Prefer Chambal over Coromandel & UPL over Rallis

December 28, 2011

Decline in food grain prices (refer to our report on Rural

CMP 75 278 125 75 355 313 122 132 TP 98 286 250 135 530 400 120 215

Company Chambal Coromandel Deepak GNFC GSFC Tata Chem Rallis UPL

Reco Accu Hold Buy Buy Accu Accu Hold Buy

steroid is ebbing) have affected farmers profitability and is likely to put pressure on agri input consumption
We believe that complex fertiliser players will be affected

more than the urea players while in agro chemicals domestic players will face severe impact than exports based players

We prefer Chambal fertiliser (urea base player) over

Coromandel (complex fertiliser base) and United Phosphorous (Agrochem exports) over Rallis India (domestic focus)
Downgrade earnings and target price for Rallis India and

Source: Emkay Research

Coromandel, maintain for Chambal and United Phosphorous

Complex fertiliser based players to be affected more than urea, Prefer Chambal fertiliser over Coromandel
Growth moderation in agri input consumption may have adverse impact on fertiliser consumption also (as witnessed in FY03, kindly refer to chart on next page). However domestic urea production is unlikely to be affected due to drop in demand (if any) since imports contribute ~23% total urea consumption and any reduction in demand is likely to reduce imports while keeping the domestic production intact. Complex fertilisers have been brought under NBS and companies have increased prices significantly to pass on higher input cost. However contraction in fertiliser demand may put pressure on complex fertiliser manufacturers and squeeze companies margins. As a result we prefer urea based players like Chambal Fertiliser over complex fertiliser players like Coromandel International.

Agrochemicals - export based players to benefit while domestic players may see demand pressure, prefer UPL over Rallis
Projecting a weak demand environment for agri input, we expect pesticide consumption to come under pressure and companies may also see contraction in margins. Exports oriented players may benefit from buoyant global demand environment and currency depreciation. Under the current circumstances, we prefer United Phosphorous which is largely a global player since India account for <25% of total revenues and profits over Rallis India (where exports contribution is ~30%).

Earnings and valuations to take a hit, downgrade Coromandel & Rallis

Affected by weak demand outlook and margin pressure in near future, we are reducing our earnings estimates for Coromandel and Rallis and subsequently downgrade these stocks from BUY to Hold. Though strong balance sheet (cash surplus) and higher RoE (28%+) are key strengths of these companies but we expect earnings multiple to contract owing to deceleration in earnings growth. Also we expect that the premium multiple which these stocks were enjoying over the peers is likely to come down.
Reco Rohan Gupta rohan.gupta@emkayglobal.com +91 22 6612 1248 Balwindar Singh balwindar.singh@emkayglobal.com +91 22 6612 1272 Company Coromandel Int'l* Rallis India Chambal fert UPL New Hold Hold Accu Buy Old Buy Buy Accu Buy Target Price (Rs) New 286 120 98 215 Old 435 197 98 215 EPS FY12 22.6 7.0 9.0 17.8 FY13 24.7 8.5 8.9 21.4 % chg EPS FY12 -14% -13% NA NA FY13 -24% -22% NA NA FY13 Target PE multiple New 11.0x 14.0x 11.0x 10.0x Old 13.5x 18.0x 11.0x 10.0x

