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United Phosphorus
Limited
Strengthens Presence in
Brazil, Acquires 51% stake in
DVA Agro Brazil ~2x P/Sales
Quick Comment – What’s new: UPL has acquired a
51% stake in DVA Agro Brazil (not listed) for US$150mn
from DVA Group, Germany; the balance will continue to
be held by existing shareholders. UPL had ~US$350mn
in cash as of Mar-11. DVA Agro Brazil (established in
C2005) produces, markets, sells and distributes crop
protection products and specialties in Brazil.
Financials and Valuation: DVA Agro Brazil reported
revenues of US$130mn for C2010, and based on our
assumption of 12% growth in C2011, the acquisition
costs were ~2x P/Sales (in line with recent transactions).
According to management, the price paid is in line with
UPL’s payback criteria of 3-4 years, and following one
full year of operations and capital infusion, EBITDA
margins will not be dilutive at the group level.
Impact on our views: The market will likely view this
positively, given: 1) reasonable valuations (~2x P/Sales)
and 2) UPL has refrained from making large-ticket
acquisitions, citing high valuations over the past three
years. UPL’s last major acquisition was Cerexagri in
F2008. The DVA Agro Brazil acquisition is a strategic
one, and now Brazil (a fast-growing crop protection
market) will be a large contributor to the top line for UPL,
~12% for F2012e, in our view. Brazil is a high working
capital intensive model for crop-protection companies,
and given that a large portion of the proceeds should be
infused in the company, we would expect a reduction in
debt and interest savings thereon. Near-term macro and
weather for crop protection in Latam remains favorable.
Interestingly, Syngenta recently in its in Q2C11 results
cited improved pricing environment in Latam overall.
Investment thesis: We see the risk-reward balance on
UPL as the most attractive among the Indian agri plays.
High crop commodity prices, high farm incomes, rising
input costs and valuations are likely key catalysts.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
United Phosphorus
Limited
Strengthens Presence in
Brazil, Acquires 51% stake in
DVA Agro Brazil ~2x P/Sales
Quick Comment – What’s new: UPL has acquired a
51% stake in DVA Agro Brazil (not listed) for US$150mn
from DVA Group, Germany; the balance will continue to
be held by existing shareholders. UPL had ~US$350mn
in cash as of Mar-11. DVA Agro Brazil (established in
C2005) produces, markets, sells and distributes crop
protection products and specialties in Brazil.
Financials and Valuation: DVA Agro Brazil reported
revenues of US$130mn for C2010, and based on our
assumption of 12% growth in C2011, the acquisition
costs were ~2x P/Sales (in line with recent transactions).
According to management, the price paid is in line with
UPL’s payback criteria of 3-4 years, and following one
full year of operations and capital infusion, EBITDA
margins will not be dilutive at the group level.
Impact on our views: The market will likely view this
positively, given: 1) reasonable valuations (~2x P/Sales)
and 2) UPL has refrained from making large-ticket
acquisitions, citing high valuations over the past three
years. UPL’s last major acquisition was Cerexagri in
F2008. The DVA Agro Brazil acquisition is a strategic
one, and now Brazil (a fast-growing crop protection
market) will be a large contributor to the top line for UPL,
~12% for F2012e, in our view. Brazil is a high working
capital intensive model for crop-protection companies,
and given that a large portion of the proceeds should be
infused in the company, we would expect a reduction in
debt and interest savings thereon. Near-term macro and
weather for crop protection in Latam remains favorable.
Interestingly, Syngenta recently in its in Q2C11 results
cited improved pricing environment in Latam overall.
Investment thesis: We see the risk-reward balance on
UPL as the most attractive among the Indian agri plays.
High crop commodity prices, high farm incomes, rising
input costs and valuations are likely key catalysts.
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