholder capital. This superior ROE positions Coromandel favourably within its peer group and underscores the quality of its business model.

The company's average return on capital employed (ROCE) of 34.52% further validates its operational excellence. This impressive metric demonstrates Coromandel's ability to deploy capital effectively across its manufacturing facilities, distribution network, and working capital requirements. The latest ROCE of 28.74%, whilst lower than the historical average, remains robust and reflects the cyclical nature of the fertiliser business where returns fluctuate with commodity cycles and regulatory changes.

The company's balance sheet remains healthy with shareholder funds of ₹11,087.83 crores as of March 2025, up from ₹9,419.90 crores in the previous year. Fixed assets increased to ₹3,588.40 crores from ₹2,708.93 crores, reflecting ongoing capacity expansion initiatives. Current assets stood at ₹13,230.76 crores, providing adequate liquidity to support working capital requirements despite the seasonal nature of the business.

Industry Context: Navigating Regulatory Complexity

The fertiliser sector in India operates within a highly regulated environment characterised by government subsidies, nutrient-based subsidy schemes, and price controls. Coromandel International, as the largest player by market capitalisation in the sector, must navigate these complexities whilst managing volatile raw material costs, particularly for phosphoric acid, ammonia, and potash. The company's diversified product portfolio spanning complex fertilisers, single super phosphate, and specialty nutrients provides some insulation against regulatory and commodity price fluctuations.

The agricultural sector's health directly impacts fertiliser demand, with monsoon patterns, crop prices, and farmer income levels serving as key demand drivers. The government's continued focus on agricultural productivity and soil health management creates a favourable long-term backdrop for the fertiliser industry. However, short-term volatility remains inherent due to seasonal demand patterns, with Q2 (July-September) typically representing the peak season aligned with kharif sowing, whilst Q3 and Q4 witness moderation before the rabi season picks up.

Coromandel's integrated business model, spanning manufacturing, distribution, and crop protection chemicals, provides competitive advantages through operational synergies and diversified revenue streams. The company's extensive distribution network across rural India, coupled with its strong brand equity among farmers, positions it well to capture market share as agricultural mechanisation and scientific farming practices gain traction.

Peer Comparison: Premium Valuation Amidst Mixed Fundamentals

Coromandel International's valuation metrics reflect its position as the sector leader but also highlight the premium investors pay for quality. With a market capitalisation of ₹66,530 crores, the company dwarfs its peers in the fertiliser space. However, its PE ratio of 31.41 times trailing earnings significantly exceeds the sector median, raising questions about valuation sustainability given the flat financial trend in recent quarters.

Coromandel's ROE of 20.41% justifies some valuation premium, outperforming most peers except Chambal Fertilisers (19.28%). However, the company's price-to-book ratio of 5.49 times significantly exceeds the peer group average of approximately 2.0 times, suggesting that much of the positive outlook is already priced in. The dividend yield of 0.66% lags behind Chambal Fertilisers' 2.30%, reflecting Coromandel's preference for reinvesting profits into capacity expansion rather than returning cash to shareholders.

The company's net cash position (negative debt-to-equity of -0.23) provides a competitive advantage, offering financial flexibility to navigate downturns and invest in growth opportunities without relying on external financing. This conservative balance sheet management contrasts with peers like Deepak Fertilisers and Paradeep Phosphates, which carry positive debt-to-equity ratios of 0.55 and 0.67 respectively.

Valuation Analysis: Premium Pricing Limits Upside

Coromandel International's current valuation of 31.41 times trailing earnings places it at a significant premium to the fertiliser sector's median PE of approximately 23 times. This premium reflects the company's market leadership, superior ROE, and integrated business model. However, the valuation appears stretched given the flat financial trend in recent quarters and margin pressures evident in Q3 FY26 results.

The price-to-book ratio of 5.49 times compares unfavourably to the company's book value per share of ₹376.37, suggesting limited margin of safety at current levels. The EV/EBITDA multiple of 20.82 times and EV/EBIT of 23.74 times further underscore the premium valuation, leaving little room for disappointment. The PEG ratio of 0.57, calculated based on five-year sales growth of 15.42%, suggests reasonable value relative to growth prospects, though this metric assumes earnings growth will track revenue expansion.

The stock's distance of 16.71% below its 52-week high of ₹2,720.00 suggests some correction from peak levels, though it remains 42.48% above the 52-week low of ₹1,590.00. The valuation assessment of "Very Expensive" by proprietary metrics indicates limited upside potential unless the company can demonstrate sustained margin improvement and earnings acceleration. The dividend yield of 0.66% provides minimal income support, with the payout ratio of 21.38% suggesting management's preference for retaining earnings for growth investments.

