Why Coromandel Worldwide has thrived whereas many fertilizer corporations have struggled

Yearly 97 several types of birds, together with Gray Heron, Painted Storks, Northern Pintails, Eurasian Wigeons, and Indian Darters, some from as distant as Siberia, go to the sanctuary, which is now acknowledged by the United Nations Growth Programme. The tall bushes and bushes make for ultimate nesting floor for the birds. About 20,000 fishes are added to the pond each November to offer the birds with meals once they begin visiting from mid-June.

The chook sanctuary has turn into the satisfaction of the corporate and all expansions over the past 10 years have religiously maintained its sanctity. This obvious give attention to ecological preservation is probably one of many explanation why Coromandel, part of the ₹77,800 crore Murugappa Group, is ranked among the many prime 7% of the worldwide chemical corporations within the Dow Jones Sustainability Index.

“Solely corporations with excessive Surroundings, Sustainability and Governance (ESG) scores can thrive in the long term,” Natarajan Srinivasan, govt vice chairman, Coromandel Worldwide, instructed Mint. “Such corporations are usually investor pleasant and funding worthy,” he added.

Coromandel shouldn’t be searching for funds, be it fairness or debt. It’s sitting on a money pile of ₹4,400 crore and is debt free. In 2024-25 alone, it generated money to the tune of ₹2,464 crore from its operations. The corporate, however, needs to be prepared with sturdy ESG credentials if a necessity arises to boost low-cost funds sooner or later. Firms with excessive ESG rankings are eligible to problem inexperienced bonds at an curiosity value that’s no less than 2% decrease than market charges.

It’s this method to enterprise that has made Coromandel probably the most environment friendly and worthwhile producers of fertilizers within the nation, in a sector that’s extremely regulated and really difficult even on a superb day. A lot so, that a few of its friends have exited the enterprise. In 2020, Aditya Birla group offered Indo Gulf Fertilizers to Indorama Company. Two years earlier, Tata Chemical substances had offered its phosphatic fertilizer enterprise to a subsidiary of Indorama Company. Coromandel, nonetheless, goes sturdy.

In 2024-25, it posted a standalone income of ₹24,428 crore and revenue after tax (PAT) of ₹1,941 crore. Fertilizers accounted for 89% of its gross sales and crop safety chemical compounds the remaining. The corporate’s Ebitda (Earnings earlier than curiosity, taxes, depreciation and amortisation) margin was at 12% and PAT margin at 8%.

In March, score company Crisil Scores reaffirmed its AAA score for Coromandel, which is the one fertilizer firm with the highest score. “The rankings continued to mirror the sturdy place of Coromandel in India’s phosphatic-fertilizer market, sturdy working effectivity supported by backward integration services and sturdy monetary danger profile,” learn Crisil’s score rationale.

Fairness analysts, too, have been bullish on the corporate. Motilal Oswal Monetary Providers, in its latest report, has stated that the corporate is well-positioned to ship a sustained efficiency and long-term worth backed by beneficial market dynamics, strategic product focus and operational efficiencies. Coromandel’s inventory closed at ₹2,436.80 on 25 July, up over 50% within the final one yr. In the meantime, the corporate’s benchmark Nifty Midcap 150 index remained practically flat in the identical time interval.

What has Coromandel, the second largest phosphatic fertilizer producer (after IFFCO) and a serious identify in crop-protection chemical compounds with 18 models throughout the nation, executed in another way? To reply that query, it’s important to know the trade’s significance to the financial system and the challenges it faces as a consequence.

‘It’s strangulation’

India is the second largest client of fertilizers on the earth after China. In any case, agriculture accounts for 18% of India’s gross home product (GDP) and plant vitamins are crucial in guaranteeing good farm output and thereby meals safety. Increased output retains meals costs beneath management and the financial system sturdy. The agriculture sector additionally helps the livelihood of 42% of the inhabitants. What makes the fertilizer sector much more enticing is that demand exceeds home provide. Imports account for 16% of India’s fertilizer consumption.

