United Phosphorus - Adverse weather killjoy; company update; Buy ::Edelweiss PDF link

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United Phosphorus (UNTP IN, INR 136, Buy)

Adverse weather conditions have delayed the start of cropping season in United Phosphorus’ (UNTP) key geographies viz Europe and the US. Management has, therefore, lowered revenue guidance for FY12 to 25-30% against 30-40% earlier. However, UNTP maintains that it will realize most of the lost sales of Q4FY12 in Q1FY13. As we are already at the lower end of the earlier revenue guidance, we have factored in only a slight cut in revenues for FY12 and FY13, while we maintain our EBITDA margin estimates; our EPS estimates are down 7% and 4% for FY12 and FY13, respectively. While lower revenue guidance is weighing on the stock price, we believe current valuations are attractive and, hence, maintain ‘BUY’ with a revised target price of INR177 (INR185 earlier).

Revenue guidance cut considerably

Extended and severe winter in Europe and parts of the US has delayed the start of the new season for UNTP. Generally, the last quarter is the strongest for UNTP in these geographies. Hence, delay in cropping is likely to hit the company hard. The management has, therefore, lowered its FY12 revenue guidance to 25-30% from 30-40% earlier, which they had been maintaining for the past two quarters. Nevertheless, the company guides for considerable spillover to Q1FY13.

Performance to be muted in Q4FY12

While UNTP’s 9mFY12 revenue surged 41%, lower revenue guidance for FY12 implies muted revenue growth for Q4FY12. At the higher end of the band, we could see Q4FY12 revenue grow 6% and at the lower end decline 10%.

Outlook and valuations: Attractive; maintain ‘BUY’

All along we have considered UNTP’s revenue growth at the lower end of the guidance (31% for FY12). Now, we have lowered it further to 27%, resulting in revenue of INR73.3bn. For FY13 too, we reduce our revenue estimate to INR83.5bn from INR84.4bn earlier. We, however, maintain our EBITDA margin estimates at 18.5% for FY12 and 19% for FY13. Further, we have lowered our EPS estimates to INR14.0 (INR15.0 earlier) and INR17.7 (INR18.5 earlier) for FY12 and FY13, respectively. Owing to attractive valuations, we maintain ‘BUY’ on UNTP, with a revised TP of INR177 at 10x FY13E EPS.

United Phosphorus - Adverse weather killjoy; company update; Buy