Accumulate United Phosp; target of Rs 172: Emkay

“United Phosphorous (UPL) lowered its FY12 revenue growth guidance to 25-30% from 35-40% given in Q3FY12. Extended winters in key markets like North America and Europe has adversely affected sales in these regions and management expects some spillover sales in Q1FY13. In 9MFY12 company has delivered 41% revenue growth with EBITDA margins of 18.3%. APAT at Rs 4.4bn however remain flat yoy during this period.”

“With current revenue growth guidance of 25-30% and EBITDA margin guidance at 19% we expect revenue growth to remain muted at -9% to 7% in Q4FY12. With pressure on margin, we expect Q4FY12 PAT to decline by 27%YoY. Muted revenue growth is despite expected currency gain of ~8% and price increase of 5-8% in Q4FY12 indicating volume degrowth of 15-20%. We have downgraded our FY12E est by 15.3% to Rs 13.6 and FY13E est by 13.8% to Rs 17.2. Current consensus estimates for FY12 factor 35% topline growth with flat bottomline growth (bloomberg est) which we expect are likely to be downgraded in line with lower guidance of the management. In Q3FY12, UPL’s organic volume growth stood at mere 6% and we expect t organic growth to remain under pressure.”

“Despite UPL’s attractive valuations at 8.3x FY13 est, we expect stock to remain laggard on concerns on organic growth and uncertain global environment. We downgrade the stock from BUY to Accumulate with revised price target of Rs 172 based on 10xFY13 est earnings of Rs17.2,” says Emkay Global Financial Services research report.  

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