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United Phosphorus Concerns Overdone – Citi

April 9, 2009

Besides good results, management speak from global peers indicate that farm economics and demand are sound across markets, with the exception of some LatAm countries. The outlook for the next fiscal is strong in most cases and concurs with our positive view on UPL’s business.

UPL has a steady B/S, with net D/E of 0.6x, low refinancing risk (most debt redeemable in 2011) and rising cash flows. As asset valuations come off, we believe UPL is one of the few players positioned to be an active participant in any industry consolidation.

UPL’s valuations do not reflect its strong fundamentals due to overplayed concerns on industry growth and pricing prospects.

UPL is among the fastest growing and most profitable generics crop protection firms in the world. Its presence in regulated markets and low cost manufacturing base in India give it a competitive edge, while growing scale and cash flows provide the ability to seed growth. At 7xFY10E earnings, the stock appears very attractive in light of the 30% EPS CAGR (FY08-11E).

Citi has set a target price of Rs 180 on the stock.

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