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UPL should see growth rebound post its recent acquisitions and growth in developing economies.
A deleveraged balance sheet enables UPL to invest in growth. The stock is at low valuations on a
historical and comparative basis, and should rerate as growth conviction increases. We initiate
coverage at Buy
Established player in global agrochemical industry
United Phosphorus (UPL) is one of the leading global agrochemical companies with a presence
in all major markets. The company strengthened its presence in the large Brazilian market
through two recent acquisitions. We initiate coverage at Buy and a price target of Rs160. We
believe it is a good proxy to potential growth in global agrochemicals demand.
We expect acquisitions and deleveraged balance sheet to drive growth
Volume growth in most of UPL’s markets, especially emerging markets, is driving the company’s
overall revenue growth rates after a disappointing FY10 and FY11. We expect the company’s
revenues to register an 18% CAGR in FY12-14 vs 16% in FY09-11, driven primarily by volumes.
UPL’s net gearing declined from 56% in FY09 to 18% in FY11. Armed with a stronger balance
sheet, UPL has invested in significant acquisitions over the last six months, which should aid
growth. We forecast EPS CAGR of 16% over FY11-13.
Attractive valuations; confidence in growth could be key catalyst
Stock valuations have declined over the past two years as the company failed to deliver on
growth guidance. The stock now trades at a 40% discount to its last year’s average PE multiple of
12x. The company’s valuation discount to comparable global peer, MA Industries, is at an all-time
high. We believe rating will improve as investors regain confidence in UPL’s growth prospects.
Our DCF-based price target is Rs160.
Key risks to our target price are currency and commodity price fluctuations
UPL has a complex operating model, with multiple geographies and many products that can
reduce earnings visibility, especially in case of excessive currency and commodity price volatility.
Also, it will need to integrate its Brazilian acquisitions well over the next 12 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UPL should see growth rebound post its recent acquisitions and growth in developing economies.
A deleveraged balance sheet enables UPL to invest in growth. The stock is at low valuations on a
historical and comparative basis, and should rerate as growth conviction increases. We initiate
coverage at Buy
Established player in global agrochemical industry
United Phosphorus (UPL) is one of the leading global agrochemical companies with a presence
in all major markets. The company strengthened its presence in the large Brazilian market
through two recent acquisitions. We initiate coverage at Buy and a price target of Rs160. We
believe it is a good proxy to potential growth in global agrochemicals demand.
We expect acquisitions and deleveraged balance sheet to drive growth
Volume growth in most of UPL’s markets, especially emerging markets, is driving the company’s
overall revenue growth rates after a disappointing FY10 and FY11. We expect the company’s
revenues to register an 18% CAGR in FY12-14 vs 16% in FY09-11, driven primarily by volumes.
UPL’s net gearing declined from 56% in FY09 to 18% in FY11. Armed with a stronger balance
sheet, UPL has invested in significant acquisitions over the last six months, which should aid
growth. We forecast EPS CAGR of 16% over FY11-13.
Attractive valuations; confidence in growth could be key catalyst
Stock valuations have declined over the past two years as the company failed to deliver on
growth guidance. The stock now trades at a 40% discount to its last year’s average PE multiple of
12x. The company’s valuation discount to comparable global peer, MA Industries, is at an all-time
high. We believe rating will improve as investors regain confidence in UPL’s growth prospects.
Our DCF-based price target is Rs160.
Key risks to our target price are currency and commodity price fluctuations
UPL has a complex operating model, with multiple geographies and many products that can
reduce earnings visibility, especially in case of excessive currency and commodity price volatility.
Also, it will need to integrate its Brazilian acquisitions well over the next 12 months.
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