Note- Coromandel's revised target price includes Rs 15 for bonus debenture

Emkay Global Financial Services Ltd

Sector Update

Agri Sector Update

Agri Sector

Sector Update

Agri impact Fertiliser

Fertiliser volumes may come under pressure as historical evidences indicate drop in fertiliser consumption
Moderation in rural growth and squeezed purchasing power of the farmers may have adverse impact on fertiliser consumption. Though fertiliser consumption may not decline sharply but historical evidence suggests that fertiliser volumes contracted in FY03. Urea consumption declined by 7% yoy while DAP declined by 11% owing to slower agri demand. Fertiliser volumes
(mn tonnes) Urea Capacity Production Consumption Imports % yoy DAP Capacity Production Consumption Imports % yoy Complex Capacity Production Consumption SSP Capacity Production Consumption MoP Capacity Production Consumption Imports Total Capacity Production Consumption Imports 39.8 31.5 35.7 4.0 39.8 31.1 33.3 3.1 39.5 30.8 34.6 3.5 39.7 33.1 37.4 4.7 41.0 34.3 41.2 9.1 41.2 35.3 44.0 11.0 41.8 32.1 45.3 14.1 43.2 32.3 49.6 17.5 44.3 36.5 52.6 15.9 44.3 34.8 56.4 17.5 2.0 2.8 1.9 2.6 1.8 2.6 2.4 3.4 2.7 4.6 2.6 3.4 2.9 4.4 4.1 5.7 4.6 5.3 3.9 3.9 7.7 2.5 2.6 6.5 2.4 2.5 6.1 2.5 2.5 6.1 2.5 2.5 6.7 2.8 2.8 6.9 3.0 2.9 7.5 2.2 2.3 7.7 2.5 2.6 8.0 3.1 2.7 8.0 2.2 3.0 5.2 4.9 5.0 5.2 4.9 4.9 5.3 4.5 4.8 5.7 5.3 5.5 6.3 6.8 6.7 6.3 7.3 6.8 6.3 5.8 6.7 7.1 6.9 7.0 7.1 8.1 8.2 7.1 8.1 11.2 6.1 5.1 6.2 0.9 7.3 5.2 5.5 0.4 -11% 7.3 4.7 5.6 0.7 3% 7.1 5.2 6.3 0.6 11% 7.0 4.7 6.8 2.4 8% 7.0 4.7 7.4 2.9 9% 7.0 4.2 7.5 2.7 2% 7.0 3.0 9.2 6.2 23% 7.0 4.2 10.5 5.4 14% 7.0 3.6 11.2 7.5 7% 20.8 19.0 19.9 0.2 20.7 18.6 18.5 0.1 -7% 20.8 19.0 19.8 0.1 7% 20.8 20.2 20.7 0.6 5% 21.0 20.1 22.3 2.1 8% 21.0 20.3 24.3 4.7 9% 21.0 19.8 26.0 6.9 7% 21.3 19.9 26.6 5.7 3% 22.2 21.1 26.7 5.2 0% 22.2 21.0 27.1 6.1 2% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11

Source: CRISIL, Ministry of Fertilisers, Emkay Research

Decline in fertiliser consumption adversely affected industry profitability

Historical data indicates that decline in fertiliser consumption has adversely affected companies profitability in FY03. Aggregate revenues (based on 10 leading fertiliser companies) of the industry declined by 3% in FY03 while EBITDA margins crashed by 700 bps and industry incurred losses in FY03.

Emkay Research

28 December 2011

Agri Sector Aggregate revenue & revenue growth

600 500 Rs bn 400 300 200 100 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Aggregate revenues declined in FY03 100% 80% 60% 40% 20% 0% -20% -40%

Sector Update Aggregate EBITDA & PAT margins

20% 15% 10% 5% 0% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 -5% FY11 30% 25% 20% 15% 10% 5% 0% FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Consumption Imports as a % of consumption Margins collapsed and companies incurred losses

Revenues
Source: Capitaline,, Emkay Research

Revenue grow th

EBITDA Margin

PAT Margins

Despite weak fertiliser demand, domestic urea production to remain unaffected

Despite sluggish demand environment domestic urea production is unlikely to be affected due to sharp increase in imports. Over a period of time, urea consumption has increased from 19.9 mn mt in FY02 to 27.1 mn mt by FY11 while urea domestic production has remained stable with marginal increase of 2.1 mn mt over the same period mainly due to lack of any fresh investment in new capacity. As a result, urea imports have increased from mere 0.1 mn mt (1% of total consumption) in FY02 to 6 mn mt by FY11 (comprising of 23% of total consumption). We believe that any decline in urea consumption will reduce imports while keeping domestic urea production intact. We also highlight that cost of domestically produced urea is significantly lower than the imported urea and hence any drop in urea consumption will reduce imports first. Urea consumption vs Import of Urea as a % of total urea consumption
30 25 mn mt 20 15 10 5

Urea imports comprises of 23% of total urea consumption. Any decline in consumption is likely to reduce imports

Source: CRISIL, Ministry of Fertilisers, Emkay Research

. Complex fertiliser volumes may have adverse impact

Growing consumption of DAP from 6.2 mn mt in FY02 to 11.2 mn mt by FY11 has also increased dependency on imported DAP from 7% in FY03 to 67% by FY11 due to lower domestic availability of raw material. Sluggish demand for DAP may reduce imports of DAP however unlike urea (where cost of domestic production of urea is significantly lower) domestic DAP production may also come under pressure since prices are linked with imported prices. Demand for complex fertiliser is primarily met domestically and any slow down in demand is likely to have adverse impact on domestic production. Companies with higher dependency on complex fertiliser are likely to be most affected in case of weak demand.

