Coromandel International CONCALL TRANSCRIPT OCT 11

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Coromandel International Transcription

Coromandel International

Transcript
Q2FY12 Conference Call Transcript

25 October, 2011

Moderator:
Ladies and gentlemen, good evening and welcome to the Q2 FY12 Results call of Coromandel International Limited hosted by
Emkay Global Financial Services. We have with us today, Mr. Kapil Mehan – Managing Director and Mr. Shankar
Subramaniam – Vice President, Finance. As a reminder, all participant lines will be in the listen-only mode. There will be an
opportunity for you to ask questions at the end of today's presentation. If you should need assistance during the conference
call, please signal an operator by pressing “*” and then “0” on your touchtone telephone. Please note that this conference is
being recorded. I would now like to hand the conference over to Mr. Rohan Gupta -- Senior Research Analyst of Emkay
Global. Thank you and over to you, Sir.

Rohan Gupta:
Thank you, Terence. Good evening ladies and gentlemen. On behalf of Emkay Global Financial Services I welcome all the
participants who have logged in for the conference call of Coromandel International. Thanks to management for joining in the
conference call. Hi, sir, good evening.

Rohan Gupta:
I will request you first if you can go ahead giving us a brief about the Q2 and H1 FY12 results and then we can follow it up with
the Q&A session.

Kapil Mehan:
Good evening, everybody. Thanks for joining in our call. Let me start by giving you an overview of the market situation in terms
of agricultural situation I think sowing of most of the crops has been on target as per normal sowing, except maybe oil seeds
and pulses. But major crops like paddy, cotton, I think the acreage have been normal or slightly higher than normal. Monsoon I
think when we had the last call there were some apprehensions around monsoon being normal or not normal. That I think
essentially has turned out to be well spread as far as period up to September is concerned and I think overall the monsoon
situation if you look at natural level has turned out to be reasonably normal and good and returns been the same in the case of
our addressable market.

So, as far as the demand fundamentals are concerned they have continued to be in place. The cropping season has been
good. Moisture in the soil has been good and that we believe augurs well for future rabi sowings also.

As far as demand and supply of fertilizers is concerned I think the demand has been by and large robust while there have
been some supply constraints on availability of both phosphate and potash materials. Potash primarily because of late
conclusion of the contract that India had to sign and as far as phosphate is concerned there was a general supply constraints
for India because India had concluded a very, very attractive price for import whereas most of the global market the pricing of
DAP was much better as much as in $700 per ton whereas India had contracted a $612. So, other than contracted volumes
the spot volumes did not land in India. Last year in the same period a lot of material had come from China and this year that
material did not come, it actually got diverted to other markets like Brazil, US, etc. so there was a bit of availability constraint.
And as also the prices of phosphate and complexes had moved up as a result of international rate price movements and fixed
subsidy components under NBS. The demand for urea has been much stronger and we see in the first six months 10.8%
growth in sales of urea whereas in case of complexes which is really DAP, NPKs and all that , there is a decline of about 9.2%
over same period last year. Last year we had consumed 11.96 million tonnes of these fertilizer materials. This year, it is 10.85
million tonnes.

If you ask me what is the reason for the shortfall is, I think purely it is due to non-availability of adequate amount of DAP in the
market. Potash, of course, the contract got finalized very late. So the direct application in the market really shrunk from 1.9
million tonnes to 700,000 tonnes this year. And that also was mostly due to carryover stocks getting sold during this period. Of
this 700,000 tonnes about 300,000 tonnes was imported in the month of September and sale actually happened out of the
opening stocks in the month of May-June. So, that broadly as far as external environment is concerned.

Coming back to our performance, on operations side, our sales last year was 8.39 lakh tonnes in this quarter, this year it is
7.71 lakh tonnes so there is a decline of about 68,000 tonnes in the sales whereas production has declined by about 1.23 lakh
tonnes with the production this year of 6.63 lakh tonnes against 7.86 lakh tonnes. This was primarily due to lesser availability
of phosphoric acid from our key long-term supplier GCT and there was some disruptions in supplies from Foskor too. So,

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these are the sort of reasons why our production is lower than last year. But sales is made up to the extent possible because
of imported fertilizer coming in and we had a sale of about 1.44 lakh tonnes this year against last year 1.85 but the product mix
of imported product sale is different. Last year we had sold more of DAP and MOP, this year most of it is complexes and some
amount of DAP. Since I were to give you the overall numbers last year we had including imports a sale of 10.24 lakh tonnes
against that this year it is 9.51 lakh tonnes on a half yearly basis we had a sale last year of 16.34 lakh tonnes, this year it is
15.25 lakh tonnes. So that is really what we have.

In terms of key decisions that we took at the Board meeting, Board of Directors approved and I think most of you would be
th
aware that we are in our Golden Jubilee this year on 16 October 2011 we completed 50 years of company’s existence and
we had our Golden Jubilee celebration function yesterday evening and on this occasion the Board has decided to share the
wealth with shareholders and reward the shareholders by granting a bonus debenture of Rs. 15 each for every share of Rs. 1.
The door-to-door tenor of the bank business are bonus debentures will be four years and they will be redeemed in equal
installments in the years 2, 3 and 4. The annual coupon rate will be 9% and we have started the process of obtaining
regulatory approval and we hope that this entire process should be completed by March 2012. The size of the issue would be
closed to Rs. 495 crores including dividend distribution tax payable by the company as we believe this will be treated as
deemed dividend. Second, I think important decision which was approved at the Board meeting was related to setting up of a
Single Super Phosphate plant of 800 tonnes per day capacity in Punjab at an investment up to 120 crores and we expect that
this plant should get commissioned in the next 18-24 months. This plant would be very, very strategic for us not only from the
fact that it enhances our phosphate fertilizer footprint but it also enhances our presence in very agriculturally attractive markets
of Punjab, Haryana and northern Rajasthan. The Board also passed enabling resolution of seeking to transfer the lease rights
of land located at Navi Mumbai and to seek the approvals of shareholders for the same through postal ballot. So we would
share the developments on this matter also as things progress. So this is broadly in terms of company’s performance and this
thing. Our pesticide business has continued to do very well and our formulation business is growing very well. The down side
there has been really the Endosulfan interim ban which has been imposed by Supreme Court. Of course, Supreme Court has
allowed now export to the extent of pending orders as on date of interim ban and certain procedural guidelines has been
issued with respect to that. So we are in the process of completing those formalities and hopefully during this quarter whatever
pending orders of Endosulfan was there, they would get executed.

