Project/Report submission

Title of the Project

Financial Analysis of Chambal Fertilisers & Chemicals Limited and Coromandel International Limited

1
 Table of Contents Introduction

Executive Summary.................................................................................................3
Introduction to the Company………..………………………………………………………….3
Chambal Fertilisers and Coromandel International ….......................................4
Performance Snapshot……………………………………………………………………….4
Objective..........................................................................................................5

Key Financial Highlights…..................................................................................5

Interpretation and Analysis of financial ratios of Chambal Fertilisers …..............7

Profitability of Product/Services and Profitability of Capital.......................... 7
Efficiency Ratios...........................................................................................7
Working Capital Management…....................................................................8
Funding Pattern …………………………………………………….…….9
Interpretation and Analysis of financial ratios of Coromandel International ..……10
Profitability of Product/Services and Profitability of Capital.......................... 10
Efficiency Ratios...........................................................................................10
Working Capital Management …....................................................................10
Funding Pattern …………………………….…………………………….11
Conclusion and Expectation for future performance...........................................12

2
 Executive Summary:

This financial analysis report examines two prominent competitors in the

agrochemical industry, Chambal fertilisers and chemicals Ltd. and Coromandel
International Ltd., to evaluate company performance and financial health. We used a
first-time analysis of the company and three-year time horizons (FY 2017-18,
2018-19, 2019-20) to reach a conclusion on both the company’s performance.

The financial analysis includes both the income and balance sheets of both the
companies, as well as various financial statement ratios such as profitability,
efficiency, working capital efficiency, and funding pattern. The stated financial
analysis yields conclusions, as well as areas for improvement and recommendations.

Chambal Fertilizers and Chemicals Limited and Coromandel International limited are
well-known companies competing in an ever evolving and expanding Agrochemical
industry. The industry is in every segment of Agriculture products from bulk fertilizers
to crop protection. With nearly 1.3 billion population, India requires a robust,
modernized agriculture sector to ensure the food security to its population. In order to
meet the food grain requirements, the agricultural productivity and growth need to be
sustained and further improved. It is imperative to manage adequate supply of
fertilizers for a higher food production.

Introduction to company:
The Agrochemical industry has many key players with two of leading competitors
being Chambal Fertilisers and Coromandel International limited. The agrochemical
industry in India is the backbone of the Indian economy as it serves as the primary
source of livelihood for India’s population. The agriculture industry represents an
important component of the Indian economy both in terms of its contribution to the
GDP as well as a source of employment to most of the country’s population. This
sector is currently showing immense opportunities, with India presently being one of
the world’s largest agricultural producers by value. Several transformations have
taken place in this sector over the past few decades. These include - rising penetration
of the organized sector, growth in contract farming, agriculture becoming more
mechanized rise of exports, use of agrochemicals and high yielding seeds, and an
increasing role of the private sector in processing, branding and marketing, etc. The
major agricultural industry trends the emergence of modern retail formats has enabled
the farmers to directly sell their products to its consumers. Fertilizers have played an
essential role in agricultural production, providing vital nutrients for crops, increasing
demands over the years. As an agrarian country, India is home to numerous small and
marginal farmers and is often plagued by low productivity and low quality. Crops are
mainly rain-fed and cultivated on a single piece of land over time, decreasing soil
fertility in many regions. Thereby, increasing quantities of nitrogen fertilizers have
been used in the country.

3
 Chambal Fertilisers and Chemicals Ltd (CFCL): is a Rajasthan-based agrochemicals
manufacturing company. Chambal Fertilisers, founded in 1985 by the KK Birla Group,
is the largest private sector manufacturer of urea. It accounts for nearly 13% of total
Urea production in the country. Its three high-tech nitrogenous fertiliser (urea) plants
are located in the Rajasthan district of Kota. The three plants have an installed annual
production capacity of approximately 3.4 million MT of Urea, accounting for a
significant portion of the Urea consumed in India's leading agricultural states. These
plants were put into service in 1994, 1999, and 2019. The organization has a large
marketing network that includes 19 regional offices, 2800 dealers, and 50,000
retailers.