Emkay Research

28 December 2011

Agri Sector Urea and complex fertiliser market share by sales volume
Urea Chambal 6% 1% NA NA 2% 1% 8% 3% 1% DAP 4% 5% NA NA NA 6% 2% 4% 6% MoP 3% 4% 2% 1% NA NA 4% 6% 11%

Sector Update

Complex 0% 19% 1% 8% 1% 5% 1% 3% 5%

Coromandel is a proxy complex fertilizer player with 19% market share in NPK fertilisers

Coromandel Deepak FACT GNFC GSFC Nagarjuna Fert & Chem Tata Chem Zuari Industries

Source: Ministry of Fertilisers, Capitaline, , Emkay Research

Revenue contribution from urea, non urea fertilizer

As a % of consol revs FY11 Urea Chambal Coromandel Deepak FACT 43% 0% 0% 0% 53% 5% 65% 10% 9% Non urea 28% 88% 32% 75% 0% 65% 25% 0% 91% Others 29% 12% 68% 25% 47% 31% 10% 90% 0%

Chambal remains urea centric player with 43% of urea contribution to total revenues

GNFC GSFC Nagarjuna Fert & Chem Tata Chem Zuari Industries

Source: Ministry of Fertilisers, Capitaline, , Emkay Research

Valuations- Coromandel has witnessed re-rating in multiples in last 2 years

Historically, Coromandel has always commanded lower multiple than Chambal. However, leading to the introduction of NBS, Coromandel has defied the traditional trend and witnessed re-ratings in multiples and traded at a premium to Chambal. While Coromandel traded at an average PE multiple of 5x during FY06-09, multiples expanded to >10x after that. Currently, Coromandel is trading at 12x fwd earnings estimates. On the other hand, Chambal Fertilisers has traded in the PE band of 6x-17x with an average of 9.5x during FY06-11 based on 1 year forward earnings estimates. We expect Coromandels premium to contract due to pressure on earnings .
1 yr fwd PE band 1 yr fwd EV/EBITDA band

18x 16x 14x 12x 10x 8x 6x 4x 2x Aug-06

Coromandels avg multiple was 5x

12x 10x 8x 6x
Multiples expanded to >10x
C

4x 2x Feb-07 Feb-08 Feb-09 Feb-10 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Feb-11 Aug-11

Feb-07

Feb-08

Feb-09

Feb-10

Aug-07

Aug-08

Aug-09

Aug-10

Feb-11

Chambal
Source: Bloomberg, Emkay Research

Coromandel

Aug-11

Chambal

Coromandel

. Prefer Chambal fertiliser over Coromandel International

Historically fertiliser companies have witnessed pressure on profitability (as discussed above) in weak demand scenario. We believe that Chambal fertiliser is likely to be least affected due to its higher dependency on urea while Coromandel fertiliser is likely to be most affected due to its dependency on complex fertiliser.

Emkay Research

28 December 2011

Agri Sector

Sector Update

Agri impact Agrochemicals

Agro chemical sector benefited significantly in previous five years and reported robust growth
Improved farmers profitability led to strong demand for agrochemicals resulting into strong topline & bottomline growth Agrochemical industry has witnessed steep revenue growth in past 10 years with revenue growth of 13% CAGR while growth has been higher in past 5 years with revenue CAGR of 20% (FY06-11) as against mere 5% CAGR (FY01-06) driven by improved farmers profitability. Increase in farming profit margins have improved cash flows of the farmers and improved affordability for crop protection. Improved farm dynamics has also facilitated improvement in EBITDA margins which increased from average (FY01-06) 11% to 14% (FY06-11) and profit margins from mere 2% to 7% over the same period.

