Buy United Phosphorus - Motilal Oswal

United Phosphorus (UNTP IN; Mkt Cap USD1.8b, CMP Rs186, Buy)

United Phosphorus' 1QFY11 operating performance was in line with our expectations. The company posted EBITDA margin of 20.7% (v/s our estimate of 20.1%) and EBITDA of Rs3.08b (v/s our estimate of Rs3.15b), buoyed by lower raw material cost.

Key highlights

- Revenues declined 9.5% YoY to Rs14.9b (v/s our estimate of Rs15.7b), following just 2% volume growth, 7% realization decline, and 7% forex impact.

- Gross margin expanded 300bp YoY to 38%, benefiting from lower raw material cost. EBITDA margin improved 160bp YoY (~10bp QoQ) to 20.7%.

- MTM forex loss of Rs500m restricted PAT at Rs1.42b (v/s our estimate of Rs1.57b).

- The management guided robust FY11 performance, with 10-15% revenue growth (8-10% organic, assuming no realization change), EBITDA margin of 21% and PBT growth of 25%.

Valuation and view: We expect gradual improvement in the business environment for the agro-chemical industry from 1QFY11. While long-term outlook remains positive, United Phosphorus will also derive integration benefits from Cerexagri in the short-term. We maintain our EPS estimates of Rs15.8 for FY11 and Rs18.7 for FY12. Valuations at 11.4x FY11E and 9.6x FY12E EPS (fully diluted), do not adequately reflect the growth potential (both organic and inorganic) for the company. We maintain Buy with target price of Rs225 (~12x FY12E EPS).

Source : Equity Bulls

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