Our organic portfolio has continued to do well. We have grown that business close to 60% during this quarter as well as the
first half. Our other water soluble fertilizers and sulphur also is doing well. Gromor Sulphur business is also doing well. Our
retail, we have grown by about 14% but again the fertilizer availability did impact in some ways the footfalls in our centers but
as far as operational performance is concerned our retail has now trend EBITDA positive at the end of this first half and also
almost 50% of the stores are now profitable at store level with which number was around 20% in the first half of last year. So,
overall this has been a very satisfying quarter. And I think all the numbers, etc. are in front of you.

If I were to summarize the reasons for improved operational performance I think I would say that there has been an all-round
improvement in all our business segments; imported fertilizer sales have been very helpful. We have this year tied up in time
close to over 400,000 tonnes of imported fertilizers and part of that came in August, September and balance will be arriving in
the month of October and November and we hope to have these fertilizers available to us so that we maintain and improve our
market share in this period.

We have a very robust ForEx management policy in place so we did not while the market had a lot of shocks in store towards
the end of the quarter but we were by and large insulated from that. Our sourcing of funds has been pretty cost-effective and
our working capital needs also have been met at reasonable rates and subsidies have been coming on time.

And one thing more which I think is important to share with you is that share of subsidy revenue as a percentage of the total
revenue has come down to 48.5% in this quarter as compared to 65.4% during the same period last year. Same number for
first half of is 50.8% Vs. 61.9% last year. So, I think cash flows definitely will improve as this ratio further improves because our
election cycle from the market is much faster compared to receipt of subsidy.

So these are my broad opening remarks and maybe Shankar would you like to add anything?

Shankar Subramaniam:
Nothing specific. During this quarter we also liquidated fertilizer bonds and that has improved the cash flow. These bonds are
carrying interest of only 6.65% whereas we could deploy at a much better rates and also the overall cash position is
comfortable that has brought down the interest cost for the quarter and as Mr. Kapil mentioned our ForEx management has
been better and there is no major mark-to-market impact as we have been pro-actively managing our exposures. We can now
move forward to Q&A session.

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Question and Answer Session

Moderator:
Thank you. We will now begin with the question and answer session. At this time if you would like to ask a question please
press ‘*’ and ‘1’ on your touchtone telephone. If you decide you want to withdraw your question from the question queue
please press ‘*’ and ‘2’ to remove yourself from the question queue. The question is from the line of Baidik Sarkar from Unifi
Capital.

Baidik Sarkar:
My question is with regards to your acquisition of Sabero. One thing why exactly the revised offer dates has not been
announced given that it has already been four months since Coromandel has stated its intention to take over and also given
that the promoters have sold their stake, any heads up in that sir?

Kapil Mehan:
It is pending approval with SEBI and SEBI had asked for certain clarifications with respect to the filings that we had done and
both of us queries have been attended to and answered and we are expecting that SEBI approval should be coming forward
soon, and as soon as that comes, we will be launching the open offer and completing the process.

Baidik Sarkar:
There are tentative timelines that, I understand that SEBI works but still is there a tentative timeline by which we can expect?

Kapil Mehan:
We unfortunately cannot set a timeline for SEBI –

Baidik Sarkar:
I mean from SEBI, because given that –

Kapil Mehan:
Yeah, right, we have been expecting for the last three months, so it has not happened so far and this quarter we are very
hopeful that it should go through and we should be able to complete the process but again having said that it is a regulatory
approval process and it is not entirely in our hands.

Baidik Sarkar:
My second question gentlemen is as a shareholder for both Sabero as well as Coromandel, given the heads up on what your
integration strategy has been with Sabero and there have been issues with Sabero with respect to Gujarat Pollution Control
Board. So how is Coromandel handling the integration? Have any heads up in that front will be appreciated?

Kapil Mehan:
We have to be within the rules of Takeover Code and we have as of now two directors which have been nominated as
independent directors of Sabero Board so that is one part. Second is our people are sitting as observers in some of the review
meetings, etc. and giving the inputs and as in a lot of data sharing, etc. is happening across the teams but if you ask me are
we in driver seat? We are not. If you ask me are we running the show? We are not. So I think we have to leave it at that.

Baidik Sarkar:
But integration in terms of distributing their projects or vice versa –

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Kapil Mehan:
That has started, because there is a definitely much more synergies in the marketplace in terms of distribution of products, etc.
or formulating in our brand with their brand so I think that kind of process are non-finance basis has started happening and that
is moving well.

Baidik Sarkar:
And my second last question heads up on the directive from Gujarat Pollution Control Board even there was issues –

Kapil Mehan:
There were issues and already the permission which was there when we acquired was only for 25% operation of the capacity.
That permission now has been enhanced to 50% and we are now I think the Sabero management is working now with the
pollution control authorities to further enhance the permission from 50% to 75% then eventually to 100%. So far movement is
from 25% to 50% and that is sufficient to meet the current demand.

Baidik Sarkar:
And the last question again from a regulatory perspective. Will consolidation of Sabero’s numbers into yours happen only after
the approval goes through?

Shankar Subramaniam:
Yeah, after we complete the open offer process and after we acquire the shares of promoters, their right now shares on the
escrow account, so after we complete the promoter process, once we cross that the sole level of 50% then we will get into
consolidation.

Moderator:
Thank you. The next question is from the line of Dennis Lai from RCM.

Dennis Lai:
The outlook for the fertilizer subsidy trend by the government and how would that impact Coromandel going forward?

Kapil Mehan:
The fertilizer subsidy as far as our products are concerned is now regulated by the nutrient-based subsidy policy which was
st
announced last year and has been effective since 1 April 2010 whereby the subsidy given by the government on per KG of
nutrient is fixed at same level. And whatever changes happen in the cost structure of our manufactured products due to raw
material price variations or due to any other reasons, we have to either improve our efficiencies or increase our selling prices
to the farmers and that is what has been happening. So the impact of government subsidy on Coromandel is now slowly
coming down as I had alluded in my opening remarks that share of subsidy revenue has now fallen perhaps for the first time to
less than 50% of our top-line in July-December quarter.