Historical evidence suggest that there may be pressure if agri produce prices come under pressure
Agrochemical suffered when prices declined companies agri produce Our analysis indicates that there has been pressure on growth and profit margins of agrochemical companies in FY03 (kindly see exhibit below) in event of decline in agri produce prices. Agrochem companies reported drop in revenues by 12% in FY03 while EBITDA margins collapsed by 500 bps resulting into aggregate loss for the industry. EBITDA and PAT margins
40% 30% 20% 10% 40 20 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 0% -10% -20% 20% 15% 10% 5% 0% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 -5% FY11 FY11

Revenue and revenue growth

100 80 Rs bn 60
Industry achieved 20% revenue CAGR from FY06-1 1 During FY01 -06, revenue CAGR was 5%

Revenues
Source: Capitaline, Emkay Research

Revenue grow th

EBITDA Margin
Source: Capitaline, Emkay Research

PAT Margins

However increased dependency on exports may facilitate some growth

Exports in agrochemicals have increased significantly at a CAGR of 27% over last ten years. As a result on aggregate level exports now contribute to 32% of aggregate revenues as against 12% in FY01. Under current scenario, exports are likely to benefit due to buoyant global demand and currency depreciation. Export as a % of aggregate revenues
40% 35% 30% 25% 20% 15% 10% 5% 0% FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Source: Capitaline, Emkay Research

Emkay Research

28 December 2011

Agri Sector Companies dependency on exports

As a % of revenues Bayer Bharat Rasayan Dhanuka Agritech Excel Crop Care Insecticide Exports 12% 30% NA 31% 0% 27% 24% 53% 44% 48% 31% Imports 23% 16% 14% 24% 15% 21% 26% 34% 49% 24% 21%

Sector Update

Exports/(Imports) -11% 15% NA 7% -15% 6% -2% 19% -5% 24% 10%

Companies with higher export component stand to gain in the current scenario

Nag. Agrichem Rallis India Sabero Organics Syngenta India UPL PI Ind
Source: Capitaline, Emkay Research

Valuations- Rallis has witnessed re-rating in multiples in last 2 years

Rallis has witnessed re-rating in multiples in last 2 years with multiples expanding to 10.5x during FY09-11 compared to 8x during FY08-09. Historically, UPL has commanded a PE multiple of 6x-20x with an average of 13x during FY06-11 however UPLs multiple has currently fallen to 6.5x.
1 yr fwd PE band 1 yr fwd EV/EBITDA band

27x 22x 17x 12x 7x 2x

Rallis has witnessed re-rating in multiples in last 2 years

14x 12x 10x 8x 6x 4x 2x Feb-07 Feb-08 Feb-09 Feb-10

C

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Feb-11

Aug-06

Aug-07

Aug-08

Aug-09

Aug-10

Rallis
Source: Bloomberg, Emkay Research

UPL

Aug-11

Rallis

UPL

Companies with higher dependency on domestic market to be impacted more, Prefer United Phosphorous over Rallis India
We believe that agrochemical players with higher dependency on domestic markets are likely to be impacted more as compared with companies having presence in exports market. Companies enjoying exports are benefiting on account of strong global growth and have also benefited from currency depreciation. We prefer United Phosphorous due to its global presence and lower contribution from India over Rallis India.

Emkay Research

28 December 2011

Aug-11

Urea business to remain buoyant

December 28, 2011

Reco Accumulate CMP Rs 75

Previous Reco Accumulate Target Price Rs 98

NA NA 4,751 15,874

Moderation in rural growth & shrinking farm profitability is

unlikely to impact domestic urea players. Any decline in urea consumption will reduce urea imports above cutoff which qualifies for IPP linked subsidy. Rupee depreciation would further augment earnings a drag to profitability. We have modeled for losses in shipping & textiles in FY12; IT business poses risk to earnings

Chambal is likely to benefit from incremental production

EPS change FY12E/13E (%) Target Price change (%) Nifty Sensex

However, unrelated diversification in shipping, textiles & IT is

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

1M

3M

6M 12M (1) 15 (11) 12

Chambal has traded in the PE band of 6-17x with an average

(14) (22) (14) (20)

of 9.5x. Valuations remain comfortable at 8.5x fwd estimates. Maintain Accumulate with target of Rs 98

Urea players unlikely to be hit in the current scenario; rupee depreciation to benefit IPP linked production
% 70

Relative Price Chart

125 Rs 112 52

99

34

86

16

73

-2

60 Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

-20 Dec-11

Chambal Fertilisers is one of the leading players in the domestic urea space comprising of 1.85mn mt of installed capacity with 8% domestic market share (by capacity). As discussed above in the report any moderation in demand growth is unlikely to have any impact on domestic urea production hence keeping the companys earnings intact. Chambal being a proxy to urea players, since 80% of profits is contributed by urea, is likely to witness stable earnings. On the contrary it may surprise on positive side due to benefit from rupee depreciation having favourable impact on IPP linked production.

