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UBS Investment Research
United Phosphorus Limited
UPL to acquire 50% in Sipcam Isagro Brazil
UPL to acquire 50% stake in SIB; price, as per media reports, seems high
United Phosphorus (UPL) is to acquire a 50% stake in Sipcam Isagro Brazil (SIB)
from Isagro SpA. SIB is a 50-50 JV between Sipcam-Oxon Group and Isagro. UPL
expects the acquisition to close in a month. Media reports peg it at US$600m. UPL
has not provided any details. However, Isagro’s January 2011 presentation
estimated cash effect of €35m from SIB and Isagro Italia, and debt deconsolidation
of €54m. Hence, implied EV of both is €90m. We estimate the acquisition size at
EV/sales of 1.5-2.0x.
SIB has local plant capacity in Brazil; revenues of €81.6m in 2009
It has a plant in Minas Gerais, spread over an area of 254,000 sq m and produces
niche crop protection (CP) chemicals for Brazil such as wettable powders,
concentrated suspensions (herbicides + insecticides) and emulsionable liquids.
UPL indicated Brazil is a US$7bn market, given its huge agri focus, and is a top 5
CP market globally. As per Isagro’s 2009 annual report, SIB revenues (100%)
were €81.6m and recorded a net loss of €6.2m.
Third acquisition in FY11, post Manzate and RiceCo
This is the third acquisition in FY11 and will help UPL expand its Brazilian
presence. The acquisition may be synergistic given UPL’s large portfolio. We
assume 11.5% revenue growth in FY12, of which 7-8% (US$90m) is on inorganic
growth.
Valuation: maintain Buy with a price target of Rs200
We maintain our estimates, Buy rating and Rs200 price target. We derive our price
target from a DCF-based methodology and explicitly forecast long-term valuation
drivers using UBS’s VCAM tool.
Isagro SpA sold stake for streamlining operations; SIB
revenues were €81m in 2009
Isagro highlighted the reasons for the stake sale in SIB—to free financial
resources to back third-party products’ distribution and new resources to be
allocated in its core business. Further, SIB was less suitable to its overall
strategy and it was possibly expensive to finance all networking capital, R&D,
commercialisation. In 2009, it recorded a net loss of €6.2m. In 2008, SIB had
revenues and net profit of €92m and €4.1m, respectively. In the Isagro S.p.A.
press release dated January 2011, it was indicated that “S.I.B., with a staff of
191, operates in the Brazilian market for the formulation and distribution of crop
protection products and in 2009 it recorded sales of € 81 million.” Total
liabilities were €109m as on December 2009. As per the company, 2010
revenues are €80m.
About Sipcam-Oxon; JV with Isagro formed in 2006
Sipcam Oxon was formed in 1946 to market crop protection products in the
Italian market. By 1960, Sipcam evolved as one of the main formulation and
distribution companies. In 1996, Sipcam decided to merge all its Brazilian
businesses into Sipcam Agro and later in 2006 formed a JV with Isagro. This
company is now called SIB. Key products for Sipcam in Brazil include the
fungicides tetraconazole, chlorothalonil, benalxyl, mancozeb and thiophanate
methyl, the insecticides acephate and methamidophos, and the herbicides
atrazine and bentazone.
Our outlook on UPL is positive
While we do not have confirmation from UPL management on the
acquisition size, the deal gives UPL a favourable presence in the large
Brazilian market.
Further, UPL has a much stronger balance sheet with a cash balance of
~Rs20bn and net debt of Rs9bn as at end December 2010. Hence, we believe
that cash along with internal accruals can support a larger acquisition of
US$500m.
This is the third acquisition in FY11. For earlier acquisitions of Manzate and
RiceCo, UPL management in the last conference call indicated a size of
US$140-150m as acquisition value, and a potential revenue contribution of
US$100m. Using 2009 SIB sales as a benchmark, we estimate €40m of sales
contribution from this stake acquisition. Further, media reports of a
US$600m acquisition size seem too high given the sales figures. In fact,
Isagro’s January 2011 presentation estimated cash effect of €35m from SIB
and Isagro Italia, and debt deconsolidation of €54m. Hence, implied EV of
both is €90m. We estimate the acquisition size at EV/sales of 1.5-2.0x.
We assume 11.5% growth in FY12, of which 7-8% (Rs4.2bn or US$90m) is
attributable to inorganic growth. This includes the contribution from
Manzate and RiceCo. Given our growth assumptions, we continue to
maintain our estimates on the stock. We have a Buy rating with a price target
of Rs200.