Dennis Lai:
So the trend of the subsidy cut down is expected to continue?

Kapil Mehan:
I think government would continue to regulate its subsidy outgo to a reasonable level as a percentage of GDP because it is
part of the overall fiscal deficit target that the Government of India has. And fertilizer is a very significant part of it and nutrient-
based subsidy is one way to sort of limit outgo of the government and give a leeway to the companies to increase prices or
adjust prices if they have to do so. The reasons maybe raw material prices going up or other costs going up, cost of money
going up or ForEx movement happening in the adverse directions, all of that now the companies have to pass on to the farmer
and then of course that can have an impact on demand sporadically. But so far we have not witnessed any demand
destruction so far.

Moderator:
Thank you. The next question is from the line of Bharath Subramanian from Sundaram Mutual Fund.

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Bharath Subramanian:
Just a couple of questions in terms of our fertilizer business. Could you just comment on the kind of price hikes that we took in
the quarter and in terms of demand has there been any visible impact on the demand in the month of September when
maximum hike happened?

Kapil Mehan:
The prices we started the year with Rs. 11,700 plus local taxes as a price which was raised to Rs. 14,000 from July end or
early August onwards and then we had a settlement of the DAP price and that effectively happened really from towards the
end of September and we are yet to see the real impact of that because whether it is leading to any demand destruction or not
because adequate availability has not been there. So until and unless there is enough availability to say conclusively that
farmers are not applying fertilizers because of increase in prices it is very difficult to say. So far I think whatever we have been
able to produce, whatever we have imported all of that has been sold and our market reports are that same is the case with
most of the companies.

Bharath Subramanian:
So roughly where would be DAP as on date sir in terms of --?

Kapil Mehan:
st
Effective 1 October DAP rate is now Rs. 18,200 per tonne plus local taxes.

Bharath Subramanian:
In terms of the geographies where we are in now, have we seen any shift in terms of market share say within AP or TN where
we gain some or we lose some in case between TN and AP?

Kapil Mehan:
As I had mentioned in my opening remarks there has been a reduction in the overall sales of phosphate fertilizers from close
to 12 million tonnes to this year about 10.8 million tonnes and that has happened across the states and it has happened in
Andhra also, it has happened in most of the states. And overall I think we have actually marginally improved our market share
to about 14% this year because the demand went down by close to 10% whereas our volume in this six months is down only
by about 6.5%.

Bharath Subramanian:
Last time when we had a call you were mentioning on the price cap on every increase to Rs. 600 a tonne for DAP. So every
price hike do we still maintain in a quantum of Rs. 600 a tonne or is it now become a flexible?

Kapil Mehan:
I think circumstances have overtaken us. This Rupee depreciation from 45.50 to 49.50 itself translates into Rs. 2600 per ton.
So there is very little left in our hands to control. And I think everybody realizes that within the industry as well as within the
government that if the price is have to be kept at the same level then the subsidy levels have to go up and that is not an option
I think which is doable at this point of time.

Bharath Subramanian:
In terms of the dealer channel with prices almost doubling in a year’s time, dealer off take intentionally got down because the
working cap cycle has gone up for them, because the margins have not expanded dealer levels?

Kapil Mehan:
Margins have expanded marginally at dealer level also because we have made some adjustments in the dealer margins also
so that dealers continue to find this doable.

Bharath Subramanian:
So roughly what would be the dealer margin currently?

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Kapil Mehan:
It varies from product to product and they will vary from company to company. So I do not think it would be appropriate for us
to give exact numbers for each product.

Bharath Subramanian:
Lastly in terms of the fertilizers division absolute sales would have been same for the quarter?

Kapil Mehan:
I have mentioned that earlier.

Bharath Subramanian:
In terms of the turnover.

Kapil Mehan:
Turnover, we do not have segment reporting so we do not give the absolute sales value numbers for different segments of our
business because we have not yet crossed the threshold level for doing the same for each of our businesses.

Bharath Subramanian:
In terms of the SSP initiative can you just throw some color as to why we have targeted Punjab as the market?

Kapil Mehan:
We are not targeting only Punjab. We will be targeting Punjab, Haryana and North Rajasthan, western UP from there. The
reason why we have chosen Punjab is because of availability of one of the raw materials there, number one. Our sulphur is
going to be available through the refinery which is coming up near Bhatinda. So that is one reason. Second is that, that area
does not have any phosphatic fertilizer plant as of today and we will be only functioning plant in that entire region. I think the
nearest plant is in Gajrola from there which is again a small plant from where we will be catering to the Western UP market.
The plants located in South Rajasthan and Gujarat, MP, etc., are pretty far distance so at least these days had one of the
lowest penetration of SSP. So these are some of the reasons that why we chose to locate it in Punjab.

Bharath Subramanian:
And sourcing of rock would be from Rajasthan State Mineral or would it be a blend?

Kapil Mehan:
They will be mostly importing the rocks because Rajasthan State Mineral Corporation also does not have adequate amount of
rock to meet even the demand what plants are available in and around Udaipur itself. So we will be substantially dependent on
imported product coming through Kandla or Mundra.

Bharath Subramanian:
Thanks a lot.

Moderator:
Thank you so much Mr. Subramanium. We have the next question from the line of Gauri Anand from MF Global. Thank you
and go ahead.

Gauri Anand:
Congratulations on excellent set of numbers, sir.

Kapil Mehan:
Thank you.

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Gauri Anand:
Sir, I am sorry I missed the initial bit where you said the ratio of subsidy to non-subsidy businesses as a percentage of our
revenues, did you mentioned 65% of your revenues come from non-subsidy businesses or so?

Kapil Mehan:
No, what I said was is that earlier subsidy as a part of revenue, total subsidy, total revenue, because in case of fertilizers we
collect part of the revenue from the farmer and part of the revenue from the government. So the total subsidy as a percentage
nd
last year of our top-line in the 2 Quarter was 65.4%. And this year it has come down to 48.5% which means that because the
subsidy is frozen we are collecting much more from the farmer. I think that is really the bottom-line, which is not to be confused
with our subsidy business versus non-subsidy business because we normally treat fertilizer as our subsidy business and non-
fertilizer business as our non-subsidy business.