Contemplating the sector’s significance, the federal government has chosen to manage it tightly. “It decides virtually every part, from the quantum of manufacturing, to the place to produce and when,” stated Amir Alvi, chief working officer, fertilizer, Coromandel Worldwide. Although retail costs are purportedly deregulated, they’re normally ‘indicated’ by the federal government. Because of the precept of ‘reasonableness of return’, the put up tax return is capped at 12%, he added.

Regulation, or strangulation, as some trade insiders name it, shouldn’t be the one problem. Firms are obligated to promote crucial fertilizers to farmers at 75% of the price. The remaining 25% comes as a subsidy from the federal government. Prior to now these funds have been delayed, forcing the businesses to borrow extra to fulfill the working capital shortfall.

With Indian farming being predominantly rain-fed, the demand for fertilizers is immediately linked to rainfall. Much less rain or worse, a drought, will trigger fertilizer offtake to drop sharply, resulting in a list pile-up. The trade, which operates at a really low margin of three% to 4%, doesn’t have the wherewithal to soak up any shocks.

This makes fertilizer corporations notably susceptible, as key uncooked supplies, be it rock phosphate, phosphoric acid, sulphur, ammonia, or muriate of potash, are solely imported. A depreciation within the worth of the rupee will eat into the trade’s already wafer-thin margins.

In latest occasions, geopolitical tensions have created havoc. When Russia invaded Ukraine, the battle disrupted the provision of pure fuel, a key ingredient within the manufacturing of fertilizers and different inputs akin to ammonia, urea and potash, inflicting a spike of their costs. Extra not too long ago, the Israel-Iran warfare noticed provide of urea and ammonia being affected.

These components have created a dichotomy. Whereas the fertilizer sector is completely crucial for India and presents sturdy demand potential, no new entity, Indian or overseas, is eager on getting into it. Current corporations hesitate to make giant investments. Beneath these circumstances, how is Coromandel bucking the pattern?

“Coromandel’s sturdy efficiency within the latest previous displays its disciplined give attention to backward integration, operational excellence and differentiated product portfolios,” stated Arun Alagappan, govt chairman, Coromandel Worldwide. He added that manufacturing effectivity has been enhanced by way of focused capability debottlenecking, investments in multi-product crops, and the deployment of precision agri-services, by leveraging drones and satellite-based diagnostics.

Backward integration

With skinny margins and powerful vulnerabilities each on the demand and provide aspect, the corporate selected to closely re-invest its income with a particular give attention to from side to side integration. Tasks value ₹2,000 crore are presently in progress.

The corporate’s Kakinada plant, which produces two-third of its advanced fertilizers (those who include all three main vitamins: nitrogen, phosphorus and potassium), imports sulphuric acid and phosphoric acid, its key uncooked supplies.

However provide of phosphoric acid is tight globally whereas worldwide costs of sulphuric acid fluctuate broadly. “We’re establishing sulphuric acid and phosphoric acid models in Kakinada at a price of ₹1,100 crore. This may make us extra self-sufficient on the uncooked materials entrance and fewer susceptible to geopolitical shocks,” defined S Sankarasubramanian, MD & CEO, Coromandel Worldwide.

Rock phosphate and sulphur, which go into manufacturing of phosphoric acid and sulphuric acid, respectively, can be found in a lot and will be imported simply.

The backward integration has different advantages as nicely. Manufacturing of sulphuric acid additionally has an extra profit because it helps generate energy (by harnessing the steam ensuing from the manufacturing course of), and this reduces the corporate’s energy prices. Equally, manufacturing of phosphoric acid generates gypsum. The corporate has initiated plans to value-add gypsum to supply boards and plaster of paris. These measures, analysts say, will improve its margins considerably.

De-risking

The corporate, which presently has the capability to supply 3.5 million tonnes of phosphatic fertilizers, is establishing a brand new line that can add 750,000 tonnes at Kakinada. An enlargement is being deliberate at Visakhapatnam, as nicely. “We need to take our capability to 10 million tonnes within the subsequent few years,” Alvi stated.