Chambal Fertilisers (LHS)

Rel to Nifty (RHS)

However, unrelated diversification in shipping, textiles & IT is a drag

Chambals unrelated diversification in shipping, textiles & IT business is a drag to the companys profitability and has always weighed on investors sentiments. Out of Chambals six vessels, only 1 vessel is currently under long term contract while the remaining 5 ships are operating on spot rates. Textiles business is also under pressure due to decline in cotton prices resulting into inventory losses. We believe shipping & textiles are likely to remain laggard in the current scenario and have modeled for losses in both these segments for FY12. IT business is also likely to post losses in FY12 creating further pressure on bottomline.

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn) Agri Input & Chemicals CHMB@IN 4162 10 416 119/66 31/585 2980861 5.1

Valuations remain comfortable; Earnings might surprise in Q4 due to higher IPP linked production;
Historically, Chambal Fertilisers has traded in the PE band of 6x-17x with an average of 9.5x during FY06-11 based on 1 year forward earnings estimates. Valuations remain comfortable in the current scenario with the stock quoting at 8.5x currently. Earnings are likely to surprise in Q4 due to higher IPP linked production coupled with incremental gain from rupee depreciation. Further, any positive news flow related to implementation of NBS in urea is likely to be a positive trigger. However continued pressure on companys other businesses (textiles, shipping and IT) and huge debt Rs 25bn on balance sheet leading to M-t-M loss are key concerns. We maintain our Accumulate rating on the stock with price target of Rs 98. Financial Snapshot
YEMar Net Sales 36,004 46,808 51,311 51,470 EBITDA (Core) 6,842 7,482 8,178 8,031 (%) 19.0 16.0 15.9 15.6 APAT 2,724 3,101 3,725 3,688 EPS (Rs) 6.5 7.4 9.0 8.9 EPS % chg 22.8 13.8 20.1 (1.0) RoE (%) 20.8 20.6 20.6 17.4 P/E 11.5 10.1 8.4 8.5 EV/ EBITDA 7.8 6.6 5.4 4.7 P/BV 2.3 1.9 1.6 1.4

Shareholding Pattern (%)

Sep-11 Jun-11 Mar-11 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

55.1 9.6 13.2 3.4 18.8

55.1 7.0 12.7 4.1 21.2

55.1 6.7 12.0 4.7 21.5

Rs Mn

Rohan Gupta rohan.gupta@emkayglobal.com +91 22 6612 1248 Balwindar Singh balwindar.singh@emkayglobal.com +91 22 6612 1272

FY10 FY11 FY12E FY13E

Emkay Global Financial Services Ltd

Company Update

Chambal Fertilisers

Chambal Fertilisers

Sector Update

Key Financials
Income Statement
Y/E, Mar (Rs. mn) Net Sales Growth (%) Expenditure Materials Consumed Power & Fuel Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adjusted PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY10 36,004 (21.7) 29,162 17508 5588 986 5,080 6,842 24.5 19.0 2,576 4,266 11.8 407 852 3,821 1,098 28.7 2,724 22.8 7.6 2,724 (233) 2,490 2,724 22.8 FY11 46,808 30.0 39,326 25025 6425 1,145 6,731 7,482 9.4 16.0 2,679 4,802 10.3 474 1,020 4,257 1,156 27.2 3,101 13.8 6.6 3,101 151 3,252 3,101 13.8 FY12E 51,311 9.6 43,132 25142 8210 1,203 8,578 8,178 9.3 15.9 2,680 5,499 10.7 657 983 5,173 1,448 28.0 3,725 20.1 7.3 3,725 3,725 3,725 20.1 FY13E 51,470 0.3 43,439 25220 8235 1,263 8,720 8,031 (1.8) 15.6 2,680 5,352 10.4 618 848 5,122 1,434 28.0 3,688 (1.0) 7.2 3,688 3,688 3,688 (1.0) Gross Block Less: Depreciation Net block Capital work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets 49,734 20,455 29,278 479 4,172 12,597 2,433 5,585 300 854 3,425 4,011 2,277 1,734 8,586 42,515 49,576 22,818 26,758 683 4,006 16,039 4,024 5,897 2,618 1,589 1,910 4,403 2,636 1,767 11,636 43,083 50,284 25,498 24,786 25 4,006 22,513 4,498 9,137 5,171 1,796 1,910 7,602 4,217 3,384 14,911 43,728 50,334 28,178 22,156 25 4,006 25,843 4,512 9,166 8,453 1,801 1,910 8,589 4,230 4,358 17,255 43,442