Coromandel International Ltd: is an Indian corporation headquartered in Hyderabad,

Telangana, India, founded in the early 1960s by IMC and Chevron Companies of the
United States and EID Parry. Coromandel International Limited is divided into two
business segments: nutrient and other allied businesses, and crop protection. Fertiliser,
Crop Protection, Specialty Nutrients, and Organic Fertiliser companies are among them.
The company is India's second largest manufacturer and marketer of phosphoric
fertiliser. Originally known as Coromandel Fertilisers, the company manufactures
fertilisers, pesticides, and specialty nutrients. Through its Mana Gromor Centres, the
company is also involved in rural retail in the states of Andhra Pradesh, Karnataka, and
Maharashtra. Coromandel International is a subsidiary of EID Parry and a subsidiary of
Murugappa Group. EID Parry owns 62.82 percent of the company.

4
 Objectives:
The primary objectives for this financial analyst report is to analyze the performance
and compare two major companies within the Agriculture/Fertilizer industry, Chambal
Fertilisers and Coromandel International. Suggestions for company improvement will
be discussed including recommendations. The company’s performance will cover the
years spanning from 2017-18 to 2019-20, with analysis of each company’s statement of
profit and loss account and balance sheets.

Key Financial Highlights

Highlighting the key financial points of Financial Statements are important. They contain
significant information about a company's financial health and business activities.
Financial statements help companies make informed decisions. They highlight which
areas of the company provide the best ROI (return on investment). When a company
issues financial statements, it provides information to investors and creditors. This
information details how the company is doing financially. With this information,
investors can decide whether they should invest in a company. Alternatively, current
investors will be able to decide if they want to continue to invest in the company. Let us
look into some key financial points of both the companies.

Performance Snapshot
  Chambal Fertilisers And Chemicals Ltd. Coromandel International Ltd.  
FY 19-
  FY 19-20 FY 18-19 FY 17-18 20 FY 18-19 FY 17-18 Unit
Economic indicators
Revenue 1220595 1017736.22 754607.02 1313669 1322456 1112708 Rs. Lacs
Profit Before
Tax (PBT) 132806 83343.05 73666.6 137851 109258 103809 Rs. Lacs
Profit After
Tax (PAT) 122556 58484.64 49541.11 106504 72048 69131 Rs. Lacs
EBITDA 2082 1354 933 1763 1450 1305 in Crores
Employees 1034 1060 1010 4894 4764 4472 Numbers
The major area in statement of profit and loss account is sales/ revenue for Chambal the
sales got increased from Rs. 7,54,607 lakhs in 2017-18 to Rs. 12,20,595/- which shoes
their efficiency towards customer loyalty, quality of products or service they are
delivering and the marketing skills they approached are making Chambal to reach such
increase in sales and for Coromandel the sales got increased from 2017-18 to 2018-19
by Rs. 2,09,748 Lakhs but decreased in 2019-20 by Rs. 8,787 Lakhs when compared to
2018-19 sales again the increase in sales shows Coromandel’s efficiency towards their
sales of products or service but the pandemic situation could be the reason for decrease
in sales in financial year 2019-20.
The profit and loss statement for Chambal Fertilizers shows a massive increase for
gross profit margin to sales from 12.44% in the year 2017-18 to 15.64% in the year

5
 2019-20. Chambal’s three-year average Gross profit to sales was 13.54%, which is
bit higher than Coromandel International’s Gross profit margin to sales increased
from 16.09% for the year 2017-18 to 17.56% for the year 2019-20. Coromandel’s
three-year average Gross profit to sales was 16.40%. Coromandel Gross profit to
sales three-year average of 16.40%. This in turn gives Coromandel higher gross
profit than Chambal Fertilizers most likely through means of obtaining raw materials
and goods at lower costs and incurring low operating costs, giving Coromandel
greater ability for an increased gross profit margin.

Overall, through the years 2017-18 to 2019-20, Chambal Fertilizers saw an increase
in this area growing from 11.63% in 2017-18 to 17.39% in 2019-20. Meanwhile,
Coromandel International experienced the almost same effect, with this category
increasing from 12.29% in 2017-18 to 14.57% in 2019-20.

