Month: September 2007

Exclusive: UBS Investment Research has initiated coverage on United Phosphorus Ltd [UPL] with a BUY recommendation and a price target of Rs 425.

UPL is emerging as a strong global agrisciences major with its recent acquisition of Cerexagri’s crop protection business and Advanta’s seed business. Following the acquisitions, UPL is the 3rd largest generic crop chemical and 12th largest crop protection company globally.

UPL has grown revenues at a 28% CAGR and net income at a 36% CAGR over FY04-07, through value accretive acquisitions. Other large generic companies such as Nufarm and MA Industries have adopted similar routes. Cerexagri, accounting for c30% of revenues, will be the primary earnings driver over the next two years. Integration of Cerexagri and continued strong growth in Europe and the rest of the world will drive a 30% revenue CAGR over FY07-09, EBITDA margins to expand from 21.3% to 21.8%, and interest costs to decline, driving a 35% CAGR in net income. Advanta is modelled separately and added to UPL’s share to net income.

UPL has underperformed for over 18 months and trades at a 15-20% discount to other generics and to its historic multiples. Successful integration of new acquisitions will drive outperformance. Target of Rs425 includes Rs392 as a DCF of standalone UPL, and Rs33 for UPL’s holding in Advanta.

DalalStreet Analyst Comments:
We back the views of UBS and believe UPL has worthy of investment for value investors.

Crompton Greaves (CGL) is mainly concentrating in Power Systems, Industrial Systems and Consumer Products and Digital business. CGL is engaged in manufacture, distribution and sale of electrical and electronic equipment/systems.

Positive Triggers

• From FY09 onwards, international business is likely to take the lead in growth given higher margin improvement potential
• Microsol acquisition would increase CGL’s strengths in the area of high-end engineering and sub-station automation capabilities. CGL has acquired three international companies. In all three cases the acquisitions did not involve large capital outlay, resulted in addition of more products and skills and helped increased production capacity.
• The Government of India (GoI) has set a goal of “Power for All” by FY2012E. Investments in infrastructure, particularly in the power generation, and transmission & distribution (T&D) segments, are estimated to be at Rs 1400 billion for T&D alone in the XIth Plan (FY07-FY12).

CGL could end FY08 with an EPS of Rs. 10.5 – 11.25. Though the stock looks steeply valued at the current market price, one could accumulate the stock in the Rs. 270-310 band for a period of 2-4 quarters.

Here is the chart of Ratings and Target stocks prices for all the banks in India. Courtesy SSKI Securities report on Indian banks.