Balance Sheet
Y/E, Mar (Rs. mn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities FY10 4,162 9,738 13,901 19,961 6,199 26,160 2,455 42,515 FY11 4,162 12,071 16,233 14,453 10,385 24,838 2,012 43,083 FY12E 4,162 15,716 19,878 11,453 10,385 21,838 2,012 43,728 8,453 10,385 18,838 2,012 43,442 FY13E 4,162 18,430 22,592

Cash Flow
Y/E, Mar (Rs. mn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY10 3,821 2,576 852 1,260 (6,784) -1,084 640 (3,085) -2,444 316 2,978 3,294 (852) (974) 0 0 -1,825 -975 1,275 300 FY11 4,257 2,679 1,020 (517) (731) -1,601 5,106 (659) 4,447 419 (603) -184 (1,020) (925) 0 0 -1,945 2,318 300 2,618 FY12E 5,173 2,680 983 895 (723) -1,448 7,559 (50) 7,509 0 (3,000) (983) (974) 0 0 -4,957 2,553 2,618 5,171 FY13E 5,122 2,680 848 939 -1,434 8,154 (50) 8,104 0 (3,000) (848) (974) 0 0 -4,822 3,283 5,171 8,453

Key Ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 1.6 3.2 58 1.1 2.4 57 0.6 1.5 67 0.3 0.8 67 11.5 5.9 2.3 1.5 7.8 2.7 10.1 5.4 1.9 1.1 6.6 2.5 8.4 4.9 1.6 0.9 5.4 2.7 8.5 4.9 1.4 0.7 4.7 2.7 6.5 12.7 33.4 2.0 7.4 13.9 39.0 1.9 9.0 15.4 47.8 2.0 8.9 15.3 54.3 2.0 19.0 7.6 11.0 20.8 12.2 16.0 6.6 12.0 20.6 12.7 15.9 7.3 14.2 20.6 15.6 15.6 7.2 13.7 17.4 16.3 FY10 FY11 FY12E FY13E

Emkay Research

28 December 2011

Proxy complex fertiliser play - Downgrade to Hold

December 28, 2011

Coromandel being proxy to complex fertiliser is likely to Previous Reco Buy Target Price Rs 286
-14/-24 -34 4,751 15,874

Reco Hold CMP Rs 278

witness challenges due to pressure on complex fertiliser demand and may see margin pressure retail etc) which contributes 14% to revenues and 27% to profits to also see margin pressure with slowdown in growth

Non subsidy business (agrochemicals, specialty fertilisers,

EPS change FY12E/13E (%) Target Price change (%) Nifty Sensex

However, synergy from Sabero acquisition & TIFERT

commissioning in Q1FY13 remain future growth drivers respectively and downgrade the stock from BUY to HOLD with revised price target of Rs 286

Reduce FY12/13 est by 14.3% / 23.7% to Rs 22.6 / 24.7,

Price Performance
(%)

1M (3) (4)

3M (6) (4)

6M 12M (18) (12) (5) 11

Absolute Rel. to Sensex

Source: Bloomberg

Coromandel being proxy to complex fertiliser may witness pressure on volume growth and margins
Coromandel Intl is a leading player in the decontrolled fertilizer space with installed capacity of 2.3mn mt of NPK (market share of 23%) & 0.8mn mt of DAP (market share of 6%). Growing demand for complex fertiliser with farmers increasing awareness of complex fertilizers has enabled the company to record topline CAGR of 25% and PAT CAGR of 17% over FY08-11. However moderation in demand growth may hamper complex fertilisers offtake and can put pressure on margins in near future due to increased competition to maintain market share. Coromandels non-subsidy business (which includes agrochemicals, retailing etc& contributed ~14% to revenues and ~27% to EBITDA in FY11) with domestic market focus might as well be impacted as farmers reduce their consumption of agri inputs.