Shareholding Pattern: Stable Promoter Base, Fluctuating Institutional Interest

Coromandel International's shareholding pattern reflects a stable promoter base with E.I.D. Parry (India) Limited, part of the Murugappa Group, holding 56.09% through the promoter category. The promoter holding has remained relatively steady, declining marginally from 56.97% in December 2024 to 56.86% in December 2025, representing negligible sequential changes that suggest no material shift in promoter commitment.

Foreign institutional investor (FII) holdings declined to 13.80% in December 2025 from 14.45% in September 2025, representing a 65-basis-point reduction. However, FII interest has increased substantially over the past year, rising from 8.33% in December 2024, indicating growing international investor confidence despite short-term volatility. The presence of 666 FII investors suggests broad-based international participation.

Mutual fund holdings decreased to 12.94% from 13.06% sequentially and have declined more substantially from 16.48% in December 2024, representing a 354-basis-point reduction over the year. This retreat by domestic institutional investors may reflect profit-booking at elevated valuations or concerns about near-term margin pressures. Insurance company holdings increased to 2.50% from 2.03% sequentially, whilst other DII holdings rose to 1.25% from 0.79%, suggesting some domestic institutions are adding positions despite the mutual fund exodus.

The total institutional holding of 30.49% provides reasonable liquidity and validates the investment case, though the declining mutual fund stake warrants attention. Non-institutional holdings have remained stable around 12.65%, indicating steady retail investor interest. Importantly, there is no promoter pledging, eliminating concerns about financial stress at the promoter level.

Stock Performance: Outperformance Amidst Volatility

Coromandel International's stock has delivered impressive long-term returns despite recent volatility. The shares have generated a 27.47% return over the past year, significantly outperforming the Sensex's 7.88% gain and delivering an alpha of 19.59 percentage points. This outperformance extends across longer timeframes, with two-year returns of 99.22% (alpha of 84.45%), three-year returns of 165.04% (alpha of 125.88%), and five-year returns of 167.87% (alpha of 89.49%).

However, recent performance has been more challenging. The stock has declined 9.31% over the past six months, underperforming the Sensex by 10.82 percentage points, reflecting concerns about margin pressures and flat financial trends. The one-month decline of 4.25% and one-week decline of 0.58% indicate continued near-term weakness. Year-to-date, the stock has declined 0.35%, though it has outperformed the Sensex's 3.11% decline.

The stock's beta of 1.20 indicates higher volatility than the broader market, with a volatility measure of 34.80% compared to the Sensex's 11.23%. This high volatility reflects the cyclical nature of the fertiliser business and the stock's sensitivity to regulatory changes, commodity price movements, and monsoon patterns. The risk-adjusted return of 0.79 over one year compares favourably to the Sensex's 0.70, suggesting that the additional volatility has been compensated with higher returns, though investors must be prepared for continued price fluctuations.

From a technical perspective, the stock's current trend is classified as "Mildly Bullish" as of January 19, 2026, representing an improvement from the previous "Sideways" trend. However, the stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting technical weakness. The immediate resistance lies at the 20-day moving average of ₹2,283.62, whilst support exists at the 52-week low of ₹1,590.00.

Investment Thesis: Quality Business at Premium Valuation

Coromandel International presents a compelling long-term investment case built on several structural advantages. The company's position as India's largest fertiliser manufacturer by market capitalisation, integrated business model spanning manufacturing and distribution, and strong brand equity among farmers provide durable competitive advantages. The extensive distribution network across rural India positions the company to benefit from increasing agricultural mechanisation and scientific farming practices.

The company's financial quality metrics remain impressive, with an average ROE of 20.41% and average ROCE of 34.52% demonstrating superior capital efficiency. The minimal debt profile (average net debt-to-equity of -0.23) provides financial flexibility to navigate industry cycles and invest in capacity expansion. The five-year sales growth of 15.42% and consistent profitability underscore the resilience of the business model.

However, several factors temper the investment case. The "Very Expensive" valuation at 31.41 times trailing earnings leaves limited margin of safety, particularly given the flat financial trend in recent quarters. The sequential decline in profitability, margin compression, and rising working capital requirements evident in Q3 FY26 results raise questions about near-term earnings trajectory. The high volatility (34.80%) and beta of 1.20 indicate that investors must be prepared for significant price fluctuations.

Outlook: Monitoring Points for Future Performance

Coromandel International's future performance will depend on several critical factors. The company's ability to restore margins through pricing power, operational efficiency, and favourable raw material costs will be paramount. The upcoming rabi season demand and government policy on fertiliser subsidies will significantly impact near-term performance. Management's execution of capacity expansion plans and success in the specialty nutrients segment will drive long-term growth.

The regulatory environment remains a critical variable, with any changes to the nutrient-based subsidy scheme potentially impacting profitability. Commodity price movements, particularly for phosphoric acid and ammonia, will influence input costs and margins. The monsoon pattern and crop prices will determine farmer income levels and fertiliser demand. Investors should monitor quarterly margin trends, working capital metrics, and management commentary on pricing power and volume growth.