United Phosphorus Limited
United Phosphorus Limited (UPL) is the largest producer of crop protection
products in India with a range of products that include fumigants, fungicides,
insecticides, rodenticides and herbicides. The company's main business is
agrochemicals and industrial & specialty chemicals. Earlier this year, UPL made
its largest acquisition to date by acquiring Cerexagri, which has a significant
presence in the US and Europe. Post this acquisition, UPL is the 12th largest
agrochemical and 3rd largest generic agrochemical company globally. UPL has
fully owned subsidiaries in the US, UK, China, Australia, and Russia.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
United Phosphorus Limited
UPL to acquire 50% in Sipcam Isagro Brazil
UPL to acquire 50% stake in SIB; price, as per media reports, seems high
United Phosphorus (UPL) is to acquire a 50% stake in Sipcam Isagro Brazil (SIB)
from Isagro SpA. SIB is a 50-50 JV between Sipcam-Oxon Group and Isagro. UPL
expects the acquisition to close in a month. Media reports peg it at US$600m. UPL
has not provided any details. However, Isagro’s January 2011 presentation
estimated cash effect of €35m from SIB and Isagro Italia, and debt deconsolidation
of €54m. Hence, implied EV of both is €90m. We estimate the acquisition size at
EV/sales of 1.5-2.0x.
SIB has local plant capacity in Brazil; revenues of €81.6m in 2009
It has a plant in Minas Gerais, spread over an area of 254,000 sq m and produces
niche crop protection (CP) chemicals for Brazil such as wettable powders,
concentrated suspensions (herbicides + insecticides) and emulsionable liquids.
UPL indicated Brazil is a US$7bn market, given its huge agri focus, and is a top 5
CP market globally. As per Isagro’s 2009 annual report, SIB revenues (100%)
were €81.6m and recorded a net loss of €6.2m.
Third acquisition in FY11, post Manzate and RiceCo
This is the third acquisition in FY11 and will help UPL expand its Brazilian
presence. The acquisition may be synergistic given UPL’s large portfolio. We
assume 11.5% revenue growth in FY12, of which 7-8% (US$90m) is on inorganic
growth.
Valuation: maintain Buy with a price target of Rs200
We maintain our estimates, Buy rating and Rs200 price target. We derive our price
target from a DCF-based methodology and explicitly forecast long-term valuation
drivers using UBS’s VCAM tool.
Isagro SpA sold stake for streamlining operations; SIB
revenues were €81m in 2009
Isagro highlighted the reasons for the stake sale in SIB—to free financial
resources to back third-party products’ distribution and new resources to be
allocated in its core business. Further, SIB was less suitable to its overall
strategy and it was possibly expensive to finance all networking capital, R&D,
commercialisation. In 2009, it recorded a net loss of €6.2m. In 2008, SIB had
revenues and net profit of €92m and €4.1m, respectively. In the Isagro S.p.A.
press release dated January 2011, it was indicated that “S.I.B., with a staff of
191, operates in the Brazilian market for the formulation and distribution of crop
protection products and in 2009 it recorded sales of € 81 million.” Total
liabilities were €109m as on December 2009. As per the company, 2010
revenues are €80m.
About Sipcam-Oxon; JV with Isagro formed in 2006
Sipcam Oxon was formed in 1946 to market crop protection products in the
Italian market. By 1960, Sipcam evolved as one of the main formulation and
distribution companies. In 1996, Sipcam decided to merge all its Brazilian
businesses into Sipcam Agro and later in 2006 formed a JV with Isagro. This
company is now called SIB. Key products for Sipcam in Brazil include the
fungicides tetraconazole, chlorothalonil, benalxyl, mancozeb and thiophanate
methyl, the insecticides acephate and methamidophos, and the herbicides
atrazine and bentazone.
Our outlook on UPL is positive
While we do not have confirmation from UPL management on the
acquisition size, the deal gives UPL a favourable presence in the large
Brazilian market.
Further, UPL has a much stronger balance sheet with a cash balance of
~Rs20bn and net debt of Rs9bn as at end December 2010. Hence, we believe
that cash along with internal accruals can support a larger acquisition of
US$500m.
This is the third acquisition in FY11. For earlier acquisitions of Manzate and
RiceCo, UPL management in the last conference call indicated a size of
US$140-150m as acquisition value, and a potential revenue contribution of
US$100m. Using 2009 SIB sales as a benchmark, we estimate €40m of sales
contribution from this stake acquisition. Further, media reports of a
US$600m acquisition size seem too high given the sales figures. In fact,
Isagro’s January 2011 presentation estimated cash effect of €35m from SIB
and Isagro Italia, and debt deconsolidation of €54m. Hence, implied EV of
both is €90m. We estimate the acquisition size at EV/sales of 1.5-2.0x.
We assume 11.5% growth in FY12, of which 7-8% (Rs4.2bn or US$90m) is
attributable to inorganic growth. This includes the contribution from
Manzate and RiceCo. Given our growth assumptions, we continue to
maintain our estimates on the stock. We have a Buy rating with a price target
of Rs200.
United Phosphorus Limited
United Phosphorus Limited (UPL) is the largest producer of crop protection
products in India with a range of products that include fumigants, fungicides,
insecticides, rodenticides and herbicides. The company's main business is
agrochemicals and industrial & specialty chemicals. Earlier this year, UPL made
its largest acquisition to date by acquiring Cerexagri, which has a significant
presence in the US and Europe. Post this acquisition, UPL is the 12th largest
agrochemical and 3rd largest generic agrochemical company globally. UPL has
fully owned subsidiaries in the US, UK, China, Australia, and Russia.
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