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We believe 3QFY11E will be muted due to poor
sales/volume growth on account of (1) unseasonal rains in India, and (2) abnormal
weather conditions in L. America. While we retain our 4QFY11E est., we believe
FY2011E sales growth guidance of 10-15% will not be met. We leave our growth
assumptions for FY2012E intact and reduce FY2011-12E PAT est. by 12% and 5%.
Extension of winter in NA/EU remains a key risk to our 4QFY11E estimates. At 9X
FY2012E, we maintain BUY with PT being revised down to Rs220 (13X FY2012E).
We believe 3QFY11E will be muted due to poor sales growth
We believe 3QFY11E will be muted due to poor sales growth on account of poor volume growth.
This is likely due to (1) unseasonal rains in India, and (2) abnormal weather conditions in Latin
America. We revise our 3QFY11E sales growth estimate downwards to 2% from 15% earlier with
(1) volume growth at 6% versus 20% earlier, and (2) adverse exchange rate impact at 4% yoy,
same as earlier. Since this is seasonally a weak quarter for US/EU, we expect these geographies to
report 0-5% sales growth in local currency with 5-10% sales growth in Latin America and India.
However, EBITDA margin likely to remain in 3QFY11E, at levels reported in 1HFY11
Despite nil sales growth in 1HFY11, UPL reported 200 bps expansion in EBITDA margin (including
other income) to 20% reflecting the impact of cost rationalization and plant restructuring
undertaken in Europe in FY2010. We expect this trend to continue in 3QFY11E and retain our
EBITDA margin assumption at 19%, up 100 bps yoy.
4QFY11E estimates retained; FY2011E guidance will not be met
While we retain our 4QFY11E est. at 18%/16% volume/sales growth, we believe FY2011E sales
growth guidance of 10-15% will not be met. With our (1) revision in 3QFY11E sales growth to 2%
from 15% earlier and (2) leaving our 4QFY11E estimates intact, we expect FY2012E sales growth
at 7% versus our estimate of 11% earlier. Extension of winter in EU/NA remains a key risk to our
4QFY11E estimates.
We see no reason to change our FY2012E growth assumptions
UPL has reported above-industry growth in FY2009-10 with volume growth at 14%. In 9MFY11,
UPL has been hit by factors such as (1) late winter in EU/NA which impacted 1QFY11, (2) abnormal
weather conditions impacting sales in India/LA in 3QFY11E, and (3) adverse exchange rate impact
of 5% in 1HFY11. However, we believe long-term fundamentals are intact and leave our FY2012E
growth assumptions unchanged. We reduce FY2011-12E PAT est. by 12% and 5%. At 9X
FY2012E, we maintain BUY with PT being revised down to Rs220 (13X FY2012E)
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