Gauri Anand:
What is the ratio this quarter, is there a change? You have been indicating it could be about 12% in FY11. So has the mix
changed somewhat in the first half?

Kapil Mehan:
No, it more or less remains constant.

Gauri Anand:
About 26-27% to the EBITDA which you have given?

Kapil Mehan:
That is right. It is in that same range.

Gauri Anand:
I just wanted to understand that this quarter the volumes have fallen somewhat. Compared to last quarter, that is the
sequential quarter, we see margin improvement. So what I want to understand from you is that this quarter particularly it has
been somewhat challenging in terms of the unfavorable movement in the Rupee as well as input costs going up. How could
you manage and report improvement in the margin and how does one read going forward because again processing cost
seem to have gone up. The third question is if you can give a breakup of what will be your procurement cost across rock
phosphate and for ammonia, broad range for the quarter gone by and also for the Q3?

Kapil Mehan:
See, the reason for improvement in our performance is 2-4 key reasons why our performance has been good. Number one,
we had imports coming in of phosphate fertilizers and that was very helpful during this quarter. We had also optimized our
product mix by producing more complex fertilizers and less of DAP, which require more phospate. So with the available assets
we were able to produce and maximize the production to the extent possible. Our buying also has been quite efficient and
timely. Our price and revisions also have been timely and proactive. Our ForEx management has been very robust as we
mentioned earlier. So I think if you put it all together plus our organic portfolio has done well, our pesticides formulation
business has grown definitely at twice the rate of the market growth. And I think despite ban on endosulfan and some of the
provisions that we had to take on that account I think the performance has been better. I cannot give you exact numbers for
each of these reasons. They are very difficult to calculate.

Gauri Anand:
About the procurement cost for our rock phosphate phos acid?

Kapil Mehan:
Phos acid, price currently is around $1080. Rock phosphate is very difficult to say what price it is because that is derived
based on the quality of rock and the source where it comes from and the understanding that we have with our suppliers. So I
cannot share the rock phosphate cost. Ammonia is almost now touching about $580-590 per ton and the prices in the
international market are still very firm. Urea is coming around $525-530 per ton. Potash is $490 per ton for this. So these are
the major raw materials which prices are there now for Q3 also. Of course, the only difference I think has been that there has

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been a little bit of about $20-30 increase in the price of ammonia and about $30 increase in the price of phosphoric acid which
include Q2 and Q3.

Gauri Anand:
st
With the price hike which you have taken effective 1 of October, I think the industry DAP prices it’s about 18,000 to 18,500 or
so. That may sort of compensate for the $30 increase in the phos acid cost or it necessitates for….

Kapil Mehan:
It does.

Gauri Anand:
So in terms of margin outlook can be assumed that the current margin run rate would be maintained in the quarter to come?

Kapil Mehan:
See, you are a better judge to make that assumption because we as a policy do not give forward-looking statements of this
nature.

Gauri Anand:
One final question here, in Q2 the margins historically if we compare for the last 12 to 18 quarters, Q2 margins have always
been better, have been at the peak. And in Q3 we actually get to see about 30-40% fall in margin. So we will have to get to the
details but with the kind of price hike that you have taken you are fairly confident that the margin run rate could be maintained?

Kapil Mehan:
See, there are many factors still which remained unknown. So it would be very hard to say which way the quarter would go.
But I have told you that whatever costs that we know as of now, whatever factors of cost that we know as of now, we have
taken those into account and they reflect in our prices. These prices have been just announced in the market just two weeks
ago and material has just started moving into the markets. Markets also have material of different price points available
because inventories in the marketplace as retailers and dealers do not go out to the new pricing immediately. So we have to
wait and watch and see how the season turns out because the major rabi consumption is yet to begin. It is now beginning to
unfold but I think we will see the peaks coming and maybe a week after Diwali and then only we will be able to say that, yes,
18,200 price is now fully effective and is working. And if that be the case, if there is nothing else comes in then things should
remain normal.

Gauri Anand:
Thanks for taking my questions. All the very best.

Kapil Mehan:
Thank you.

Moderator:
Thank you so much Ms. Anand. We have the next question from the line of Grishma Shah from Envision Capital. Thank you
and go ahead, ma’am.

Grishma Shah:
Good evening sir. If you could give us some sense as to what is the sustainable other operating income because this quarter
we had 69 crores of reversal in other operating income?

Kapil Mehan:
The other operating income this quarter includes the reversal of all mark-to-mark loss which are provided. We have recognized
the loss on sale of bonds under the other expenditure. And whatever the provision we made earlier, that has been reversed.
That is coming under the other operating income.

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Grishma Shah:
But on an ongoing barring this, what is this other operating income for us?

Kapil Mehan:
We have this DEPB income on exports. We have the Jammu excise income rebate, crap sales and other miscellaneous
income. What is getting reflected in the previous quarter should hold good on an ongoing basis.

Grishma Shah:
The other question is, you mentioned that you have grown at doubled the market rate in the agro chem space this quarter and
probably for the first half. If you could highlight what has been the reason for the growth and what is the strategy going forward
for this business segment?

Kapil Mehan:
I think going forward we will be concentrating more on our branding and distribution activities. We are ramping up our market
share in markets in East and North where we had very low market shares. As well as we have now perhaps somewhat better
access to the technical materials from Sabero and others also because of our retail network, etc. So I think all these factors
are helping us to grow our formulation business aggressively as compared to the market.

Grishma Shah:
But if you could also tell us more about what crops are you focusing on or something on the product side? You mentioned
formulations but is it more towards….

Kapil Mehan:
I think our more focus is on paddy, cotton, vegetables, sugarcane, these are the crops which are growing and paddy is
growing is very well. Our emphasis is also on growing our herbicide range on wheat and other crops. So I think crop-wise if
you ask me our maximum focus is really on paddy followed by cotton and vegetables.

Grishma Shah:
Anything on the new product introduction specifically on the agro-chem side?

Kapil Mehan:
Yeah, we have started manufacturing Buprofezin. We are the first producers of Buprofezin in India. So far it was being
imported from Japan and China and we started that production in this quarter only. So that is giving us not only a good market
share but it is also giving us a good growth in margin.

