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United Phosphorus (UNTP)
Others
Sales growth beats estimates, pricing decline surprises. EBITDA came in 4% higher
than our estimate while PAT fell short by 10% due to (1) higher interest cost (2) forex
loss (3) higher tax rate. Volume growth of 15% surpassed estimates while the pricing
decline of 3% was a surprise. We retain our FY2011-12E estimate and expect 5% sales
growth in FY2011E, in line with revised guidance, implying 17/12% volume growth in
4Q/FY11. We retain our FY2012E sales growth estimate at 12%, in line with expected
volume growth. We are surprised by the pricing decline in 3QFY11 and believe adverse
pricing would pose a downside risk to FY2012E. Maintain BUY with a TP of Rs220.
3QFY11 net sales at Rs12.2 bn, 4% higher than our estimate
Net sales were up 6% yoy, higher than our estimate of 2% sales growth; with volume growth at
15%, adverse exchange rate impact of 5%, while pricing was surprisingly down 3% yoy. Sales
growth was led by only ROW market, which grew 36% yoy. However, (1) NA and (2) EU markets
reported sales declines of 4-24% in Rupee terms as expected and even in local currency terms of
1-14% due to decline in volume terms in European market and adverse exchange rate impact.
Assuming an average price decline of 3% across markets, we estimate NA reported single-digit
volume growth and Europe reported volume decline in 3QFY11. (3) India reported poor sales
growth of 6% yoy, lower than our estimate of 10% due to (a) unseasonal rainfall impacting
branded sales (b) lower sales of industrial chemicals (c) lower sales of technicals.
PAT missed our estimate by 10% due to higher interest and tax rate
EBITDA was 4% higher than our estimate due to higher sales with EBITDA margin at 18% (up 100
bps yoy), in line with our estimate. However, interest cost was higher than our estimate due to
(1) Rs300 mn of forex and (2) higher interest cost on account of increase in rupee debt. This led to
PBT at Rs1bn, in line with our estimate. Tax rate at 24% was higher than our estimate and
1HFY11 rate of 17%. This led to PAT of Rs839 mn, 10% lower than our estimate.
We leave our FY2012E estimates unchanged, maintain BUY with PT at Rs220 (13X FY2012E)
We retain our 4QFY11E estimate of 17%/16% volume/sales growth versus 15% volume growth
reported in 3QFY11 which leads to 5% sales growth for FY2011E, in line with management
guidance. We expect 12% sales growth in FY2012E on account of (1) 8% organic growth, we
believe this is achievable on account of 12% volume growth in FY2012E, in line with our estimate
for FY2011E. In 9MFY11, UPL has reported volume growth of 9% and we expect 12% volume
growth in FY2011E and (2) addition of sales from the two acquisitions made in FY2011. We
remain surprised by the pricing decline reported in 3QFY11 and believe adverse pricing would pose
a downside risk to FY2012E estimate.
3QFY11 net sales at Rs12.2 bn, 4% higher than our estimate
Net sales were up 6% yoy, higher than our estimate of 2% sales growth; with volume growth at
15%, adverse exchange rate impact of 5%, while pricing was surprisingly down 3% yoy. Sales
growth was led by only ROW market, which grew 36% yoy. However, (1) NA and (2) EU markets
reported sales declines of 4-24% in Rupee terms as expected and even in local currency terms of
1-14% due to decline in volume terms in European market and adverse exchange rate impact.
Assuming an average price decline of 3% across markets, we estimate NA reported single-digit
volume growth and Europe reported volume decline in 3QFY11. (3) India reported poor sales
growth of 6% yoy, lower than our estimate of 10% due to (a) unseasonal rainfall impacting
branded sales (b) lower sales of industrial chemicals (c) lower sales of technicals.
PAT missed our estimate by 10% due to higher interest and tax rate
EBITDA was 4% higher than our estimate due to higher sales with EBITDA margin at 18% (up 100
bps yoy), in line with our estimate. However, interest cost was higher than our estimate due to
(1) Rs300 mn of forex and (2) higher interest cost on account of increase in rupee debt. This led to
PBT at Rs1bn, in line with our estimate. Tax rate at 24% was higher than our estimate and
1HFY11 rate of 17%. This led to PAT of Rs839 mn, 10% lower than our estimate.
We leave our FY2012E estimates unchanged, maintain BUY with PT at Rs220 (13X FY2012E)
We retain our 4QFY11E estimate of 17%/16% volume/sales growth versus 15% volume growth
reported in 3QFY11 which leads to 5% sales growth for FY2011E, in line with management
guidance. We expect 12% sales growth in FY2012E on account of (1) 8% organic growth, we
believe this is achievable on account of 12% volume growth in FY2012E, in line with our estimate
for FY2011E. In 9MFY11, UPL has reported volume growth of 9% and we expect 12% volume
growth in FY2011E and (2) addition of sales from the two acquisitions made in FY2011. We
remain surprised by the pricing decline reported in 3QFY11 and believe adverse pricing would pose
a downside risk to FY2012E estimate.
