Emkay Global Financial Services has maintained `Buy` on United Phosphorus with a price target of Rs 200 as against the current market price (CMP) of Rs 144 in its report dated Jan. 30, 2012. The broking house gave the following rationale:
Revenue growth of 58% led by exchange impact and acquisition:
UPL reported revenues of Rs 19.3billion, +58% yoy higher than our estimates of Rs 17 billion. 19% positive impact of exchange fluctuation along with 8% price inflation drove revenue growth. Revenue contribution of Rs 3 billion from Brazilian acquisitions also contributed to topline growth while organic growth remains subdued at 6%.
North America (62% yoy growth) and RoW (91%) lead topline growth during the quarter along with pick up in Europe (31% yoy growth). Growth in India however slowed down to 15% yoy compared to 25%+ growth witnessed in domestic markets in last 3 quarters. RoW revenues of Rs 9.3 billion (+91%) are primarily led by acquisitions.
APAT below est due to higher tax and losses in joint ventures:
Consol EBITDA of Rs 3.5 billion, +57% yoy, is higher than est of Rs 3billion driven by higher topline. However EBITDA margins at 18.1% was broadly in line with est. Currency fluctuation adversely affected employee cost (increased by 50% yoy/29% qoq to Rs 1.9 billion) and tax outgo (effective tax rate increased to 33% as against 20-25%). Repricing of income statement and higher profit from India driven by amalgamation of its Mauritius entity adversely affected tax provisioning however the same is likely to reverse with appreciation in INR. JV in Brazil - SIPchem also reported losses of Rs 120 mn as a result APAT at Rs 1.15 billion (+4%yoy) was below our est of Rs 1.5 billion.
Domestic markets growth slowed down to 15% yoy in Q3:
UPL’s domestic growth slowed down to 15% yoy compared to 25%+ growth witnessed in domestic markets in previous 3 quarters. As highlighted earlier, we expect domestic markets to remain under pressure in the near term due to declining farm incomes and shrinking farm profitability. However, slowdown in domestic rural markets is likely to have a limited impact on UPL due to lower share (20-25%) from Indian markets.
Downgrade FY12/FY13 est and target price, maintain Buy:
Management maintained its guidance of 35%-40% topline growth for FY12 with EBITDA margins of 19-20%. However despite higher topline growth with lower PAT in current quarter and pressure on margins we have downgraded our FY12/FY13 est by 10%/7% to Rs 16 / 19.9. Subsequently we have also reduced our price target from Rs 215 to Rs 200 (10x FY13 est EPS) however maintain Buy on attractive valuations. At CMP stock is trading at 7.2x 1year fwd earnings, compared to average of 13x enjoyed historically.
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