Grishma Shah:
And where is this product used?

Kapil Mehan:
This is used on paddy.

Grishma Shah:
Going ahead also we will focus more on say, paddy and cotton, etc. We are also focusing for farm mechanization on paddy. Is
that the right understanding?

Kapil Mehan:
Yeah see, the focus of agrochemicals on different crops will keep shifting depending on the tactical fit that our products or our
future products will have with the best complex of individual crops. So that is not a static situation. As far as our farm
mechanization service is concerned, paddy transplanting is one of the most labor-intensive and time-consuming functions
which we believe if mechanized will deliver superior value to the farmer and that is why we have chosen that to begin with and

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we believe there is a lot of scope in expanding that itself because that is the most labor intensive and one activity which has
bearing on overall productivity for the farmer.

Grishma Shah:
Coming back to the agrochemical side, what kind of volume growth have you seen of the 25% growth that you have seen
overall during the quarter in the first half?

Shankar Subramaniam:
On technicals because of endosulfan compared to corresponding period last quarter the overall technical volumes have come
down. Barring endosulfan, we are more or less in line with, in fact we have marginally grown because of the introduction of
new technicals. On the formulations especially on specialties we have scaled up our volumes. We have almost grown on some
of the key specialties by more than 20%. And that has helped us in improving our EBITDA. On the generic again, because of
endosulfan technical there has been a drop in liquid sales of endosulfan which has been offset by other generate molecules
like mono and Chlorpyrifos. So overall there is 10-12% growth in the formulations on demand specialty segment.

Grishma Shah:
Any particular reason why the tax rate has dropped to around 28% during the quarter or over the year we will maintain that
30% and kind of a tax…..

Shankar Subramaniam:
This quarter the reversal of bond income, which it was not taken as a tax break in the earlier period. It is not subject to tax
when we do the reversal. Further we also have effluent treatment facility capitalized during this period at Vizag unit which is
eligible for 100% tax reduction.

Grishma Shah:
Sorry I did not get the last point.

Shankar Subramaniam:
Effluent treatment facility what we have capitalized in the Vizag fertilizer factory, that is eligible for 100% tax break. So these
two things have reduced the effective tax rate to 28% or so.

Grishma Shah:
Is the effective tax rate for the entire year be around 28% then?

Shankar Subramaniam:
We can finally achieve around that number.

Grishma Shah:
Thank you so much.

Moderator:
Thank you so much Ms. Shah. Our next question from the line of Mohit Mandhana from Fidelity Investments. Thank you and
go ahead.

Mohit Mandhana:
Good afternoon sir, thanks for taking my question. Couple of questions. Firstly, on the DAP prices, farm gate prices is
approximately Rs. 18,000 plus subsidy of approximately Rs. 19,000 so that makes our realization for DAP at approximately
Rs. 37,000. So if we compare it to let us say, current international DAP price which is $640, we are selling a lot of CVM. So
first question would be, could you explain the difference between what is the reason that we are able to sell at such a high
premium compared to international DAP price that is one. Second is, we have seen that we are able to maintain our margins
and increasing DAP price scenarios? Maybe some sort of continuous process of inventory gains would have also been helping
this? So how do you want us to think about margins when DAP prices start declining?

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Kapil Mehan:
First is that the international DAP price is not $640. $640 is the FOB price. If you add freight to that, the landed price in India
should be in the range of $690 to $700 and India has concluded contracts at $677 when most of the contracts have been done
at $677 CFR and if you take that as the price then you will realize that as per margin that you have calculated in the business,
is not what it really is. And some people have also tied up at 677 plus also. So I think that is where the answer your question
lies.

Mohit Mandhana:
We have seen the scenario where you are able to maintain and improve margins in case of increasing DAP prices. So how do
you want us to think about margins when DAP prices start declining? So in that case the inventory gains which might have
been helping us right now might not help us at that point in time?

Kapil Mehan:
Yeah, I think that is a classic case of prices when they decline we actually run down our inventories and that is what we will
seek to do. But timing of deals is never known, that is never perfect. You cannot forecast these things. So are very watchful of
the market situation and the developments in the marketplace and as and when we see that there is the reason for any decline
in the short-term, we will roll down our inventory.

Mohit Mandhana:
Okay sir.

Moderator:
Thank you so much Mr. Mandhana. We have the next question from the line of Nitin Rathia from HDFC Mutual Fund. Thank
you and go ahead, sir.

Nitin Rathia:
You mentioned that the current retail prices are right about Rs. 18,000 odd.

Kapil Mehan:
18,200.

Nitin Rathia:
Would that sort of suffice at the current international DAP price level?

Kapil Mehan:
Yeah, I think that is the kind of margins that the domestic industry has been working on and I think if this price of 18,200
sustains and the fact that most of now Indian buying is happening at $677, that should be sufficient. We also have to be very
careful and responsible in not raising the prices too much than what is necessary today because we are dealing with a very
sensitive subject.

Nitin Rathia:
So when you said it will be sufficient, it will be sufficient to sort of take us back to our historic margins or sufficient to replicate a
Q2 sort of performance?

Kapil Mehan:
Well, I cannot say that whether Q2 is the best or Q2 is the worst. But as far as pricing of these products is concerned that is
always benchmark to the international DAP price and then convert it into Indian Rupees by adding the local costs as well as
the prevailing exchange rate and a certain amount of margin. I think that margin continues to be stable.

Nitin Rathia:
Thank you very much, sir.

Emkay Research | 25 October, 2011 11
Coromandel International Transcription

Moderator:
Thank you so much Mr. Rathia. We have the next question from the line of Janki. Raman from Franklin Templeton. Thank you
and go ahead, sir.

Janki. Raman:
Given the international demand and supply situation in phosphoric acid, what is your outlook for phos acid prices, let us say,
over the next one of two years? Do you expect prices to harden further or is there additional supply that is going to come on
stream which may help in bringing down the price?

