Buy United Phosphorus; target Rs 213: Motilal Oswal

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Buy United Phosphorus; target Rs 213: Motilal Oswal

Motilal Oswal is bullish on United Phosphorus (UNTP) and has recommended buy rating on the stock with a target of Rs 213 in its July 30, 2011 research report.

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Motilal Oswal is bullish on United Phosphorus (UNTP) and has recommended buy rating on the stock with a target of Rs 213 in its July 30, 2011 research report.

"United Phosphorus (UNTP) has reported in-line operating performance for 1QFY12, with EBITDA at INR3.67b v/s our estimate of INR3.72b. However, RM cost push resulted in lower than estimated EBITDA margin. Revenue grew 27% to INR18.8b (v/s our estimate of INR17.6b), driven by 25% volume growth and 1% favorable pricing. Revenue growth was strong across regions, except EU, which witnessed just 6% growth. Gross margin declined 220bp YoY to 35.4%, impacted by higher RM cost. However, higher operating leverage diluted the impact of RM cost push, resulting in ~120bp YoY decline in EBITDA margin to 19.5% (v/s our estimate of 21.2%). Higher depreciation, interest and tax restricted PAT growth to 30% to INR1.84b (v/s our estimate of INR2.1b). The management expects its recent acquisition of 51% stake in DVA Agro Brasil to be transformational for its LatAm business. For FY12, it has upgraded its guidance to 25-30% revenue growth (v/s 12-14% earlier) to factor in DVA Agro acquisition (consolidation as a subsidiary), EBITDA margin of 20-21% (up to 60bp expansion) and tax rate of 17-20% (v/s 15- 17% earlier), implying PAT growth of 25-30%."

"We are downgrading our FY12 EPS estimate by 2% to INR16.4, but upgrade our FY13E EPS by 6% to INR21.3. Valuations at 10.2x FY12E and 7.8x FY13E EPS do not adequately reflect the growth potential (both organic and inorganic) for the company. Maintain Buy with a target price of INR213 (~10x FY13E EPS)," says Motilal Oswal research report.

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To read the full report click on the attachment