United Phosphorus: Rs 210 target; BUY with 35% upside: Emkay

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United Phosphorus

Results in line, Downgrade earnings and price target

BUY

CMP: Rs 155                                       Target Price: Rs 210

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n     Q3FY11 results in line with estimates with APAT growth of 14% yoy to Rs 1.1 bn, adjusted for Rs 355 mn on forex loss

n     Revenue grew by 6% to Rs 12.2 bn on account of 37% growth in RoW markets followed by 6% in India while growth in Europe (-24%) and North America (-4%) remains subdued

n     Growth in India and RoW to remain buoyant while normalcy in Europe and Northern America along with partial benefit of Cerexagri integration and price increase to drive margins

n     Downgrade FY11 / FY12 estimates by 2.5% / 8.5% to Rs 15.4 / 17.5. Subsequently downgrade price target by 8.5% to Rs 210 however maintain BUY with 35% upside

Strong growth in RoW markets supported revenue growth of 6%

UPL’s Q3FY11 revenues increased by 6% to Rs 12.2 bn and (in line with est). Company

reported volume growth of 14% while currency fluctuation and realisation decline

adversely affected revenue growth by 5% and 3%, respectively. Among the key growth

markets, Rest of the World (RoW) reported sharp increase of 37% to Rs 5.4 bn and

contributed 43% to revenues followed by 6% growth in India to Rs 3.3 bn. Strong growth

in Latin America and Middle East supported growth in RoW markets. Europe fell sharply

by 24% to Rs 2 bn on account of adverse currency, price erosion and volumes decline

due to adverse monsoon. North America markets also witnessed weakness with decline

of 4% to Rs 1.8 bn.

APAT growth of 14% to Rs 1.1 bn in line with estimates

EBITDA margins improved by 110bps to 18.1% but was below estimates of 18.6%.

EBITDA increased by 13.5 % to Rs 2.2 bn (estimated Rs 2.2 bn). Driven by higher debt

and increase in borrowing rates, interest cost increased by 103% to Rs 538 mn

(adjusted for Rs 355 mn on account of forex loss) however the same was below our

estimates of Rs 700 mn. APAT of Rs 1.1 bn, +14% yoy, was in line with estimates.

AEPS for the quarter stood at Rs 2.5 as against Rs 2.2 previous year.

Downgrade FY11 / FY12 estimates by 2.5% and 8.5%

We have adjusted our FY11 estimates to factor subdued growth in Europe and Northern

America. We have downgraded our FY11E estimates by 2.5% to Rs 15.4 (previous Rs

15.8) and FY12E by 8.5% to Rs 17.5 (previous Rs 19.1). Subsequently we are revising

our target price downward by 8.5% to Rs 210 (previous Rs 230) based on 12x FY12

estimates and maintain BUY recommendation considering 35% upside at current price.

Management shared healthy future outlook

UPL’s growth in FY11 was adversely affected due to various reasons like 1) currency

impact having adverse impact on revenues by ~5%, 2) lower growth in Europe and

Northern America due to adverse weather conditions. However volume growth

remained strong at 9%, mainly in India and RoW has been encouraging at ~20%. Going

forward, turn around in Europe and Northern Region may drive revenue growth. Further

price increase and partial benefit of Cerexagri integration should drive EBITDA margins.