The extra capability will assist Coromandel turn into a pan-India participant, considerably de-risking its enterprise. In the present day, a drought in Andhra Pradesh and Telangana will damage the corporate considerably because it has a 70% share in these markets.

Uncooked materials safety

Fertilizer corporations sometimes endure from poor capability utilisation because of lack of satisfactory uncooked materials provide. Coromandel, too, confronted such points. Its capability utilisation was under 75% 5 years in the past. To beat this downside, it started constructing relationships with suppliers and inked long-term contracts. In the present day, virtually 80% of its uncooked materials wants are met by way of such contracts.

The corporate has additionally fashioned joint ventures, with Foskor in South Africa and TIFERT in Tunisia, to acquire phosphoric acid, however the JVs haven’t delivered as anticipated.

Lately, Coromandel acquired Baobab Mining and Chemical Company (BMCC) in Senegal. BMCC operates a rock phosphate mine. After preliminary challenges, it now meets 15% of Coromandel’s rock phosphate wants. These measures have ensured uncooked materials safety and in 2024-25, the corporate’s capability utilization touched 100%.

Fertilizer sector specialists say the largest success of Coromandel Worldwide is its versatile manufacturing course of, which may deal with completely different grades of uncooked materials. “We’re the one firm in India to have a miniature pilot plant, which we use to adapt the method to completely different high quality inputs,” Sankarasubramanian stated. The flexibility to deal with a number of grades of uncooked materials provides to the corporate’s uncooked materials safety and improves its margins.

Farmer join

In a novel transfer, Coromandel Worldwide started establishing its personal ‘Growmor’ retail outlets in 2008 and noticed many advantages. Gross sales by way of its personal outlets assist it save on the supplier margin, which is wherever between 6% and 10%. In addition they assist in model promotion and defending market share as sellers have little model loyalty.

“Most significantly, we wished to have a direct reference to the farmers. In the present day, these outlets assist us in understanding their buy sample, pest situation, and get suggestions, which is then used to enhance the merchandise,” stated G. Babu, head, retail enterprise.

As of end-Could, Coromandel’s retail community was 903 shops sturdy, unfold throughout the southern states (barring Kerala) and Maharashtra. It additionally plans to enter Madhya Pradesh this yr. These outlets serve 3 million farmers and have come in useful as the corporate is now providing providers akin to spraying of fertilizers by way of drones. Coromandel not too long ago invested ₹150 crore to amass a 58% stake in Dhaksha Unmanned Methods Personal Ltd, a drone maker.

The retail rollout was not simple. Between 2021 and 2024, the corporate needed to halt the method and assessment the mannequin as many shops did not ship income. Many have been shut and some have been relocated. The rollout restarted final fiscal yr. In the present day, Coromandel sees this retail community as a crucial a part of its transition to turn into an agri options enterprise.

Coromandel can also be tweaking its product portfolio in a bid to cut back its share of subsidy-based merchandise by focussing extra on crop safety chemical compounds, and superior merchandise akin to nano-DAP, nano-Urea and purified phosphoric acid (utilized in battery manufacturing). However success has been restricted. Subsidy-based merchandise proceed to account for 80% of the gross sales.

The corporate survived a scare in December 2023 when ammonia fuel leaked from the under-sea pipeline at its Ennore plant in Chennai. About 67.6 tonnes of the fuel leaked in simply quarter-hour, inflicting discomfort to close by residents. Protests erupted and calls have been made to close the plant completely. A examine by a technical committee concluded that giant boulders had moved throughout Cyclone Michaung, damaging the pipeline. A effective of ₹5.92 crore was imposed on the corporate, which has not operated the fertilizer plant at Ennore because the incident.

Whereas analysts and trade specialists commend the corporate for its efforts in direction of effectivity, they are saying plenty of work lies forward. Farming is altering and Coromandel must develop non-chemical fertilizers that may gasoline plant development with out hurting the soil, they are saying. Precision farming is taking root and expertise, together with synthetic intelligence, will play a major position any more. Although Coromandel has taken preliminary steps on this space, its job is lower out.