Why Coromandel International has thrived while many fertilizer companies have struggled

Mint

20 hours ago

Kakinada/Vishakapatnam/Hyderabad: The first thing you notice as you enter Coromandel International's phosphatic fertilizer plant at Kakinada in North-Eastern Andhra Pradesh is not a smoke stack but a bird sanctuary. Spread across 25 acres, it has a large pond, over 200,000 trees and very bushy flora.
Every year 97 different types of birds, including Grey Heron, Painted Storks, Northern Pintails, Eurasian Wigeons, and Indian Darters, some from as far away as Siberia, visit the sanctuary, which is now recognized by the United Nations Development Programme. The tall trees and bushes make for ideal nesting ground for the birds. About 20,000 fishes are added to the pond every November to provide the birds with food when they start visiting from mid-June.
The bird sanctuary has become the pride of the company and all expansions over the last 10 years have religiously maintained its sanctity. This apparent focus on ecological preservation is perhaps one of the reasons why Coromandel, a part of the ₹77,800 crore Murugappa Group, is ranked among the top 7% of the global chemical companies in the Dow Jones Sustainability Index.
'Only companies with high Environment, Sustainability and Governance (ESG) scores can thrive in the long run," Natarajan Srinivasan, executive vice chairman, Coromandel International, told Mint. 'Such companies tend to be investor friendly and investment worthy," he added.
Coromandel is not looking for funds, be it equity or debt. It is sitting on a cash pile of ₹4,400 crore and is debt free. In 2024-25 alone, it generated cash to the tune of ₹2,464 crore from its operations. The company, nevertheless, wants to be ready with strong ESG credentials if a need arises to raise low-cost funds in the future. Companies with high ESG ratings are eligible to issue green bonds at an interest cost that is at least 2% lower than market rates.
It is this approach to business that has made Coromandel International one of the most efficient and profitable producers of fertilizers in the country, in a sector that is highly regulated and very challenging even on a good day. So much so, that some of its peers have exited the business. In 2020, Aditya Birla group sold Indo Gulf Fertilizers to Indorama Corporation. Two years earlier, Tata Chemicals had sold its phosphatic fertilizer business to a subsidiary of Indorama Corporation. Coromandel, however, is going strong.
In 2024-25, it posted a standalone revenue of ₹24,428 crore and profit after tax (PAT) of ₹1,941 crore. Fertilizers accounted for 89% of its sales and crop protection chemicals the rest. The company's Ebitda (Earnings before interest, taxes, depreciation and amortisation) margin was at 12% and PAT margin at 8%.
In March, rating agency Crisil Ratings reaffirmed its AAA rating for Coromandel, which is the only fertilizer company with the top rating. 'The ratings continued to reflect the strong position of Coromandel in India's phosphatic-fertilizer market, strong operating efficiency supported by backward integration facilities and robust financial risk profile," read Crisil's rating rationale.
Equity analysts, too, have been bullish on the company. Motilal Oswal Financial Services, in its recent report, has said that the company is well-positioned to deliver a sustained performance and long-term value backed by favourable market dynamics, strategic product focus and operational efficiencies. Coromandel's stock closed at ₹2,436.80 on 25 July, up over 50% in the last one year. Meanwhile, the company's benchmark Nifty Midcap 150 index remained nearly flat in the same time period.
What has Coromandel, the second largest phosphatic fertilizer producer (after IFFCO) and a major name in crop-protection chemicals with 18 units across the country, done differently? To answer that question, it is essential to understand the industry's importance to the economy and the challenges it faces as a consequence.
'It's strangulation'
India is the second largest consumer of fertilizers in the world after China. After all, agriculture accounts for 18% of India's gross domestic product (GDP) and plant nutrients are critical in ensuring good farm output and thereby food security. Higher output keeps food prices under control and the economy strong. The agriculture sector also supports the livelihood of 42% of the population. What makes the fertilizer sector even more attractive is that demand exceeds domestic supply. Imports account for 16% of India's fertilizer consumption.
Considering the sector's importance, the government has chosen to regulate it tightly. 'It decides almost everything, from the quantum of production, to where to supply and when," said Amir Alvi, chief operating officer, fertilizer, Coromandel International. Though retail prices are purportedly deregulated, they are usually 'indicated' by the government. Thanks to the principle of 'reasonableness of return', the post tax return is capped at 12%, he added.
Regulation, or strangulation, as some industry insiders call it, is not the only challenge. Companies are obligated to sell critical fertilizers to farmers at 75% of the cost. The remaining 25% comes as a subsidy from the government. In the past these payments have been delayed, forcing the companies to borrow more to meet the working capital shortfall.
With Indian farming being predominantly rain-fed, the demand for fertilizers is directly linked to rainfall. Less rain or worse, a drought, will cause fertilizer offtake to drop sharply, leading to an inventory pile-up. The industry, which operates at a very low margin of 3% to 4%, does not have the wherewithal to absorb any shocks.
This makes fertilizer companies particularly vulnerable, as key raw materials, be it rock phosphate, phosphoric acid, sulphur, ammonia, or muriate of potash, are entirely imported. A depreciation in the value of the rupee will eat into the industry's already wafer-thin margins.
In recent times, geopolitical tensions have created havoc. When Russia invaded Ukraine, the conflict disrupted the supply of natural gas, a key ingredient in the production of fertilizers and other inputs such as ammonia, urea and potash, causing a spike in their prices. More recently, the Israel-Iran war saw supply of urea and ammonia being affected.
These factors have created a dichotomy. While the fertilizer sector is absolutely critical for India and offers strong demand potential, no new entity, Indian or foreign, is keen on entering it. Existing companies hesitate to make large investments. Under these circumstances, how is Coromandel bucking the trend?
