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United Phosphorus (UNTP)
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MAI confirms positive outlook for 1QCY11E. Analysis of Makheteshim (MAI) annual
results confirms trends reported by UPL YTD: (1) ROW markets remain key sales growth
driver in 2010 with tepid growth in EU/NA, (2) Brazil market underperforms reporting
volume/price decline for MAI, (3) selling price declined in CY2010 with most of it seen
in 1HCY10, (4) Europe underperforms for UPL, although up 3% for MAI, and (5) low
inventories, favorable weather, positive trend for price/volume are likely to result in
strong 1QCY11E. We believe turnaround in Europe in 4QFY11E is key to UPL meeting
its FY2011E sales guidance of 5%. Maintain BUY with TP of Rs220.
Analysis of MAI annual results confirms trends reported by UPL
Analysis of Makheteshim, # 1 global generic agchem company, annual results confirms the trends
reported by UPL YTD, namely:
(1) Selling price declined in CY2010. MAI reported decline in average selling price in CY2010 of
5% in line with decline of 4% for UPL over comparative 12 months ending December 2010. MAI
has reported yoy decline in average selling price in CY2010 in all geographies and as per MAI’s
results call, majority of the pricing decline was witnessed in 1HCY10, in line with trend seen in UPL.
UPL reported pricing decline of 7% in 1HCY10 versus 3% in 2HCY10. In 4QCY10, MAI reported
pricing decline of 5% versus UPL’s 3% and volume growth of 8% versus UPL’s 15%.
(2) MAI/UPL reported double-digit volume growth in CY2010. MAI reported volume growth
of 12%, in line with UPL’s 13% in CY2010. MAI reported volume growth across all geographies
except Brazil where UPL has minimal presence currently. However, MAI has reported volume
growth in Europe in CY2010. This, we believe, is contrary to UPL’s European sales which we
believe has not reported volume growth in 12 months ending December 2010.
(3) Tepid growth in North America in dollar terms at 0.5%, lower than UPL’s 3% due to
volume gains being offset by pricing decline.
(4) Europe underperforms for UPL. Europe turns around for MAI with 9%/3% growth in dollar
terms in 4Q/CY2010 versus UPL’s sales decline of 20%/15%. We believe the sales growth for MAI
in Europe versus sales decline for UPL could be due to new operations started in Eastern Europe by
MAI and volume decline in Europe for UPL. UPL does not provide volume/price break-up by
geographies.
(5) ROW markets (excluding Brazil) continue to be strong sales driver in 2010 for agchem
companies, with sales growth at 48% in dollar terms for MAI versus 33% for UPL.
Recovery underway with price recovery likely in 1QCY11; we model flat pricing
Agchem companies such as MAI, UPL witnessed yoy decline in average selling price in
CY2010. This led to lower sales growth in single digit for both MAI (7%) and UPL (4%) with
both reporting average pricing decline of 5% and 4%, respectively. Volume growth for MAI
and UPL was at 12% and 13%.
MAI management comments from their results call indicate strong recovery in agchem
market. Favorable market conditions marked by (1) low inventories, (2) favorable weather in
NA/EU and (3) high crop prices are likely to result in positive trend for price/volume in
1QCY11E, according to the comments made during the results call.
According to the MAI management, the market is witnessing better pricing discipline and
there has been revival in prices in certain markets with strong recovery seen in Latin America
and others which had witnessed rock bottom prices in 2010.
We believe turnaround in Europe in 4QFY11E is key to UPL meeting its FY2011E sales
guidance of 5%. According to our discussions with the company, outlook for Europe
remains solid which is likely to result in a strong 4QFY11E. We model volume growth of
17%, up 2% qoq with flat pricing in 4QFY11E
Brazil underperforms in 2010; UPL enters Brazil through recent acquisition
The underperformance was due to (1) decline in sales volume. For MAI, Brazil remained the
only geography to report volume decline in CY2010 on account of rapid decline in market
share. MAI has been witnessing decline in market share in Brazil since 2006, and (2) severe
decline in selling prices.
While UPL’s sales are minimal from Brazil, UPL recently acquired 50% stake in Sipcam Isagro
Brazil (SIB), which we believe will add US$65 mn sales to its top line in FY2012E.
We view this acquisition as marginally positive as (1) it provides UPL entry into the highgrowth Brazilian market although it adds only 5% to its top line, and (2) we believe
acquisition cost is reasonable (<6 EV/EBITDA).
