United Phosphorus Results below estimates :: Emkay

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United Phosphorus

Results below estimates

BUY

CMP: Rs 202                                       Target Price: Rs 230

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n     Q2FY11 results were marginally lower than estimates due to weak margins with RPAT of Rs 1.15 bn, +12%yoy

n     Implied H2FY11 revenue and EBITDA growth of 33% and 52% on higher side – may risk FY11 management guidance

n     We have adjusted downward our FY11 revenue, EBITDA and APAT estimates by 5.8%, 2.9% and 1.5%, respectively

n     Maintain BUY recommendation with target price of Rs 230 based on 12x FY12 estimates. Growing profit contribution from India is likely to drive valuations going forward

Q2FY11 RPAT of Rs 1.15 bn was below estimates

UPL’s Q2FY11 results were marginally below estimates due to lower than expected

EBITDA margins. EBITDA margins improved by 150bps yoy to 18.5% (-120 bps qoq)

but were below our estimates of 19.5%. Resulting EBITDA increased by 18% yoy to Rs

2.3 bn. Interest cost of Rs 652 mn (+61% yoy) also includes Rs 160 mn on forex loss as

against Rs 300 mn previous year. Other income increased 5x to Rs 238 mn due to

higher interest income. APAT (adjusted for forex) remained flat at Rs 1.3 bn while the

company reported profit of Rs 1.15 bn, +12% yoy resulting into AEPS of Rs 3.0 in

Q2FY11 while REPS stood at Rs 2.6.

Meager revenue growth of 8% despite 45% growth in India

Revenues at Rs 12.6bn, +8.6% yoy, (we estimated Rs 13.1 bn) were primarily driven by

growth in India (+45% yoy) and RoW markets (+23% yoy). Overall the company

reported volume growth of 13%, however forex impact was -3% on revenues. Price

realisations stood stable for the quarter. European market suffered the most with

revenue decline of 25% yoy due to 11% (adverse) forex impact and balance 14%

(adverse) on account of volume decline. Revenues from North America also declined by

6% mainly due to adverse forex impact. While India market remains strong and

expected to grow 25-30% yoy, Europe and North America are likely to pick up by

Q4FY11.

We see risk to management’s guidance

Management maintained its guidance of ~15% revenue growth (including recent

Mancozeb acquisition) and 200 bps yoy EBITDA margin expansion to 20%. It results

into implied H2FY11 revenue growth of 33% yoy (to Rs 35.5 bn) and EBITDA growth of

52% yoy (to Rs 7.5 bn) against decline of 2.5% in revenues and 3.6% growth in EBITDA

in H1FY11 over last year. High implied growth at revenue and EBITDA level in H2FY11,

poses risk to management’s FY11 guidance.

Maintain BUY

Post the results, we have downgraded our FY11 revenue estimates by 5.8% to Rs 58

bn, EBITDA by 2.9% to Rs 11.5 bn and FDEPS by 1.5% to Rs 15.8. We expect H2FY11

revenue growth at 14% yoy (to Rs 30 bn) and EBITDA growth at 26% yoy (to Rs 6.3 bn)

which is lower than management’s guidance by ~15%. We maintain our BUY

recommendation with price target at Rs 230 based on 12x FY12 EPS of Rs 19.