Sales growth at 6% led by growth in ROW with NA, Europe reporting sales
decline and India performing poorly
Net sales increased 6% yoy due to (1) adverse exchange rate impact of 5%, in line with our
estimate (2) volume growth of 15%, higher than our estimate of 6% and (3) price decline of
3% which was surprising
ROW market outperform. Driven by lower base of last year, ROW market outperformed
with 36% sales growth
India growth at 6% was lower than our estimate of 10% driven by unseasonal rains
European/NA revenues declined yoy in rupee terms as expected, however the decline in
local currency terms was also severe. Europe reported sales decline of 24% yoy in rupee
terms, due to (1) adverse exchange rate impact of 10% and (2) volume/price decline of
14%. North America reported sales decline of 4% again due to (1) adverse exchange rate
impact and (2) volume growth of single-digit according to our estimate. The key reason
for the volume decline in EU was:
• Lower institutional sales in Europe, largely in the segment of fungicide. We note
that fungicide is a major segment for U Phos, accounting for 33% of sales.
• Effect of slow build up in inventories
Key takeaways from conference call
The two acquisitions of Mancozeb and Rice Co. concluded in FY2011 are expected to
contribute US$100 mn on an annualized basis and total acquisition cost was US$150 mn
which is 1.5X sales.
UPL has revised FY2011E guidance to 5% sales growth including acquisitions from 10-
15% expected earlier. We believe this growth is largely driven by acquisitions with base
business ex acquisitions performing poorly in FY2011E according to our estimate.
5% sales growth in FY2011E implies 16% sales growth in 4QFY11E, according to our
estimates. This is in line with management comments on demand remaining encouraging
across geographies with no structural change in Europe, where UPL has reported volume
decline in 9MFY11.
UPL expects further cost reduction in FY2012E on account of the Rotterdam plant
restructuring while benefits of restructuring of the Spanish plant of Cerexagri have
occurred in FY2011E. It expects the benefits of Rotterdam plant restructuring to reflect in
FY2012E.
UPL has surplus cash (approx Rs20 bn) which is likely not to be used for retiring debt
immediately. However it foresees cash being utilized for (1) debt repayment, due by
March 2011E and (2) further inorganic opportunities
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
United Phosphorus (UNTP)
Others
Sales growth beats estimates, pricing decline surprises. EBITDA came in 4% higher
than our estimate while PAT fell short by 10% due to (1) higher interest cost (2) forex
loss (3) higher tax rate. Volume growth of 15% surpassed estimates while the pricing
decline of 3% was a surprise. We retain our FY2011-12E estimate and expect 5% sales
growth in FY2011E, in line with revised guidance, implying 17/12% volume growth in
4Q/FY11. We retain our FY2012E sales growth estimate at 12%, in line with expected
volume growth. We are surprised by the pricing decline in 3QFY11 and believe adverse
pricing would pose a downside risk to FY2012E. Maintain BUY with a TP of Rs220.
3QFY11 net sales at Rs12.2 bn, 4% higher than our estimate
Net sales were up 6% yoy, higher than our estimate of 2% sales growth; with volume growth at
15%, adverse exchange rate impact of 5%, while pricing was surprisingly down 3% yoy. Sales
growth was led by only ROW market, which grew 36% yoy. However, (1) NA and (2) EU markets
reported sales declines of 4-24% in Rupee terms as expected and even in local currency terms of
1-14% due to decline in volume terms in European market and adverse exchange rate impact.
Assuming an average price decline of 3% across markets, we estimate NA reported single-digit
volume growth and Europe reported volume decline in 3QFY11. (3) India reported poor sales
growth of 6% yoy, lower than our estimate of 10% due to (a) unseasonal rainfall impacting
branded sales (b) lower sales of industrial chemicals (c) lower sales of technicals.
PAT missed our estimate by 10% due to higher interest and tax rate
EBITDA was 4% higher than our estimate due to higher sales with EBITDA margin at 18% (up 100
bps yoy), in line with our estimate. However, interest cost was higher than our estimate due to
(1) Rs300 mn of forex and (2) higher interest cost on account of increase in rupee debt. This led to
PBT at Rs1bn, in line with our estimate. Tax rate at 24% was higher than our estimate and
1HFY11 rate of 17%. This led to PAT of Rs839 mn, 10% lower than our estimate.
