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UBS Investment Research
First Read: UPL
S econd Brazilian acquisition
Event: United Phosphorus to acquire 51% in DVA Agro Brazil
United Phosphorus (UNPH) bought a 51% stake in DVA Agro Brazil (DVA) from
DVA group for USD150mn. DVA (CY10 sales of cUS$100mn) is based in Brazil
and engaged in largely generic crop protection (insecticides like Abamectine,
Acephate, Endosulfan, etc) used for crops like corn, sugar, cotton.
Impact: Strengthen Brazil presence; potential upward guidance revision
DVA will strengthen distribution and market access in Brazil (cUS$7bn market,
15-17% of global). Management expects this to start contributing to revenues from
Q2FY12. Funding of the deal is through cash on balance sheet (cRs19bn in end
FY11). We believe that there is a potential for upward revision to 12-14% FY12
revenues growth guidance, if organic growth remains buoyant. We will review
estimates after more details are available post 1Q results.
Action: Reiterate Buy; cheap valuations
UPL stock is attractive at 8.7x FY12E P/E, given forecast 17.2% FY11-13 CAGR
earnings and stronger balance sheet (net debt: equity at 0.5 in FY12E) supporting
any potential acquisition opportunities. Concerns on long-term growth from
inorganic opportunities (as has been historically) still remain given much larger
base and aggressive intent of Chinese companies. However, this acquisition does
indicate that inorganic growth remains a key strategy and thus stock price driver.
Valuation: Maintain Buy with a PT of Rs210
We derive our price target of Rs210 from a DCF-based methodology using UBS’s
VCAM tool. We reiterate Buy.
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.
Statement of Risk
The chief risks facing United Phosphorus are execution risk in integration of its
various acquisitions, regulatory risk in different markets, currency risk and
weather related risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: UPL
S econd Brazilian acquisition
Event: United Phosphorus to acquire 51% in DVA Agro Brazil
United Phosphorus (UNPH) bought a 51% stake in DVA Agro Brazil (DVA) from
DVA group for USD150mn. DVA (CY10 sales of cUS$100mn) is based in Brazil
and engaged in largely generic crop protection (insecticides like Abamectine,
Acephate, Endosulfan, etc) used for crops like corn, sugar, cotton.
Impact: Strengthen Brazil presence; potential upward guidance revision
DVA will strengthen distribution and market access in Brazil (cUS$7bn market,
15-17% of global). Management expects this to start contributing to revenues from
Q2FY12. Funding of the deal is through cash on balance sheet (cRs19bn in end
FY11). We believe that there is a potential for upward revision to 12-14% FY12
revenues growth guidance, if organic growth remains buoyant. We will review
estimates after more details are available post 1Q results.
Action: Reiterate Buy; cheap valuations
UPL stock is attractive at 8.7x FY12E P/E, given forecast 17.2% FY11-13 CAGR
earnings and stronger balance sheet (net debt: equity at 0.5 in FY12E) supporting
any potential acquisition opportunities. Concerns on long-term growth from
inorganic opportunities (as has been historically) still remain given much larger
base and aggressive intent of Chinese companies. However, this acquisition does
indicate that inorganic growth remains a key strategy and thus stock price driver.
Valuation: Maintain Buy with a PT of Rs210
We derive our price target of Rs210 from a DCF-based methodology using UBS’s
VCAM tool. We reiterate Buy.
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.
Statement of Risk
The chief risks facing United Phosphorus are execution risk in integration of its
various acquisitions, regulatory risk in different markets, currency risk and
weather related risk.
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