Brief India: Coromandel International: Doing the Fieldwork Before the Harvest. and more

In this briefing:

1. Coromandel International: Doing the Fieldwork Before the Harvest.
2. India’s Military Strikes on Pakistan: No War in the Offing from Either Side
3. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand
4. India: Retail SIP Inflows Show Sharp Slowdown
5. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

1. Coromandel International: Doing the Fieldwork Before the Harvest.

Coromandel International (CRIN IN) is an agri-solutions company that is the 5^th largest Agro-chemical company in the country. It is India’s largest private sector Phosphatic fertilizer company, India’s largest Single Super Phosphate (SSP) company, and India’s largest organic manure company. It is India’s fourth largest agro-chemical manufacturer and has an R&D base to create and refine its product offerings as well as a retail chain with over 800 stores to act as a one-stop-solution for farmers.

Key Growth Drivers:

• Strong Agri growth levers are driven by population growth, governmental policies, Indian soil composition, and nutrient deficiency. 
• Crop Protection segment has a growing export market as well as expiring agro-chemical patents present new market opportunities.
• Branding as well as a growing retail chain fuel growth in the domestic markets. 

Valuation:

Earnings Per Share is 22.57 in FY 17-18, 24.75 in FY 18-19E and 29 in FY 19-20E. P/E ratio is 23.33 in FY 17-18, 21 in FY 18-19E and 20.5 in FY 19-20E. EV/EBITDA is 13.69 in FY 17-18, 14.38 in FY 18-19E and 15.09 in FY 19-20E. The company is fairly valued given a high growth outlook, improving efficiencies and future market potential.

2. India’s Military Strikes on Pakistan: No War in the Offing from Either Side

The air strikes launched by the Indian Air Force on Jaba Top in Balakot, in the Khyber Pakhtunkhwa province of Pakistan, have raised the stakes in the escalation of conflict between the two nuclear-armed neighbours in South Asia.  The stock market reaction on the morning of February 26 was negative with the Nifty-50 down nearly 146 points (1.3%), but thereafter it recovered to close at 10,835, only 45 points down (0.4%) from the previous close.  The central issue for the Indian market remains whether this will result in another war or a military retaliation by Pakistan as India targeted a venue in Pakistan proper and outside Pakistan-administered Kashmir (PAK), unlike the earlier ‘surgical strike’ wherein Indian army units attacked a camp in PAK. A war will be prohibitively expensive for both countries, but more so for Pakistan. It would have a material impact on the fiscal deficits of both countries, and it is also unlikely that America would want an escalation of conflict in this heavily militarised region. Hence, while the Pakistani government may make appropriate noises to satisfy their public, their response may be non-military, through an escalation in low intensity conflict targeting the Indian military and para-military in Indian-administered Kashmir (IAK). Hence, while the casualties may rise, the possibility of another India-Pakistan war may be remote.

At the same time, there is an indirect fall-out of the present conflict. Since voters may perceive Prime Minister as a more credible war leader than his opponents, a war atmosphere may strengthen the prospects of the ruling party. If the market comes to this conclusion, the recent military strikes may in fact boost the market. However, that ‘war’ effect may wear off before the elections.

3. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

4. India: Retail SIP Inflows Show Sharp Slowdown

• 62% of small cap funds, 38% of mid cap funds have negative 3-year SIP returns
• 33% of large cap funds have 3-year SIP returns lower than FD rate
• AMFI data shows 50% of SIP accounts were registered since April-17
• Discontinued SIP accounts in 9MFY19 are 24% higher than those over entire FY18. Net SIP additions are down 70% in last 6 months.
• Even though gross SIP inflows are holding up, industry experts indicate net inflows have fallen from 70% of the gross in mid-2018 to 40% currently.

5. Weekly Oil Views: Crude Rises to 3-Month High but Further Upside May Be Limited

Another week of US-China negotiations and another big boost to market sentiment. Stock markets as well as crude rallied last week on the back of news from Washington that the US and China were preparing to sign a framework deal in the form of several MoUs covering trade and structural issues.

But there are other economic concerns around the globe, and a preliminary deal between the US and China is not going to curb all the headwinds. Further upside to crude may also be limited because much of the anticipated rapprochement between the two countries has already been factored in. WTI prices stabilising well above the $50/barrel threshold are also likely to support strong growth in US production, which hit the 12 million b/d mark last week.

Nonetheless, there are factors on the supply front that could trigger a spike beyond $70/barrel for Brent, especially if combined with a turnaround in economic and oil demand growth expectations.

If that happens, we believe the Saudis will ease up on over-compliance with their own production cuts, either voluntarily or under renewed pressure from US President Donald Trump.