It tells us that Chambal Fertilizer’s Gross cash profit margin has increased slightly
compared to Coromandel International the reason would be the Chambal has a
constant increase in Depreciation and amortization cost to its sales whereas the
Coromandel does not have constant increase in its depreciation and amortization cost
to its sales.

Chambal fertilizers long term debt to total liabilities and shareholders’ equity
decreased substantially from 36.81% in 2017-18 to 30.14% in 2019-20 with average
long-term debt of 32.81%. The major decreased indicates that the company was not
much dependent on long term debt to finance to carry its business and for its capital
investments by 2019-20. Coromandel International long-term debt to total liabilities
and shareholders’ equity is indifferent path by increasing from 0% in 2017-18 to
3.88% in 2019-20. This long-term loan including lease obligation is borrowed in the
financial year 2019-20. This debt explained in their annual report as being spending
on acquisitions. Debt to equity ratios is needed to be further evaluated to determine
the risk factor for this increased level of liabilities.

6
Interpretation and Analysis of financial ratios of Chambal Fertilisers:

Profitability of Product/Services and Profitability of Capital

a. Net Profit Margin Ratio:

Chambal Fertilizers has average net profit margin of 7.45%, the net profit
margin got increased from 6.57% in 2017-18 to 10.04% in 2019-20. Chambal
controls a larger portion of the market as represented through this ratio and better
teamwork and internal co-ordination between all level of management could be the
reason for this achievement.
b. Return on Assets or Return on Investment (ROI):
An important ratio is the return on assets ratio for its ability to measure earnings per
Rupee from its assets. The three-year average for return on assets of Chambal
Fertilizers was 16.64% and this ratio got increased from 12.64% in 2017-18 to
20.62% in 2019-20 This increase in percentage reflects a more efficient use of its
assets and higher earnings from products sold per company asset.

c. Return on Equity (ROE):

Return on Equity is another important profitability ratio. This ratio measures the
earnings success of its capital investments through common shareholders. The return
on equity for Chambal Fertilizers averaged 25.01% and Chambal has ROE 19.91% in
2017-18, 20.47% in 2018-19 and 34.64% in 2019-20. An observation of this
profitability measure shows that Chambal Fertilizers is possibly much more attractive
for potential investors for its ability to effectively manage and use funds generated
through shareholders equity.

Efficiency Ratio

a. Total Assets Turnover Ratio:

Total assets turnover measures how efficiently a company utilizes total assets to
create sales revenue. On average, Chambal’s ability to generate more profit from its
assets was 0.79 and it got increased from 0.80 in 2017-18 to 0.84 in 2019-20
this shows Chambal using its asset better compared to previous years to generate
revenue.

7
Working Capital Management

a. Inventory Turnover Ratio:

Inventory turnover represents how fast companies turn their inventories into
sales revenue. Chambal fertilizers had a much slower inventory turnover on average,
9.31 over the past three years more companies have become better at the Chambal
products sales direct to customers which has overall effected Chambal’s sales as
evident in the comparative analysis showing on average Chambal grew sales by
61.75% from 2017-18 to 2019-20. Chambal’s turnover ratio was directly affected by
its increase in inventory to total assets growing from 8.40% in 2017-18 to 9.50 % in
2018-19 and 7.81% in 2019-20. The increase in Chambal’s inventories to total
assets percentage coupled with declining sales growth over the past three years was a
cause for their much higher inventory turnover rate.

b) Receivable Turnover Ratio:

This ratio measures a company's effectiveness in collecting its accounts
receivable/debtors, or the money owed by customers or clients. CFCL’s three years
average debtors’ turnover ratio of 2.61 is lower. This indicates that CFCL’s
collection of accounts receivable is efficient and that the company has a high
proportion of quality customers that pay their debts quickly.

c) Borrowing per Rupee of Sales:

This ratio shows that how much funding the company requires to for each rupee of
sales earnings where Chambal has on an average of three years 84.10% as the
borrowing per rupee of sales ratio and it got increased from 80.56% in 2017-18 to
82.85% in 2019-20 which shows its dependency on the debt amount to increase its
sales, need to take proper action to reduce this ratio that means dependency on the
debt amount for achievement of sales.

d) Average Interest Cost Ratio:

This ratio tells us that the company’s interest cost against its borrowings in Chambal’s
Case it has average interest cost ration for the three years as 3.44% which got
increased from 2.55% in 2017-18 to 4.97% 2019-20, this shows that the Chambal
was paying more interest for the money what they have borrowed, Chambal needs to
change its funding source say some venture capital or other less interest cost funds so
that they will reduce their interest cost viz increase in the profit margin.

8
Funding Pattern
Debts to Equity Ratio:
Chambal Fertilizers three-year average of total debt to equity was 1.39, it got
increased from 1.40 in 2017-18 to 1.53 in 2018-19, this shows that Chambal
Fertilizers had more debt (creditors) funding than equity (shareholders) funding. While
many feel that debt from creditors is more harmful because of the interest paid on the
principle borrowed, the advantage here is that once the creditor is paid back, they are
gone and off the payroll. Whereas equity financing involves more shareholders owning
parts of the company, which reduces the dividend payout per shareholder as well as
waters down earnings per share.
Chambal Fertilizers approach to being more heavily financed through debt than
equity may be in an attempt to keep earnings per share at an increased level.

9
Interpretation and Analysis of financial ratios of Coromandel internationals:

Profitability of Product/Services and Profitability of Capital

a. Net Profit Margin Ratio:

Coromandel Internationals’ net profit margin average of 6.59%. It got increased from
6.21% in 2017-18 to 8.11% in 2019-20, this increase in net profit margin reflects its
control over the non-operating expenses and other non-cash and indirect expenses.
b. Return on Assets or Return on Investment (ROI):
Another ratio is the return on assets ratio for its ability to measure earnings per
Rupee from its assets. The three-year average for return on assets of Coromandel
internationals was 37.55% and it got decreased from 39.80% in 2017-18 to 33.34%
in 2019-20. This decrease in percentage for Coromandel International reflects
generating less return by using its assets or it can be said it is less efficiently used its
assets towards revenue generation.
c. Return on Equity (ROE):

Return on equity is another important efficiency assessment ratio. This ratio measures
the earnings success of its capital investments through common shareholders. The
return on equity for Coromandel International averaged 23.33% and ROE in 23.87% in
2017-18, 21.45% in 2018-19 and 24.67% in 2019-20. An observation of this
profitability measure shows that Coromandel is possibly much attractive for potential
investors for its ability to retain in the competitive market constantly in highly
competitive market era.
Efficiency Ratio
a. Total Assets Turnover:
Total assets turnover measures how efficiently a company utilizes total assets to
create sales revenue. On average, Coromandel ability to generate more profit from
its assets was 1.22. This shows that for overall assets held, Coromandel had a
better record of generating sales.

Working Capital Management

a. Inventory Turnover Ratio:

Inventory turnover represents how fast companies turn their inventories into sales
revenue. Coromandel International had a slower inventory turnover on average, 4.62
over the past three years. Coromandel’s ratio reduced from 4.92 in 2017-18 to 4.87
in 2019-20 61.75% from 2017-18 to 2019-20 but Coromandel has become more

10
 efficient in their inventory distribution cycle and the number of inventories held in
relation to total assets, increased from 22.97% in 2017-18 to 26.58% by 2019-20.
Coromandel grew sales by 18.06% from 2017-18 to 2019-20.
b. Receivable Turnover Ratio:
This ratio measures a company's effectiveness in collecting its accounts
receivable/debtors, or the money owed by customers or clients. Coromandel’s three
years average debtors’ turnover ratio of 7.37. This indicates that Coromandel’s
collection of accounts receivable is not that efficient, it needs to take corrective
actions to reduce this ratio by offering discounts and other add on benefits to the
customers so that customers may reduce the credit period and pay the debt early.

c. Borrowing per Rupee of Sales:

