Coromandel International Upgraded to Buy on Strong Fundamentals and Improved Technicals

Quality Assessment: Strong Fundamentals Support Upgrade

Coromandel International continues to demonstrate exceptional quality metrics, which have been pivotal in the upgrade decision. The company boasts a strong long-term Return on Equity (ROE) averaging 20.41%, signalling efficient capital utilisation and consistent profitability. This is complemented by a low average Debt to Equity ratio of 0.03 times, indicating a conservative capital structure with minimal financial risk.

Net sales have exhibited healthy growth, expanding at an annual rate of 15.42%, reflecting steady demand and operational strength in the fertilisers industry. The company’s recent quarterly performance has been impressive, with the latest Q2 FY25-26 results showing the highest-ever net sales of ₹9,654.13 crores and PBDIT reaching ₹1,146.52 crores. Operating cash flow for the year stands at a robust ₹2,463.61 crores, underscoring strong cash generation capabilities.

Institutional investors hold a significant 30.33% stake in Coromandel International, a vote of confidence that often reflects thorough fundamental analysis and long-term commitment. This institutional backing adds to the stock’s credibility and stability.

Valuation: Premium Pricing Reflects Growth Expectations

While Coromandel International’s valuation is on the expensive side, this is justified by its strong growth prospects and superior financial performance. The stock trades at a Price to Book (P/B) ratio of 5.5, which is significantly higher than the sector average, reflecting investor willingness to pay a premium for quality and growth.

The company’s Price/Earnings to Growth (PEG) ratio stands at a favourable 0.6, indicating that earnings growth is outpacing the premium valuation, which is a positive sign for long-term investors. Despite the high ROE of 17.5%, the market has priced in expectations of continued robust profit expansion, supported by a 55.7% rise in profits over the past year.

Coromandel’s market capitalisation of ₹66,816 crores makes it the largest company in the fertilisers sector, accounting for 31.94% of the sector’s total market cap. Its annual sales of ₹28,620.01 crores represent 18.18% of the industry, underscoring its dominant position.

Financial Trend: Consistent Growth and Positive Momentum

The company’s financial trend remains strongly positive, with three consecutive quarters of positive results reinforcing confidence in its operational strategy. Over the last year, Coromandel International has delivered a stock return of 20.99%, comfortably outperforming the BSE500 index return of 8.65% for the same period.

Longer-term returns are even more impressive, with a five-year return of 170.22% and a ten-year return exceeding 1,272%, vastly outperforming the Sensex’s 68.52% and 240.06% returns respectively. This consistent outperformance highlights the company’s ability to generate shareholder value over multiple market cycles.

Such sustained growth is supported by strong operational cash flows and expanding sales, which provide a solid foundation for future investments and dividend payouts.

Technical Analysis: Shift to Mildly Bullish Signals

The upgrade was also driven by a notable improvement in technical indicators. The technical trend has shifted from sideways to mildly bullish, signalling a potential upward momentum in the stock price despite a recent one-day decline of 2.46% to ₹2,265.

Key technical metrics present a mixed but cautiously optimistic picture. The Moving Averages on a daily basis are mildly bullish, while the KST (Know Sure Thing) indicator is bullish on a weekly timeframe, though mildly bearish monthly. Bollinger Bands suggest sideways movement weekly but mildly bullish monthly, indicating potential for price expansion.

MACD remains mildly bearish on both weekly and monthly charts, and RSI shows no clear signal, suggesting the stock is not yet overbought or oversold. Other indicators such as Dow Theory and On-Balance Volume (OBV) show no definitive trend, reflecting a market in consolidation but with emerging positive momentum.

Overall, the technical outlook supports the fundamental upgrade, signalling that the stock may be poised for a gradual recovery and potential appreciation in the near term.

Risks and Considerations

Despite the positive outlook, investors should be mindful of valuation risks. The stock’s premium pricing relative to peers means that any slowdown in earnings growth or adverse sector developments could weigh on the share price. Additionally, the fertilisers sector is subject to regulatory changes and commodity price volatility, which could impact margins.

Technical indicators, while improving, still show some bearish signals on longer-term charts, suggesting that investors should watch for confirmation of sustained upward momentum before committing heavily.

Nonetheless, Coromandel International’s strong fundamentals, dominant market position, and improving technicals provide a compelling case for a Buy rating at this juncture.

Conclusion

The upgrade of Coromandel International Ltd from Hold to Buy by MarketsMOJO reflects a holistic improvement across quality, valuation, financial trend, and technical parameters. The company’s robust ROE, strong sales growth, conservative debt profile, and consistent positive quarterly results underpin its fundamental strength. Meanwhile, the shift to a mildly bullish technical trend supports the potential for price appreciation despite recent volatility.

With a market cap of ₹66,816 crores and a commanding presence in the fertilisers sector, Coromandel International remains a key stock for investors seeking exposure to quality growth in this space. While valuation remains a consideration, the company’s earnings growth and institutional backing provide confidence in its long-term prospects.

Investors should continue to monitor both fundamental developments and technical signals to optimise entry points and manage risk effectively.

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