'Coromandel's strong performance in the recent past reflects its disciplined focus on backward integration, operational excellence and differentiated product portfolios," said Arun Alagappan, executive chairman, Coromandel International. He added that manufacturing efficiency has been enhanced through targeted capacity debottlenecking, investments in multi-product plants, and the deployment of precision agri-services, by leveraging drones and satellite-based diagnostics.
Backward integration
With thin margins and strong vulnerabilities both on the demand and supply side, the company chose to heavily re-invest its profits with a special focus on backward and forward integration. Projects worth ₹2,000 crore are currently in progress.
The company's Kakinada plant, which produces two-third of its complex fertilizers (those that contain all three primary nutrients: nitrogen, phosphorus and potassium), imports sulphuric acid and phosphoric acid, its key raw materials.
But supply of phosphoric acid is tight globally while international prices of sulphuric acid fluctuate widely. 'We are setting up sulphuric acid and phosphoric acid units in Kakinada at a cost of ₹1,100 crore. This will make us more self-sufficient on the raw material front and less vulnerable to geopolitical shocks," explained S Sankarasubramanian, MD & CEO, Coromandel International.
Rock phosphate and sulphur, which go into production of phosphoric acid and sulphuric acid, respectively, are available in plenty and can be imported easily.
The backward integration has other benefits as well. Production of sulphuric acid also has an additional benefit as it helps generate power (by harnessing the steam resulting from the production process), and this reduces the company's power costs. Similarly, production of phosphoric acid generates gypsum. The company has initiated plans to value-add gypsum to produce boards and plaster of paris. These measures, analysts say, will enhance its margins significantly.
De-risking
The company, which currently has the capacity to produce 3.5 million tonnes of phosphatic fertilizers, is setting up a new line that will add 750,000 tonnes at Kakinada. An expansion is being planned at Visakhapatnam, as well. 'We want to take our capacity to 10 million tonnes in the next few years," Alvi said.
The additional capacity will help Coromandel become a pan-India player, substantially de-risking its business. Today, a drought in Andhra Pradesh and Telangana will hurt the company significantly as it has a 70% share in these markets.
Raw material security
Fertilizer companies typically suffer from poor capacity utilisation due to lack of adequate raw material supply. Coromandel, too, faced such issues. Its capacity utilisation was below 75% five years ago. To overcome this problem, it began building relationships with suppliers and inked long-term contracts. Today, almost 80% of its raw material needs are met through such contracts.
The company has also formed joint ventures, with Foskor in South Africa and TIFERT in Tunisia, to procure phosphoric acid, but the JVs have not delivered as expected.
Recently, Coromandel acquired Baobab Mining and Chemical Corporation (BMCC) in Senegal. BMCC operates a rock phosphate mine. After initial challenges, it now meets 15% of Coromandel's rock phosphate needs. These measures have ensured raw material security and in 2024-25, the company's capacity utilization touched 100%.
Fertilizer sector experts say the biggest success of Coromandel International is its versatile production process, which can handle different grades of raw material. 'We are the only company in India to have a miniature pilot plant, which we use to adapt the process to different quality inputs," Sankarasubramanian said. The ability to handle multiple grades of raw material adds to the company's raw material security and improves its margins.
Farmer connect
In a unique move, Coromandel International began setting up its own 'Growmor' retail shops in 2008 and saw many benefits. Sales through its own shops help it save on the dealer margin, which is anywhere between 6% and 10%. They also help in brand promotion and protecting market share as dealers have little brand loyalty.
'Most importantly, we wanted to have a direct connection with the farmers. Today, these shops help us in understanding their purchase pattern, pest scenario, and get feedback, which is then used to improve the products," said G. Babu, head, retail business.
As of end-May, Coromandel's retail network was 903 outlets strong, spread across the southern states (barring Kerala) and Maharashtra. It also plans to enter Madhya Pradesh this year. These shops serve 3 million farmers and have come in handy as the company is now offering services such as spraying of fertilizers through drones. Coromandel recently invested ₹150 crore to acquire a 58% stake in Dhaksha Unmanned Systems Private Ltd, a drone maker.
The retail rollout was not easy. Between 2021 and 2024, the company had to halt the process and review the model as many stores failed to deliver profits. Many were shut and a few were relocated. The rollout restarted last fiscal year. Today, Coromandel sees this retail network as a critical part of its transition to become an agri solutions enterprise.
Coromandel is also tweaking its product portfolio in a bid to reduce its share of subsidy-based products by focussing more on crop protection chemicals, and advanced products such as nano-DAP, nano-Urea and purified phosphoric acid (used in battery manufacturing). But success has been limited. Subsidy-based products continue to account for 80% of the sales.
The company survived a scare in December 2023 when ammonia gas leaked from the under-sea pipeline at its Ennore plant in Chennai. About 67.6 tonnes of the gas leaked in just 15 minutes, causing discomfort to nearby residents. Protests erupted and calls were made to shut the plant permanently. A study by a technical committee concluded that large boulders had moved during Cyclone Michaung, damaging the pipeline. A fine of ₹5.92 crore was imposed on the company, which has not operated the fertilizer plant at Ennore since the incident.
While analysts and industry experts commend the company for its efforts towards efficiency, they say a lot of work lies ahead. Farming is changing and Coromandel needs to develop non-chemical fertilizers that can fuel plant growth without hurting the soil, they say. Precision farming is taking root and technology, including artificial intelligence, will play a significant role from now on. Though Coromandel has taken initial steps in this area, its task is cut out.