2QFY2013 Result Update | Agrichemical

October 23, 2012

United Phosphorus
Performance Highlights
Y/E March (` cr) Net sales Other income Gross profit Operating profit Net profit 2QFY2013 1,802 80 862 272 120 1QFY2013 2180 69 1039 353 203 % chg (qoq) (17.4) 0.0 (17.0) (22.8) (41.0) 2QFY2012 1721 75 943 256 68 % chg (yoy) 4.7 6.7 (8.6) 6.5 76.0

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Agrichemical 5,390 1,677 0.7 169/105 164597 2 18,710 5,691 UNPO.BO UNTP@IN

`124 `170
12 Months

Source: Company, Angel Research

For 2QFY2013, United Phosphoruss (UPL) revenue grew by 4.7% yoy to `1,802cr and net PAT grew by 76.0% to `120cr. The management has maintained its positive revenue guidance of 15% for FY2013 and OPM guidance at 18-20%. In spite of factoring in conservative numbers, the stock is quoting at an attractive valuation of 7.0x FY2014E EPS; hence, we maintain our Buy rating on the stock. Robust net profit growth: UPL reported consolidated revenues of `2,180cr, registering a growth of 4.7% yoy. Volumes contracted 2%, the price increased by 5% while the balance 2% was contributed by a favorable impact of exchange. On the operating front, the company reported a flat EBITDA margin at 15.1%, (14.8% in 2QFY2012). However, on account of a 57.2% yoy dip in the interest expenditure, the net profits came in at Rs120cr, registering a growth of 76.0%. Outlook and valuation: We expect UPL to post a CAGR of 10.0% and 18.4% in its sales and PAT over FY2012-14, respectively. At the current valuation of 7.0x FY2014E EPS, the stock is attractively valued. Hence, we maintain our Buy recommendation on the stock with a revised target price of `170.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 28.0 25.0 38.2 8.8

Abs. (%) Sensex UPL

3m 10.9

1yr 11.5

3yr 11.3

(2.5) (17.3) (24.8)

Key financials (Consolidated)

Y/E March (` cr) Total revenue % chg Adj. profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

FY2011 5,805 7.3 552 0.6 19.3 12.0 9.9 1.5 16.4 16.7 1.2 6.1

FY2012E 7,655 31.9 561 1.6 16.5 12.2 9.7 1.3 14.2 16.1 1.0 6.2

FY2013E 8,421 10.0 695 23.8 16.5 15.0 7.9 1.2 15.6 15.0 0.9 5.2

FY2014E 9,263 10.0 787 13.2 16.5 17.0 7.0 1.0 15.5 15.3 0.7 4.4

Sarabjit Kour Nangra

+91-22-3935 7800 ext. 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

United Phosphorus | 2QFY2013 Result Update

Single digit top-line growth

UPL reported consolidated revenues of `1,802cr, registering a growth of 4.7% yoy. Volumes contracted 2%, the price increased 5% while the balance 2% was contributed by a favorable impact of exchange. According to the regions, the main growth came in from the EU where revenues increased by 22.1%. The rest of world (RoW) revenues increased by 22.1%. On the other hand, Latin America registered a 17% growth. USA and India on the other hand de-grew by 9% and 14% respectively.

Exhibit 1: Sales performance

2,400 2,100 1,800 1,500 1,721 1,872 2,119 2,180 1,802

Exhibit 2: Growth break-up

6 5 4 3
(%)

(` cr)

1,200 900 600 300 0 2QFY2012 3QFY2012 4QFY2012 1QFY2013 2QFY2013

2 1 0

(1) (2) (3)

Exchange impact Realisation

(2)
Volume

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 3: Volume and realisation break-up (yoy)

40 35 30 25 31 31

(%)

20 15 10 5 0 (5) 2QFY2012 3QFY2012 4QFY2012 1QFY2013 Realisation Volume (2) 2QFY2013 8 4 4 12 5 4 5

Source: Company, Angel Research

EBITDA margin remains steady

During 2QFY2013, UPL on the operating front, reported a flat EBITDA margin at 15.1%, (14.8% in 2QFY2012). For FY2013, the management expects an OPM of 18-20%.

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United Phosphorus | 2QFY2013 Result Update

Exhibit 4: EBITDA margin trend

20 19 18 17 16

(%)

15 14 13 12 11 10

16 15

16

16 15

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

Source: Company, Angel Research

Adj. net profit grew by 76.0% yoy

While the OPM came in flat, however, on account of a 57.2% yoy dip in the interest expenditure, the net profit came in at Rs120cr, registering a growth of 76.0% yoy.