Relative Price Chart

375 Rs % 30 340 20

305

10

270

235

-10

200 Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

-20 Dec-11

Coromandel International (LHS)

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn) Agri-input & Chemicals

However, synergies from Sabero Organics & TIFERT commissioning to facilitate growth
Acquisition of Sabero Organics, a leading agrochemical player in technicals manufacturing, should facilitate growth for Coromandels agro chemicals business. Improved capacity utilization from 30-35% at present and integration of Saberos diversified product portfolio of active ingredients (AIs) with Coromandels strong distribution network will help the company to support revenues, though the contribution will remain marginal in percentage terms. Coromandels joint venture - TIFERT to produce phos acid is expected to be commissioned by Q1FY13 and will increase availability of phosphoric acid for Coromandels plants enabling the company to increase the production of decontrolled fertilizers.

CRIN@IN 282 1 282 376/218 79/1,491 142810 0.8

Shareholding Pattern (%)

Sep-11
Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

Reduce estimates and target price, Downgrade from BUY to HOLD

64.1 10.1 9.0 2.2 14.6

Jun-11 Mar-11 64.0 10.8 8.8 2.2 14.3

64.0 11.3 8.5 2.1 14.2

Foreseeing the challenges in near term on companys earnings, we have reduced our EPS estimates by 14%/24% to Rs 22.6/24.7 for FY12/13 respectively. Coromandel has witnessed re-rating in multiples (post the introduction of NBS in April10) with its PE multiple expanding to 13x in FY11 compared to average of 5x during FY06-10. However, in the current scenario, we have trimmed our target multiple to 11x from 13.5x and revised our target price to Rs 286 (previous Rs 435) which also includes Rs 15 for 9% bonus debentures announced by the company and subsequently downgrade the stock from BUY to HOLD. Strong balance sheet (cash positive) and RoE of 30% remain key strengths of the company. Financial Snapshot Rs Mn
EBITDA (Core) 5,787 7,961 9,486 10,426 (%) 9.3 10.8 11.0 11.8 PAT 3,953 5,160 6,350 6,917 EPS (Rs) 14.1 18.4 22.6 24.7 EPS % chg (17.5) 30.5 23.1 8.9 RoE (%) 30.1 29.8 29.9 27.7 P/E 19.7 15.1 12.3 11.3 EV/ EBITDA 15.1 10.5 8.3 7.5 P/BV 5.2 4.0 3.4 2.9

Rohan Gupta rohan.gupta@emkayglobal.com +91 22 66121248 Balwindar Singh balwindar.singh@emkayglobal.com +91 22 66121272

Net YE-Mar FY10 FY11 FY12E FY13E Sales 62,388 73,410 86,272 88,282

Emkay Global Financial Services Ltd

Company Update

Coromandel International

Coromandel International

Sector Update

Downgrade EPS estimates by 14%/24% for FY12/13 resp. to Rs 22.6/24.7

We have revised our EPS estimates downwards to reflect lower offtake of complex fertilizers & resultant pressure on margins. Revised EPS stands at Rs 22.6/24.7 for FY12/13 resp. (previous Rs 26.4/32.3)
FY12E Rs mn Net sales EBITDA EBITDA % APAT AEPS Old Estimates 97619 11250 11.5% 7,419 26.4 New Estimates 86,272 9,486 11.0% 6,350 22.6 % Change -11.6% -15.7% -53 -14.4% -14.3% Old Estimates 112,424 13,785 12.3% 9,069 32.3 FY13E New Estimates 88,282 10,426 11.8% 6,917 24.7 % Change -21.5% -24.4% -45 -23.7% -23.7%

Emkay Research

28 December 2011

10

Coromandel International

Sector Update

Key Financials
Income Statement
Y/E, Mar (Rs. mn) Net Sales Growth (%) Expenditure Materials Consumed Power & Fuel Other Manufacturing Exp Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adj. PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY10 62,388 (33.6) 56,601 48,875 694 1,706 1,450 3,876 5,787 (24.8) 9.3 594 5,193 8.3 1,362 782 5,773 1,819 31.5 3,953 (17.3) 6.3 3,953 736.0 4,689 3,953 (17.3) FY11 73,410 17.7 65,449 56,951 763 1,877 1,595 4,264 7,961 37.6 10.8 619 7,342 10.0 821 839 7,324 2,164 29.5 5,160 30.5 7.0 5,160 1,805.4 6,965 5,160 30.5 FY12E 86,272 17.5 76,785 67,437 839 2,065 1,754 4,690 9,486 19.2 11.0 827 8,659 10.0 1,267 723 9,203 2,853 31.0 6,350 23.1 7.4 6,350 6,350 6,350 23.1 FY13E 88,282 2.3 77,855 58,224 1762 4,336 3,683 9,850 10,426 9.9 11.8 964 9,462 10.7 1,178 615 10,025 3,108 31.0 6,917 8.9 7.8 6,917 6,917 6,917 8.9 Gross Block Less: Depreciation Net block Cap work in progress Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Misc. exp Total Assets 13,074 4,962 8,112 1,464 1,693 35,101 9,264 1,398 9,605 14,834 10,031 9,069 962 25,070 36,339 13,529 5,515 8,015 3,415 1,705 42,277 15,138 2,052 9,605 15,481 18,392 17,070 1,322 23,885 37,020 16,944 6,341 10,603 1,500 1,705 44,175 14,378 2,443 14,413 12,941 17,568 16,245 1,322 26,607 40,416 18,444 7,306 11,139 2,000 1,705 41,286 14,754 3,144 10,145 13,242 16,751 15,428 1,322 24,535 39,379