Kapil Mehan:
I think phosphoric acid prices have to be looked in context of what happens to the DAP and MAP prices. And with more
production coming online from, some more acid coming online from Tunisia as well as from Jordan and announcement of
projects from OCP in Morocco, we believe that we may see some marginal surpluses in 2014 or thereabouts, but with the kind
of growth in consumption and the need for more food production, we will make sure that the demand keeps pace with coming
on stream of these capacities. We are also seeing that the ramp-up in capacities of DAP, MAP and phosphoric acid, does not
happen overnight. It takes considerable amount of period for people to ramp-up their capacities because of lot of solid material
handling and lot of logistics issues involved in these matters. So I think overall market will remain in balance and we should
see some degree of stability because of basic fundamentals of fertilizer demand which is really the agri produced prices and
the food demand. But it is the extraneous factors from money markets or financial markets impact the trade finance flow that
can have an impact either way we do not know, it is very difficult to predict.

Janki. Raman:
You mentioned the large capacity, has it started production?

Kapil Mehan:
Yeah, they have started production and they are now slowly stabilizing. But it is operating at a very low rate as of now.

Janki. Raman:
As far as Coromandel itself is concerned, will your contracted acid procurement in fiscal 2013, will it go up materially because
of the new joint venture?

Kapil Mehan:
Yeah in fiscal 2013 it will go up definitely.

Janki Raman:
Thank you.

Moderator:
Thank you so much Mr. Raman. Our next question from the line of Dheeresh Pathak from Goldman Sachs. Thank you and go
ahead, sir.

Dheeresh Pathak:
I have a couple of questions. Can you help me with the cost of setting up the Greenfield capacity for DAP. I know, of course, it
will depend upon sourcing the raw material and all that but if one were to set up a new capacity, let us say 1 MT, how much
would that cost?

Kapil Mehan:
It depends on whether it is an integrated facility or it is a standalone DAP facility or it is DAP plus phosphoric acid and not the
mining. So it is very difficult to say. It would all depend on the circumstances that one is in and the kind of….

Emkay Research | 25 October, 2011 12
Coromandel International Transcription

Dheeresh Pathak:
A ballpark number for a standalone pure convertor facility?

Kapil Mehan:
Convertor from phos acid to DAP?

Dheeresh Pathak:
Yes.

Kapil Mehan:
See there I think about a 1 million plant in a Greenfield side should be somewhere between $125 million to $150 million.

Dheeresh Pathak:
Can you help me with the trends that you have seen or maybe just help me understand what sort of gross margin per ton you
generally get in your fertilizer business?

Kapil Mehan:
See at a very gross level in terms of contribution we look forward to somewhere between Rs. 2500 and Rs. 3000 per ton on a
sustainable basis when we do our own conversion.

Dheeresh Pathak:
At the gross margin level or at the EBITDA level?

Kapil Mehan:
At gross margin level.

Dheeresh Pathak:
Can you give me the traded and the manufactured volumes for this quarter again I missed that out initially?

Shankar Subramaniam:
Actually the total manufactured volumes for the quarter, production is around 6.63 lakh tons as against last year corresponding
period 7.86. Traded is 7.71 versus 8.39. It is 1.44 current quarter versus last year 1.85.

Dheeresh Pathak:
When you mean traded you mean imported?

Shankar Subramaniam:
Right.

Dheeresh Pathak:
So when you enter into a buying contract do you then hedge the currency at which you would be paying? How does it work?

Shankar Subramaniam:
Yeah, we take a view. We track the exposure. Depending upon the view we take on the currency we hedge after even…..

Dheeresh Pathak:
Is it a fair understanding that when the currency depreciated and then there was a price hike in the domestic market you might
have gained favorably in your traded volume business?

Emkay Research | 25 October, 2011 13
Coromandel International Transcription

Shankar Subramaniam:
Depending on the hedge position it may be plus or minus, depending on your hedge cover you are absolutely right. If your
hedge is upfront the margins will be better. It is not a static situation.

Dheeresh Pathak:
Can you comment on that this quarter you might have benefited favorably from your trading volumes than in previous this
quarter because of Rupee depreciation.

Kapil Mehan:
Previous quarter we did not have any imported fertilizer volume we only had this quarter. And as per our policy we generally
th
remain hedged and we do not have any major impact of MTM losses that we had to book as on 30 of September.

Dheeresh Pathak:
This traded includes DAP and MOP or it also includes NPK or it is just DAP and MOP?

Kapil Mehan:
Current year it is DAP and NP and NPKs whereas the last year it is mostly DAP and MOP. This year MOP component is much
less.

Dheeresh Pathak:
Thank you, that is it from my side.

Moderator:
Thank you so much Mr. Pathak. The next question from the line of Bhavin Chheda from Inam Holdings. Thank you and go
ahead, sir.

Bhavin Chheda:
How much was our trading sales volume in the quarter?

Kapil Mehan:
1.44 lakh tons.

Bhavin Chheda:
Your total was 9.15, right?

Kapil Mehan:
That is right.

Bhavin Chheda:
Another question, what is the update on farm mechanization, are we on track for around 20,000 acres in FY13?

Kapil Mehan:
Yeah, we are on track for that.

Bhavin Chheda:
Close to 20,000 acres?

Kapil Mehan:
Yeah, our plans are in place to do that by March.

Emkay Research | 25 October, 2011 14
Coromandel International Transcription

Bhavin Chheda:
Another question on the retail side what kind of stores we have already opened in H1 and what is the target for the current
fiscal?

Kapil Mehan:
We have currently about 500 in Andhra and about 40 in Karnataka. And we hope to end the year with about 575 to 600 stores.

Bhavin Chheda:
On the non-subsidy business you have said on the revenue part, how much would be on the EBITDA part if we calculate?

Kapil Mehan:
I think we had responded to one of the earlier questions, it is around 26% is at EBITDA level and about 11-12% at top-line
level.

Bhavin Chheda:
The subsidy business revenue accounted for 48.5 in Q2?

Kapil Mehan:
That is subsidy revenue which we have as a part of our total revenue, that is 48.5% in this quarter as compared to 65.4%
same quarter last year.

Bhavin Chheda:
The same number, can you break it into EBITDA, the same subsidy business must have accounted for how much percent of
the EBITDA?

Kapil Mehan:
Again I think let us not confuse. When I am saying it is 48.5 and 65.4, it is the subsidy billing that we do to the government.
The balance does not mean it is non-subsidy business because part of that is still fertilizer which is counted as subsidy
business. So we cannot split the EBITDA between what we get for the farmer and what we get from the government because
it is the same product. Part of the revenue comes from the government and part of the revenue comes from the farmer.