However, risks remain as acquisition is (1) margin dilutive—SIB reported 17% EBITDA margin
in CY2008 versus UPL’s 19% in 9MFY11, (2) receivable cycle in Brazil is longer (>200 days),
and (3) SIB has significant debt, mainly for working capital (3X debt/EBITDA).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Phosphorus (UNTP)
Others
MAI confirms positive outlook for 1QCY11E. Analysis of Makheteshim (MAI) annual
results confirms trends reported by UPL YTD: (1) ROW markets remain key sales growth
driver in 2010 with tepid growth in EU/NA, (2) Brazil market underperforms reporting
volume/price decline for MAI, (3) selling price declined in CY2010 with most of it seen
in 1HCY10, (4) Europe underperforms for UPL, although up 3% for MAI, and (5) low
inventories, favorable weather, positive trend for price/volume are likely to result in
strong 1QCY11E. We believe turnaround in Europe in 4QFY11E is key to UPL meeting
its FY2011E sales guidance of 5%. Maintain BUY with TP of Rs220.
Analysis of MAI annual results confirms trends reported by UPL
Analysis of Makheteshim, # 1 global generic agchem company, annual results confirms the trends
reported by UPL YTD, namely:
(1) Selling price declined in CY2010. MAI reported decline in average selling price in CY2010 of
5% in line with decline of 4% for UPL over comparative 12 months ending December 2010. MAI
has reported yoy decline in average selling price in CY2010 in all geographies and as per MAI’s
results call, majority of the pricing decline was witnessed in 1HCY10, in line with trend seen in UPL.
UPL reported pricing decline of 7% in 1HCY10 versus 3% in 2HCY10. In 4QCY10, MAI reported
pricing decline of 5% versus UPL’s 3% and volume growth of 8% versus UPL’s 15%.
(2) MAI/UPL reported double-digit volume growth in CY2010. MAI reported volume growth
of 12%, in line with UPL’s 13% in CY2010. MAI reported volume growth across all geographies
except Brazil where UPL has minimal presence currently. However, MAI has reported volume
growth in Europe in CY2010. This, we believe, is contrary to UPL’s European sales which we
believe has not reported volume growth in 12 months ending December 2010.
(3) Tepid growth in North America in dollar terms at 0.5%, lower than UPL’s 3% due to
volume gains being offset by pricing decline.
(4) Europe underperforms for UPL. Europe turns around for MAI with 9%/3% growth in dollar
terms in 4Q/CY2010 versus UPL’s sales decline of 20%/15%. We believe the sales growth for MAI
in Europe versus sales decline for UPL could be due to new operations started in Eastern Europe by
MAI and volume decline in Europe for UPL. UPL does not provide volume/price break-up by
geographies.
(5) ROW markets (excluding Brazil) continue to be strong sales driver in 2010 for agchem
companies, with sales growth at 48% in dollar terms for MAI versus 33% for UPL.
Recovery underway with price recovery likely in 1QCY11; we model flat pricing
Agchem companies such as MAI, UPL witnessed yoy decline in average selling price in
CY2010. This led to lower sales growth in single digit for both MAI (7%) and UPL (4%) with
both reporting average pricing decline of 5% and 4%, respectively. Volume growth for MAI
and UPL was at 12% and 13%.
MAI management comments from their results call indicate strong recovery in agchem
market. Favorable market conditions marked by (1) low inventories, (2) favorable weather in
NA/EU and (3) high crop prices are likely to result in positive trend for price/volume in
1QCY11E, according to the comments made during the results call.
According to the MAI management, the market is witnessing better pricing discipline and
there has been revival in prices in certain markets with strong recovery seen in Latin America
and others which had witnessed rock bottom prices in 2010.
We believe turnaround in Europe in 4QFY11E is key to UPL meeting its FY2011E sales
guidance of 5%. According to our discussions with the company, outlook for Europe
remains solid which is likely to result in a strong 4QFY11E. We model volume growth of
17%, up 2% qoq with flat pricing in 4QFY11E
Brazil underperforms in 2010; UPL enters Brazil through recent acquisition
The underperformance was due to (1) decline in sales volume. For MAI, Brazil remained the
only geography to report volume decline in CY2010 on account of rapid decline in market
share. MAI has been witnessing decline in market share in Brazil since 2006, and (2) severe
decline in selling prices.
While UPL’s sales are minimal from Brazil, UPL recently acquired 50% stake in Sipcam Isagro
Brazil (SIB), which we believe will add US$65 mn sales to its top line in FY2012E.
We view this acquisition as marginally positive as (1) it provides UPL entry into the highgrowth Brazilian market although it adds only 5% to its top line, and (2) we believe
acquisition cost is reasonable (<6 EV/EBITDA).
However, risks remain as acquisition is (1) margin dilutive—SIB reported 17% EBITDA margin
in CY2008 versus UPL’s 19% in 9MFY11, (2) receivable cycle in Brazil is longer (>200 days),
and (3) SIB has significant debt, mainly for working capital (3X debt/EBITDA).
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