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United Phosphorous (CMP: `204/ TP: `228/ Upside: 12%)
United Phosphorus (UPL) figures among the Top-5 generic Agrichemical players in
the world, with a presence across major markets like the US, EU, Latina America
and India.
Total off-patent market is worth US $29bn, of which a mere US $16bn is currently
being catered by the generic players. Furthermore, 61% of the same is controlled
by the five largest generic players including UPL. Further, given the high entry
barriers by way of high investments, entry of new players is also restricted. Thus,
amidst this scenario and on account of having a low cost base, we believe that UPL
enjoys an edge over competition and is placed in sweet spot to leverage the
upcoming opportunities in the global Generic space
Over FY2010-12E, we expect UPL to post 9% and 19% CAGR in Sales and EPS,
respectively. We expect RoCE and RoE to improve from 14% and 19% in FY2010
to 20% each in FY2012E.
At current valuations of 11.6x FY2012E EPS, the stock is attractively valued. Over
FY2005-08, UPL traded in-line with Sensex P/E, however post global meltdown
and deterioration in core business, stock has been trading at discount. With
improvement in earning and RoEs, current P/E discount of 27% against Sensex is
unwarranted, hence we maintain our Buy recommendation on the stock with
Target Price of `228.
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