United Phosphorus - Encouraging results; re-rating likely - Prabhudas Lilladher

Q4FY13 results turned out to be a pleasant surprise, both on the profitability as well as the balance sheet front. UPL reported adj. PAT of Rs3.1bn, 36% YoY, substantially higher than estimates. Net Working Capital days improved to 89 (compared to 113 days in FY12) driven by lower inventory held, tightening of debtors and re-negotiation of higher creditors days. We upgrade earnings by 11%/7% for FY14E/15E. Maintain ?BUY? with a revised target price of Rs185.

- EBITDA margins improve 80bps YoY/140bps QoQ in Q4FY13: UPL reported revenues of Rs28.2bn, 33% YoY (higher than est. of Rs24.5bn). Growth was driven primarily by volumes which increased 16% YoY, pricing increased by 4% YoY, while exchange contributed 12% of the growth. UPL reported EBITDA of Rs5.4bn, 39% YoY (est. of Rs4.3bn), with margins of 19.0% driven by gross margins improvement of 120bps YoY. UPL reported adjusted PAT of Rs3.1bn, 36% YoY, with EPS of Rs7.1 (tax rate is lower due to higher provisions in the earlier quarters).

- Working Capital improved to 89 days at the end of FY13 (112 days in FY12): Despite increasing contribution from Brazil & unfavorable weather conditions during FY13, net working capital improved to 89 days. Management attributed the improvement in working capital to lower inventory held, tightening of debtors, re-negotiation of higher creditors days & improvement in industry environment. Management guided that working capital is likely to remain within 90-100 days range in FY14. We have modeled for working capital days of 100/101 in FY14E/15E.

- Upgrade earnings by 11%/7% to Rs 21.2/24.1 for FY14E/15E - We have upgraded earnings by 11%/7% to Rs 21.2/24.1 for FY14E/15E. With sustainable earnings growth and improvement in return ratios, stock is likely to get re-rated. We maintain BUY with revised target TP of Rs 185 (previous Rs 170)

Source : Equity Bulls

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