This ratio shows that how much funding the company requires to for each rupee of
sales earnings where Coromandel has on an average of three years 20.74% as the
borrowing per rupee of sales ratio and it got decreased from 24.52% in 2017-18 to
15.37% in 2019-20 which was the good going because Coromandel is less dependent
on external fundings to achieve its sales.

d. Average Interest Cost Ratio:

This ratio tells us that the company’s interest cost against its borrowings in
Coromandel’s Case it has average interest cost ration for the three years as 8.89% which
got increased from 6.54% in 2017-18 to 11.65% 2019-20, this shows that the
Coromandel was paying more interest for the money what they have borrowed,
Coromandel needs to change its funding source same as Chambal’s from some venture
capital or other less interest cost funds so that they will reduce their interest cost viz
increase in the profit margin.

Funding Pattern
Debts to Equity Ratios:
Coromandel International three-year average of total debt to equity was 0.09. This
shows that Coromandel has financed its capital more with equity than debts which
means this pattern of capital will reduce the burden of paying the financial obligations
on timely basis, the company has an option to pay the dividends or any other form of
profit sharing only when they have sufficient profit and willing to pay such share of
profit.

11
 Conclusion and Expectation for future performance
Both Chambal and Coromandel have the financial statistics showing why they
are strong competitors in an ever-evolving industry. In an industry that attracts
potential customers by offering the latest, fastest and greatest products, Coromandel
needs an increase their amount of research, development, and engineering to sales
percentage. Coromandel can no longer rely on just offering lower price products
because offering the newest technology and quality of product has moved to the
forefront of consumers’ minds. It would be wise for Coromandel to focus on precise
areas where they have a strong competency and not try to be all things to everyone.
One area they may rethink of pushing into is their expanded exposure into educating
the farmers and other labors creating awareness of benefits that they are going to get
by using Coromandel’s products. These long withstanding relationships with
consumers give companies like Chambal an advantage over newcomers, and possible
over the next year or so, Coromandel should rethink this new part of their strategy.
Now, the amount of increased funds used on manufacturing and operating cost and
lack of effective utilization of inputs what they are consuming during production has
not equally translated into higher sales revenue.
Chambal’s return on investment ratios are quite strong but need to improve their
operating performance. Integrating work processes and striving to become more
efficient as well as develop strong relationships with raw material vendors will be key
to increasing this area of interest and concentrate on getting debt or loan at lower cost
of interest. If they are able to increase their profit margins within their operating
performance, it will give a higher net income and possibly increase asset utilization.
Another area of improvement is with its collection period. Currently, the collection
period is too long and is causing Chambal to use its working capital funds to pay for
its inventories sold that they have yet to collect payment on. Improvement from these
areas could give Chambal the option to increasing price per share and earnings yield
from their already healthy positions.
CFCL needs to improve their current ratio and collection period. They can improve the
current ratio by delaying any capital purchases that would require cash payments or
checking if any term loans can be re-amortized. Currently, their collection period is too
long and is causing CFCL to use its working capital funds to pay for its inventories sold
that they have yet to collect payment on.
Coromandel has good collection period. Also, its debt equity ratio is too low as per
general industry standards, as it indicates the company is over relying on equity to
finance the business, which can be costly and inefficient. Whereas CFCL enjoys a good
debt to equity ratio.
Coromandel has sufficient return on investment but CFCL’s ROI needs to be improved,
either by generating more sales and revenues or raising their prices. Coromandel
should take measures to increase their operating profit margin by better management
controls and using the resources more efficiently.
12
Furthermore, CFCL should increase their debtors’ turnover ratio by making changes to
its collection process or offer discounts to its customers for paying early and
Coromandel should try to maintain their debtor’s turnover ratio at the similar rate.

Coromandel owns a larger market share than Chambal due to enhanced and
unique product and services diversification and innovation towards evolving form
practice, technology institutions to develop innovative crop solutions for the forming
community.

Both companies are strong with healthy Financial. After reviewing their company
strategies and recent year’s financial statements and ratios, it is believed that
Coromandel International would be a better company with its larger diversification,
marketing skills and larger net incomes, better growth potential in the long run.

13