Exhibit 5: Adjusted PAT trend

250 205 200 150 113 100 50 0 2QFY12 3QFY12 4QFY12 Adj PAT 1QFY13 % YoY 2QFY13 68 203 180 160 140 120 100 80 60 40 20 0 (20) (40)

(` cr)

Source: Company, Angel Research

October 23, 2012

(%)

120

United Phosphorus | 2QFY2013 Result Update

Investment arguments
Innovators dominant in the off-patent space Generic firms in a sweet spot
The global agrichem industry, valued at US$40bn (CY2008), is dominated by the top six innovators, viz Bayer, Syngenta, Monsanto, BASF, DuPont and Dow, which enjoy a large market share of the patented (28%) and off-patent (32%) market. Pertinently, the top six innovators also enjoy a large share of the off-patent market due to high entry barriers for pure generic players. Thus, one-third of the total pie worth US$13bn (controlled by the top six innovators through proprietary off-patent products) provides a high-growth opportunity for larger integrated generic players such as UPL.

Generic segments market share to increase

Generic players have been garnering a high market share, increasing from 32% levels in 1998 to 40% by 2006-end. The industry registered a CAGR of 3% over 1998-2006, while generic players outpaced the industry with a CAGR of 6%. Going ahead, given the opportunities and a drop in the rate of new molecule introduction by innovators, we expect generic players to continue to outpace the industrys growth and increase their market share in the overall pie. Historically, the global agrichem players have been logging growth in-line with global GDP. Going ahead, over CY2009-11E, the global economy is expected to grow by 34%. Assuming this trend plays out in terms of growth for the agrichem industry and the same rate of genericisation occurs, the agrichemical generic industry could log in 6-8% yoy growth during the period and garner a market share of 44-45%.

A global generic play

UPL figures among the top five global generic agrichemical players, with presence across major markets, including the US, EU, Latin America and India. Given the high entry barriers by way of high investments, entry of new players is also restricted. Thus, amidst this scenario and on account of having a low-cost base, we believe UPL enjoys an edge over competition and is placed in a sweet spot to leverage the upcoming opportunities in the global generic space.

October 23, 2012

United Phosphorus | 2QFY2013 Result Update

Outlook and valuation

Over the last few years, the global agriculture sector has been rejuvenating/reviving on the back of rising food prices. Food security is also a top priority for most governments; reducing food loss is one of the easiest ways to boost food inventory. Hence, we believe agrichemical companies would continue to do well in the wake of heightened food security risks, and strong demand is likely to be witnessed across the world. Overall, we expect the global agrichemical industry to perform well from here on. However, generics are expected to register a healthy growth due to a) increasing penetration and wresting market share from innovators and b) patent expiries worth US$3bn4bn (2007) over 2009-14. We estimate UPL to post a 10.0% and 18.4% CAGR in sales and PAT, respectively, over FY2012-14. The stock is trading at an attractive valuation of 7.1x FY2014E EPS. Hence, we maintain our Buy recommendation on the stock with a target price of `170.

Exhibit 6: Key assumption

FY2013E Sales growth EBITDA margin Tax rate
Source: Company, Angel Research

FY2014E 10.0 16.5 20.0

10.0 16.5 20.0

Exhibit 7: P/E band

300 250 200 150 100 50 0

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

9.0x
Source: Company, Angel Research

11.0x

13.0x

15.0x

17.0x

October 23, 2012

Sep-12

United Phosphorus | 2QFY2013 Result Update

Background
United Phosphorus (UPL) is a global generic crop protection, chemicals and seeds company. The company is fully backward and forward integrated by taking advantage of the consolidation opportunities within the agrochemical industry. UPL is the largest Indian agrochemical company and has revenue of about US$1.3mn in March2011.

Profit & Loss Statement (Consolidated)

Y/E March (` cr)) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY09 4,802 129 4,931 35.4 3,987 2,451 885 479 172 945 53.2 19.7 193 752 62.0 15.2 292 42 8 502 20.8 (10) 492 27 5.5 465 20 2 27 456 466 25.3 9.7 10.6 10.6 (37.4) FY10 5,290 118 5,408 9.7 4,461 2,954 839 502 166 947 0.2 17.9 215 732 (2.6) 13.5 145 34 6 621 23.8 (23) 598 81 13.6 517 19 6 3 526 549 17.9 10.4 12.5 12.5 17.9 FY11 5,761 137 5,805 7.3 5,018 2,902 1,191 515 410 1,111 17.3 19.3 214 897 22.5 15.5 312 214 32 678 9.2 5 664 73 11.0 591 (23) 10 558 552 0.6 9.6 12.0 12.0 (4.3) FY12 7,534 121 7,655 31.9 6,288 4,058 1,267 686 277 1,246 12.2 16.5 292 1,075 19.9 14.0 415 109 14 769 13.3 18 751 128 17.0 623 (35) 5 27 556 561 1.6 7.5 12.2 12.2 1.6 FY13E 8,585 164 8,421 10.0 7,165 4,624 1,443 782 316 1,420 14.0 16.5 339 1,246 15.9 14.8 422 109 12 933 21.3 933 187 20.0 746 (37) 5 9 695 695 23.8 8.1 15.0 15.0 23.8 FY14E 9,427 164 9,263 10.0 7,868 5,078 1,585 858 347 1,559 9.8 16.5 360 1,364 9.5 14.7 422 109 10 1,051 12.7 1,051 210 20.0 841 (40) 5 9 787 787 13.2 8.3 17.0 17.0 13.2

