United Phosphorous can go upto Rs 260-280: Rajen Shah

Rajen Shah, CIO of Angel Broking told CNBC-TV18, "If you see in January 2008 the Sensex peaked out at about 21000 level and today we are around that level, maybe about 3 percent below that level. So if you see in 5.5 years the Sensex has not delivered any returns. But if you see agriculture stocks they have smartly outperformed the market."

"Rallis India is up 200 percent in the same period, Bayer Crop is up 200 percent; Coromandel International after moving up 300 percent, is actually up point-to-point about 100 percent. But United Phosphorous is down 25 percent. It has grossly underperformed not only the Sensex, but also the agriculture stocks. And we believe that this is irrational because if you see in the same 5.5 years period the company’s sales moved up by 150 percent and the profit by 200 percent," he added.
Shah further said, "The turnover of United Phosphorous in 2008 was Rs 3,600 crore, now it is Rs 9,000 crore, so it has moved up 150 percent in this period. And the net profit was Rs 258 crore and last year it reported Rs 774 crore, so it has moved up 200 percent. But the stock is down 25 percent, so I think it is a gross irrationality and this will correct over the next 12-24 months."
"If you see on a valuation basis last year it reported about Rs 17 kind of earnings and the management in the analyst meet spoke about growing at about 13 percent for the current year. If you see United Phosphorous has been growing at 24 percent plus over the last five years, so I think it is a very conservative estimate by the management. But even if you assume a 13 percent growth and what they said was 100 bps improvement in the EBITDA margin, in that case United Phosphorous should report about Rs 20 kind of earnings and I think it deserves about 13-14 PE multiple. The reason is that Rallis trades at 14 times the current years earnings and United Phosphorous is five times bigger than Rallis."
"So I think at about 13-14 PE multiple the stock can easily go up to about Rs 260-280 levels. So that is our first target for United Phosphorous. We had spoken about this stock about six months back when the management had taken up buyback. They bought back 1.92 crore shares at an average price of Rs 116. At that time we had given a first buy call at about Rs 120 level, now it is Rs 154, still we believe there is 60-70 percent kind of upside over the next 18-24 months," Shah said.