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Buy United Phosphorus – UBS Securities

September 5, 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.

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