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Citi Maintains BUY on United Phosphorous

December 11, 2007

United Phsophorous Ltd [UPL] indicated that it was on course to complete the restructuring and integration of Cerexagri’s French operations by the end of FY08. Besides, it intends to start this process in Spain in the next quarter. With the restructuring of US operations already complete, we expect material upside to reflect in financials from 4QFY08 and act as a key catalyst for the stock.

UPL remains upbeat on its seeds business, Advanta (49% holding), due to low penetration of hybrid seeds in India and better buying ability of farmers on back of the recent buoyancy in food prices.

Nufarm has announced that the US$2.6bn conditional takeover proposal by ChemChina has fallen through. This could bring Nufarm back into play as a potential target. In such a scenario, UPL could be one of the main bidders, especially given that it is well placed on the balance sheet front following its recent US$475m fund raising.

UPL reiterated its guidance of 15-20% top-line growth (organic) and FY09E EBIDTA margins of 22-23%. UPL is expected to report an EPS of Rs 33.8 and Rs 49.1 for FY08 and FY09 respectively. Citi sets a price target of Rs 460/share is based on 16x FY09E (16xSept’08E earlier) earnings. FY09 estimates reflect the true earnings power of UPL.

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