Bhavin Chheda:
Making the question simpler, the non-subsidy business as a percentage of revenue and profits if you can share?

Kapil Mehan:
Yeah, that is what I was sharing that our top-line is around 11-12% and our EBITDA around 26%.

Bhavin Chheda:
This was for first half or the quarter?

Kapil Mehan:
It is more or less same.

Bhavin Chheda:
From Quarter 2 to Quarter 3, what you said the raw material cost maybe ammonia, phos acid, has gone up by around $30. So
the price hike has already been taken in that respect so we do not see any margin impact on that?

Kapil Mehan:
That is what I am saying, that view one can take today, what will happen two weeks from now we do not know.

Emkay Research | 25 October, 2011 15
Coromandel International Transcription

Bhavin Chheda:
On the imported volumes part, earlier in the call side you said that you have already contracted for around 4 lakh tons, out of
this if I am seeing your first half number I think you have done around 1.65. So the balance will be done. So can you contract
more in increased trading volumes or for this fiscal this has been freezed?

Kapil Mehan:
No, we will be tying up some more after seeing how this season goes?

Bhavin Chheda:
One question on how the margins are different on the trading business versus manufacturing?

Kapil Mehan:
Much less.

Bhavin Chheda:
Thanks a lot, sir.

Moderator:
Thank you so much Mr. Chheda. Our next question will be from the line of Varun Guntupalli from Edelweiss Securities. Thank
you and go ahead, sir.

Varun Guntupalli:
My first question is with regard to our deferred plant, sir. When is it expected to commission?

Kapil Mehan:
We expect the mechanical completion by March 2012 and then immediately the commercial trials will dig in and hopefully by
the mid-April or end-April we should start seeing some material flowing out of that because now the contractors are back at
site, work has started and whatever finishing touches have to be given because 96% of the plant is ready, only balance 4%
work is remaining to be completed. We will start moving the rock also in the next 6 to 8 weeks to that site and then building up
the raw material stocks. So we are now fairly in the final stages of executing that project.

Varun Guntupalli:
Meaning earlier you were saying that you are looking defer to start the trials from December, January itself?

Kapil Mehan:
Back by about two months.

Varun Guntupalli:
My second question is with regard to the phosphoric acid availability from Tunisia. Are we seeing improvement in that
currently?

Kapil Mehan:
Yeah, right now we are seeing some improvement and July, August were very tight months and we have actually received one
vessel which sailed last month. We have now nominations coming in. But we are playing it by the year because the situation
on the ground there changes very suddenly and without any forewarning. So we keep our fingers crossed but I think things are
becoming better. We will know more on this once the constituent assembly elections are over because they are being held on
rd
23 and people are expecting that post that things would perhaps be more normal because the government there also is not
taking any major decisions, has generally slowed down, but things are better than what they were two months ago.

Emkay Research | 25 October, 2011 16
Coromandel International Transcription

Varun Guntupalli:
With regard to our non-subsidy business, in the compost business what is the kind of volumes we have done in this quarter,
sir?

Kapil Mehan:
This quarter we have done about 65,000 tons.

Varun Guntupalli:
For the whole year we still continue to have the same target, sir?

Kapil Mehan:
Yeah for 2.5 lakh tons.

Varun Guntupalli:
What is the status of this subsidy mop up that the government has indicated? Anything happened on that?

Kapil Mehan:
Our engagement with the government continues and I think our dialogue is moving in the positive direction. So we are
engaged with the government on sorting out that issue because we strongly believe that that is not in the overall interest
neither of the government nor of the farmer, nor of the industry because availability is more critical than anything else and if
the government persists with this circular, there will be serious impact on availability of fertilizers because everybody would be
very fearful of signing any supply contracts and specially when the subsidy switchover period comes March-April people will be
extremely careful and that is the time to build up stocks not to run down inventories.

Varun Guntupalli:
My last question is with regard to the kind of MOP volume contracts that we have for the second half? What is the volume that
we have contracted for our manufacturing portion and will it be sufficient for our manufacturing fertilizers?

Kapil Mehan:
Yeah, we have contracted about 5.5 lakh tons of MOP over the next six months and that will be sufficient for meeting our direct
application demand as well as for our NPK production as well as we will have some inventory for carrying into the next year,
should the next years negotiations be delayed.

Varun Guntupalli:
The pricing is around $500?

Kapil Mehan:
Well, pricing is $490.

Varun Guntupalli:
th
For the entire 5.5 lakhs or for the 4 Quarter it is an increment that we are ….

Kapil Mehan:
That is the average price.

Varun Guntupalli:
Thank you very much, sir.

Emkay Research | 25 October, 2011 17
Coromandel International Transcription

Moderator:
Thank you so much Mr. Guntapalli. Our next question is from the line of Falguni Dutta from Jet Age Securities. Thank you and
go ahead.

Falguni Dutta:
I just have one industry specific question, if it is possible to answer which is that urea, like earlier we were quite optimistic that
this NBS would happen in urea as well. But the recent newspaper reports are indicating that the government is again
contemplating given that there has been a sharp increase in phosphatic fertilizer prices so if they do similar thing in urea would
it likewise happen there, so just wanted to get your sense because I was just thinking if the price gap between the two
increases so much then at some point demands which will happen to urea, so the entire purpose of doing this NBS is not
solved. So in that case government certainly would not do away with NBS and urea and again push to a controlled situation in
phosphatic. So logically would it be fair to assume that they will have to come out with a NBS kind of a thing in urea sooner or
later?

Kapil Mehan:
I think your analysis is absolutely right that if the government delays this decision to put urea under NBS the nutrients use
balance will worsen from whatever it is today. And we have now we simply good balance of nutrient use and going forward as
we can see that the urea consumption demand is growing much faster than the phosphate and potassium demand which I
think is not in the overall national interest of food security. And we continue to believe that whatever be the reasons I think if
the government has to manage its fiscal deficit targets and remain within that, it would be prudent for the government to put
urea also under NBS and then let the market forces allowed to be played which will enable the current usage, judicial usage by
the farmers.