We leave our FY2012E estimates unchanged, maintain BUY with PT at Rs220 (13X FY2012E)
We retain our 4QFY11E estimate of 17%/16% volume/sales growth versus 15% volume growth
reported in 3QFY11 which leads to 5% sales growth for FY2011E, in line with management
guidance. We expect 12% sales growth in FY2012E on account of (1) 8% organic growth, we
believe this is achievable on account of 12% volume growth in FY2012E, in line with our estimate
for FY2011E. In 9MFY11, UPL has reported volume growth of 9% and we expect 12% volume
growth in FY2011E and (2) addition of sales from the two acquisitions made in FY2011. We
remain surprised by the pricing decline reported in 3QFY11 and believe adverse pricing would pose
a downside risk to FY2012E estimate.
3QFY11 net sales at Rs12.2 bn, 4% higher than our estimate
Net sales were up 6% yoy, higher than our estimate of 2% sales growth; with volume growth at
15%, adverse exchange rate impact of 5%, while pricing was surprisingly down 3% yoy. Sales
growth was led by only ROW market, which grew 36% yoy. However, (1) NA and (2) EU markets
reported sales declines of 4-24% in Rupee terms as expected and even in local currency terms of
1-14% due to decline in volume terms in European market and adverse exchange rate impact.
Assuming an average price decline of 3% across markets, we estimate NA reported single-digit
volume growth and Europe reported volume decline in 3QFY11. (3) India reported poor sales
growth of 6% yoy, lower than our estimate of 10% due to (a) unseasonal rainfall impacting
branded sales (b) lower sales of industrial chemicals (c) lower sales of technicals.
PAT missed our estimate by 10% due to higher interest and tax rate
EBITDA was 4% higher than our estimate due to higher sales with EBITDA margin at 18% (up 100
bps yoy), in line with our estimate. However, interest cost was higher than our estimate due to
(1) Rs300 mn of forex and (2) higher interest cost on account of increase in rupee debt. This led to
PBT at Rs1bn, in line with our estimate. Tax rate at 24% was higher than our estimate and
1HFY11 rate of 17%. This led to PAT of Rs839 mn, 10% lower than our estimate.
We leave our FY2012E estimates unchanged, maintain BUY with PT at Rs220 (13X FY2012E)
We retain our 4QFY11E estimate of 17%/16% volume/sales growth versus 15% volume growth
reported in 3QFY11 which leads to 5% sales growth for FY2011E, in line with management
guidance. We expect 12% sales growth in FY2012E on account of (1) 8% organic growth, we
believe this is achievable on account of 12% volume growth in FY2012E, in line with our estimate
for FY2011E. In 9MFY11, UPL has reported volume growth of 9% and we expect 12% volume
growth in FY2011E and (2) addition of sales from the two acquisitions made in FY2011. We
remain surprised by the pricing decline reported in 3QFY11 and believe adverse pricing would pose
a downside risk to FY2012E estimate.
Sales growth at 6% led by growth in ROW with NA, Europe reporting sales
decline and India performing poorly
Net sales increased 6% yoy due to (1) adverse exchange rate impact of 5%, in line with our
estimate (2) volume growth of 15%, higher than our estimate of 6% and (3) price decline of
3% which was surprising
ROW market outperform. Driven by lower base of last year, ROW market outperformed
with 36% sales growth
India growth at 6% was lower than our estimate of 10% driven by unseasonal rains
European/NA revenues declined yoy in rupee terms as expected, however the decline in
local currency terms was also severe. Europe reported sales decline of 24% yoy in rupee
terms, due to (1) adverse exchange rate impact of 10% and (2) volume/price decline of
14%. North America reported sales decline of 4% again due to (1) adverse exchange rate
impact and (2) volume growth of single-digit according to our estimate. The key reason
for the volume decline in EU was:
• Lower institutional sales in Europe, largely in the segment of fungicide. We note
that fungicide is a major segment for U Phos, accounting for 33% of sales.
• Effect of slow build up in inventories
Key takeaways from conference call
The two acquisitions of Mancozeb and Rice Co. concluded in FY2011 are expected to
contribute US$100 mn on an annualized basis and total acquisition cost was US$150 mn
which is 1.5X sales.
UPL has revised FY2011E guidance to 5% sales growth including acquisitions from 10-
15% expected earlier. We believe this growth is largely driven by acquisitions with base
business ex acquisitions performing poorly in FY2011E according to our estimate.
5% sales growth in FY2011E implies 16% sales growth in 4QFY11E, according to our
estimates. This is in line with management comments on demand remaining encouraging
across geographies with no structural change in Europe, where UPL has reported volume
decline in 9MFY11.
UPL expects further cost reduction in FY2012E on account of the Rotterdam plant
restructuring while benefits of restructuring of the Spanish plant of Cerexagri have
occurred in FY2011E. It expects the benefits of Rotterdam plant restructuring to reflect in
FY2012E.
UPL has surplus cash (approx Rs20 bn) which is likely not to be used for retiring debt
immediately. However it foresees cash being utilized for (1) debt repayment, due by
March 2011E and (2) further inorganic opportunities
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