Momentum Pick: Coromandel International’s RSI in bullish terrain; will it stop underperforming?

With meager returns of 1.4% over the past 12 months, stock of Coromandel International has underperformed the Nifty50 by more than 10% during this period. But the weekly and monthly strength indicator RSI remains in bullish terrain, which signals growing strength in the stock. This could trigger an upward move resulting in a potential gain of Rs 200 per share. Should you buy it?

Coromandel is part of the $5 billion Murugappa Group and is the fifth largest Indian agro-chemical company and country's largest private-sector phosphatic fertiliser company. It is also the largest single super phosphate (SSP) company and specialty nutrients. With manufacturing facilities located at 16 locations, the company is also present across 81+ countries.



Technical View

Rajesh Palviya of Axis Securities: Buy | Target: Rs 1,150 | Upside: 21%
Coromandel stock has been making higher tops and higher bottoms exhibiting primarily a bullish trend, Rajesh Palviya, Senior Vice President - Technical and Derivatives Research at Axis Securities said.

On the monthly chart, the stock is trending higher within the up-sloping channel, indicating a sustained uptrend, Plaviya said.

“With the past couple of months' up-move, the stock has witnessed a strong bounceback from the channel's lower-end support zone of 850 levels. Recently the stock has recaptured its 20, 50,100 and 200-day SMA and bounced sharply, indicating a solid comeback of bulls,” the Axis Securities analyst said.

The stock has been trading amid significantly high volumes which shows investor participation in rallies. The weekly and monthly strength indicator RSI [Relative Strength Index] is in bullish terrain, which signals growing strength in the stock.

Crucial support zones are placed around 920-850 levels, whereas on the upside, the stock may extend its up move towards Rs 1,100-1,150 levels.

Fundamental

Sharekhan: Buy | Target: Rs 1,155 | Upside: 21%
Sharekhan maintains a 'Buy' on Coromandel International with an unchanged price target of Rs 1,555. The stock is valued at 12.7X/11.3X its FY2024E/FY2025E EPS which the brokerage said seems reasonable given the growth outlook. The stock was recommended at Rs 962.

Margin outlook for the fertiliser company remains positive on decline in phosphoric acid prices, softening of other key input costs, and improving cost-optimisation benefits, Sharekhan noted.

"We expect PAT to grow by 12% over FY2023-FY2025E along with high RoE/RoCE of 23%/31% in FY2025E. A potential foray into CDMO/specialty chemical would further support the medium to long-term earnings growth apart from diversification of the business stream," the domestic brokerage said.

Q4FY2023 operating profit of Rs 403 crore was up 6% Quarter-on-Quarter and missed the Sharekhan's estimates by 2% due to a marginal miss in margin. The net profit of Rs 246 crore, down by 15% YoY and 19% lower than the estimates due to lower other income, rise in interest cost, and higher tax rate.

Key Risks
1) Lower demand due to poor monsoons and regulatory changes might affect revenue growth momentum.

2) Unfavourable variations in raw-material prices, delay in the ability to pass on price hikes, and adverse currency fluctuations might affect margins.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)