Falguni Dutta:
So do you think that they would act logically and do it, your sense?

Kapil Mehan:
Well, it is very difficult to speculate on these issues because the fact is NBS of phosphate and potash has saved tons of
thousands of crores of subsidy for the government.

Falguni Dutta:
Yeah relatively. I mean in absolute terms though it would still be higher but relatively, had NBS not been there it would have
been much more higher.

Kapil Mehan:
Absolutely. The subsidy would have been much higher and perhaps the demand also would have been higher but right now I
think everybody is very careful. India has been buying very efficiently in the international market. India gets the lowest price for
all fertilizer material that it buys.

Falguni Dutta:
Roughly your sense, how much would be the outflow in terms of subsidy in this year that FY12….

Kapil Mehan:
Again there is always a lot of carryover of bills which happens from year-on-year.

Phalguni Dutta:
We do not consider a carryover, just absolutely this year FY12?

Kapil Mehan:
I think it should be in the range of…..

Emkay Research | 25 October, 2011 18
Coromandel International Transcription

Phalguni Dutta:
Let us say non-urea should be how much?

Kapil Mehan:
Non-urea will be I think those two maybe 40,000-45,000 crores.

Moderator:
We have the last question from the line of Romil Singla from VRP Capita. Thank you and go ahead, sir.

Romil Singla:
I wanted to check, I logged in a bit late into this call so not sure whether this has been discussed but with regards to Sabero
Organics at what level of integration have operations been done? And when is formally the company will be able to take it
over?

Kapil Mehan:
Actually a similar question was there from one of your earlier predecessors and as far as takeover process is concerned we
are still awaiting for SEBI approval on the open offer and we expect that to come shortly because all the queries of SEBI has
been addressed. So once that comes in then….

Romil Singla:
Is there any reason for that delay? Normally it comes in a couple of months.

Kapil Mehan:
Yeah, it has taken a couple of months more than what normally the stated position is but they had raised certain queries and
we have answered those queries and our lead managers are attending to those queries and trying to resolve them.

Romil Singla:
The other part was, what is the level of integration?

Kapil Mehan:
See there are limitations in terms of integration. We have now two Director on the board of Sabero. Similarly our people sit in
their review meeting as observers to just understand and know the business. So that process is going on plus there is much
better exchange in terms of information as well as availability of technicals from each other and using one's network for
distribution of formulation products.

Romil Singla:
Then the operational control will only come to you once the open offer closes?

Kapil Mehan:
That is correct.

Romil Singla:
Thanks.

Moderator:
Thank you so much. As there are no further questions, I now hand over the call to Mr. Rohan Gupta of Emkay Global for
closing comments. Thank you and go ahead, sir.

Emkay Research | 25 October, 2011 19
Coromandel International Transcription

Rohan Gupta:
Thanks Terence. Sir, before we could wind up the call, just a couple of questions from my side. One is on this fertilizer volume.
Sales volume and production volume had been affected during quarter and in the first half. Had there been no problem of phos
acid, do you think that we would have been able to achieve the similar kind of volume growth, what we would have projected
initially or starting of the year or the growth which we have delivered last year?

Shankar Subramaniam:
Had it been available our volume would have grown.

Rohan Gupta:
So now considering that as you mentioned phos acid volumes and availability have resumed. Do we expect that the second
half we are going to see a significant volume growth coming in place?

Kapil Mehan:
I said phos acid availability as of now seems to have improved. It is not resumed at full scale and situation continues to remain
somewhat fluid and unpredictable in Tunisia. So vessel by vessel we deal with that situation. So it is very difficult, yes, we
have now vessel nominations for October but whether the same thing will continue in November or December we cannot say.
Vessel nominations have happened in the month of September also whereas July-August, there were no nominations so it’s
very unpredictable situation.

Rohan Gupta:
So with the current phos acid availability as of now when we speak, what kind of volume growth you expect for second half?

Kapil Mehan:
We do not give such forward-looking statements. We can only talk about the fundamentals and then the ground realities rather
than getting into any specific….

Rohan Gupta:
But phos acid volume contract would have taken place in the month of September.

Kapil Mehan:
There is no quarterly contract of volume. For this we have actually long-term 10-year contracts, 5-year contracts. So as far as
contracts are concerned it is not a problem. The problem is that even today if I ask GCP what your production for next quarter
is going to be, I do not think they are in a position to predict because they don’t know themselves whether they will have any
civil disruption or not. And that is a country which is going through a transition from having one President for the last 20 odd
years to a more democratic reformed system. So I think that social and political process itself is very fluid and unpredictable at
this stage and so is the economy environment there.

Rohan Gupta:
Second is on our EBITDA margins. Definitely we have seen sharp increase in phosphatic fertilizer prices. On that basis also
we have been able to protect our margins, even first half we have been able to report a margin of closer to 13%. With the
rising price scenario what we were expecting was that a company who are in phosphatic fertilizer can protect their margins in
terms of absolute EBITDA per ton. But with the kind of margins maintained at percentage terms it means that absolute
EBITDA per ton of the company have improved significantly. So do you think that whenever you mention that we will protect
our margins or we will maintain our margins, you refer it terms of percentage, not in terms of absolute EBITDA per ton. How
one should look at these numbers.

Shankar Subramaniam:
First of all it is not correct to look at quarterly EBITDA margins, unless we keep maintaining, we should look at the overall
annual EBITDA margins. We have the seasonality factors, product mix changes and also we always communicate on the
average EBITDA contribution per metric ton, which we always maintain, as a sustainable contribution is around Rs. 3000 per
metric ton.

Emkay Research | 25 October, 2011 20
Coromandel International Transcription

Kapil Mehan:
I think work on that basis rather than looking at EBITDA margin of each quarter.

Rohan Gupta:
So at absolute level we will protect at Rs. 3000 EBITDA per ton in fertilizers?

Kapil Mehan:
On an annual basis.

Rohan Gupta:
Great, sir. That was from my side and thanks a lot for giving us your valuable time. And thanks for taking all our client’s
questions.

Kapil Mehan:
Thank you very much. Thanks for hosting the conference.

Moderator:
Thank you so much. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us.

Note: 1.This document has been edited to improve readability.

2. Blanks in this transcript represent inaudible or incomprehensible words.

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