Sunday, July 3, 2011

United Phosphorous - Buy on declines

United Phosphorus

CMP Rs 155

Like other companies in the list, United Phosphorus has also beaten the consensus estimate with its last quarter numbers by showing a revenue growth of 20% (YoY) and net profit growth of 14%. Though the recent acquisitions (RiceCo and Mancozeb) have contributed significantly to this (contribution from these companies was around 13%), the balance 7% was through the organic route.

On a geographic scale, while its Europe sales declined by 25%, the robust performance in other parts (India up by 49%, North America up by 25% and rest of the world up by 59%) helped it to show a modest revenue growth for Q4.

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It is not just the past; analysts say that it has a bright future as well. United Phosphorus figures among the top five global generic agrichemical players (with presence across major markets, including the US, EU, Latin America and India) and, hence, should be able to benefit from the revival in the agrichemical business across the globe triggered by the rising food prices. Being a cash-rich company (with around `2,000 crore), ramping up production in its recent acquisitions won't be a major challenge.

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"The benefit of its two acquisitions will be visible in the coming years. With international product prices stabilising, the pricing power has come back to United Phosphorus," says Sageraj Bariya, analyst at Angel Broking. It is in a sweet spot in India as well, especially since the monsoon has started early and the meteorological department has predicted that it will be normal this year as well. Since the pesticide segment is free from government control, it doesn't have to bother about government intervention also.

Our Recommendation :

The stock negative returns for the investors since last 1 year and is likely to perform better in next 1 year period.

The stock has a 52 low of 125 and high of 220. This a traders delight buy on steep falls. It could take resistance around R.180 levels. Closing above 190 could take this stock to 225

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