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United Phosphorous – Q2 Negative Surprise

October 27, 2009

United Phosphorus reported PAT of Rs1.02bn, 35% below Bloomberg consensus estimates, primarily due to 12%/2% declines in revenue in the US and Europe on account of adverse weather conditions. EBITDA margins declined by 200bps, reflecting inability to retain savings from a decline in raw material prices. However, continued to derive revenue growth of 12% from the rest of the world (constitutes about 25% of total sales). Management guided for revenue growth of 10% and EBITDA margins of 19% for FY10E.

The crop protection demand environment (particularly in the US and Europe) should continue to remain uncertain in the near term, Analysts expect company to register a 20% EPS CAGR over FY09-11E on account of volume growth, primarily from – fresh registrations and launch of new products in new geographies, and increase in usage intensity of crop protection products.

United Phosphorous is expected to report an ePS of rs 12.5 and Rs 17 for fy10 and fy11 respectively.

HOLD or ADD the STOCK for a potential Target of Rs 200 within the next12 months.

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