October 23, 2012

United Phosphorus | 2QFY2013 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Other Long term liabilities Long Term Provisions Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill / Intangilbles Investments Long Term Loan & Adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Others Total Assets 3,302 2,049 1,252 124 473 433 4,117 554 738 2,825 1,623 2,494 4,777 3,210 1,920 1,290 41 482 761 4,324 1,578 469 2,277 1,462 2,863 5,437 3,947 2,174 1,773 57 548 823 220 4,777 700 587 3,490 2,890 1,886 5,307 4,687 2,605 2,082 306 1,141 795 259 5,671 1,566 326 3,780 2,240 3,432 8,014 4,987 2,944 2,043 306 1,141 795 295 6,568 1,890 371 4,307 2,550 4,019 8,598 5,287 3,303 1,983 306 1,141 795 324 7,528 2,391 408 4,729 2,802 4,726 9,274 88 2,585 2,673 10 2,134 (40) 4,777 88 2,904 2,992 14 2,419 11 5,437 92 3,634 3,726 18 1,497 (8) 5,307 92 4,081 4,173 250 3,245 301 51 (6) 8,014 92 4,660 4,752 255 3,245 301 51 (6) 8,598 92 5,331 5,423 260 3,245 301 51 (6) 9,274 FY09 FY10 FY11 FY12 FY13E FY14E

October 23, 2012

United Phosphorus | 2QFY2013 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and adv. Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY09 492 193 (924) (83) (322) (414) (36) (450) (480) (51) 1,148 617 (155) 709 554 FY10 598 215 655 (81) 1,387 175 (328) (153) (285) (77) 152 (210) 1,024 554 1,578 FY11 664 214 99 (73) 904 (753) (62) (815) 312 922 (103) (455) 676 (878) 1,578 700 FY12 751 292 (680) (128) 235 (989) 29 (961) 1,747 (116) (41) 1,591 866 700 1,566 FY13E 933 339 (263) (187) 822 (300) (300) (116) (83) (198) 324 1,566 1,890 FY14E 1,051 360 (206) (210) 994 (300) (300) (116) (77) (193) 501 1,890 2,391

October 23, 2012

United Phosphorus | 2QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WCcycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.6 1.6 2.6 0.2 0.6 5.0 (0.0) (0.0) 2.9 0.2 0.7 2.6 0.1 0.4 3.0 0.0 0.0 3.2 1.6 103 77 84 112 1.7 91 85 80 111 1.6 76 87 96 78 1.8 78 79 66 74 1.7 87 87 70 85 1.8 89 89 71 86 17.4 20.1 19.0 14.3 23.4 19.4 16.7 19.2 16.4 16.1 22.8 14.2 15.0 21.5 15.6 15.3 22.7 15.5 15.2 94.5 1.5 21.8 8.1 0.5 28.9 13.5 86.4 1.5 18.0 5.9 0.4 22.4 15.5 89.0 1.5 20.2 14.2 0.3 21.8 14.0 83.0 1.6 18.6 14.5 0.4 20.1 14.8 80.0 1.5 17.6 10.4 0.4 20.2 14.7 80.0 1.6 18.5 10.4 0.4 21.6 10.6 10.6 15.0 1.5 60.8 12.5 12.5 17.4 2.0 68.1 12.0 12.0 16.6 2.0 81.2 12.2 12.2 18.5 2.5 90.4 15.0 15.0 22.4 2.5 102.9 17.0 17.0 24.8 2.5 117.4 11.2 7.9 1.9 1.3 1.7 8.4 1.7 9.5 6.8 1.7 1.7 1.3 7.2 1.3 9.9 7.1 1.5 1.7 1.2 6.1 1.3 9.7 6.4 1.3 2.1 1.0 6.2 1.0 7.9 5.3 1.2 2.1 0.9 5.2 0.9 7.0 4.8 1.0 2.1 0.7 4.4 0.7 FY09 FY10 FY11 FY12 FY13E FY14E

October 23, 2012

United Phosphorus | 2QFY2013 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

UPL No Yes No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

October 23, 2012

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