Balance Sheet
Y/E, Mar (Rs. mn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liab Total Liabilities 5,946 14,523 20,470 855 36,339 5,802 10,836 16,638 815 37,020 5,802 10,836 16,638 815 40,416 5,802 5,836 11,638 815 39,379 FY10 281 14,735 15,015 FY11 282 19,286 19,567 FY12E 282 22,681 22,963 FY13E 282 26,644 26,926

Cash Flow
Y/E, Mar (Rs. mn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY10 4,411 594 782 2,115 526 -1,819 6,608 (2,210) 4,398 1,362 (60) 1,302 (600) 3,271 (782) (1,399) 490 6,190 3,415 9,604 FY11 9,804 621 868 3,772 (3,065) -2,949 9,051 (2,439) 6,612 67 67 60 1,360 (849) (1,944) (5,305) -6,678 1 9,605 9,605 FY12E 7,936 827 723 2,085 -2,853 8,719 (1,500) 7,219 1,267 1,267 (723) (2,954) -3,678 4,808 9,605 14,413 FY13E 8,847 964 615 (2,196) -3,108 5,123 (2,000) 3,123 1,178 1,178 (5,000) (615) (2,954) -8,569 -4,268 14,413 10,145

Key Ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 0.6 1.6 9 0.3 0.7 1 0.0 0.1 2 (0.0) (0.0) 10 19.7 17.2 5.2 1.4 15.1 1.8 15.1 13.5 4.0 1.1 10.5 2.5 12.3 10.9 3.4 0.9 8.3 3.2 11.3 9.9 2.9 0.9 7.5 3.2 14.1 16.2 53.5 10.0 18.4 20.6 69.4 7.0 22.6 25.6 81.5 9.0 24.7 28.1 95.5 9.0 9.3 6.3 20.0 30.1 21.9 10.8 7.0 22.3 29.8 32.0 11.0 7.4 25.6 29.9 38.4 11.8 7.8 26.7 27.7 39.2 FY10 FY11 FY12E FY13E

Emkay Research

28 December 2011

11

Domestic market under pressure - Downgrade to HOLD

December 28, 2011

Rallis higher dependency on domestic agrochem markets Previous Reco Buy Target Price Rs 120
-13/-22 -40 4,751 15,874

Reco Hold CMP Rs 122

(70% of revenues) will lead to moderation in earnings in near term due to declining farm incomes & shrinking farm profitability 43%, respectively. However near term growth to moderate at Revenue / PAT CAGR of 21% / 15% during FY11-13E with Dahej plant (catering to exports) is likely to contribute to revenue growth in long term

During FY08-11, Rallis witnessed revenue / PAT CAGR of 17%/

EPS change FY12E/13E (%) Target Price change (%) Nifty Sensex

Potential ramp up in recently acquired seed business coupled

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

1M

3M

6M 12M (5) 11

Downgrade FY12/13E EPS estimates by 12.8%/22% to Rs 7/8.5

(20) (27) (19) (12) (21) (26)

and lower target multiple to 14x from 18x. Downgrade to Hold from BUY with target price of Rs 120 (previous Rs 197)

Relative Price Chart

200 Rs % 70 180 54

Higher dependency on domestic markets might lead to moderation in earnings in the short term
Rallis is largely domestic agrochemical focus company with revenue contribution of ~70% from domestic markets and balance from exports. Higher agrochemical consumption with growing preference for branded products has helped Rallis to report revenue CAGR (FY08-11) of 17% while improved product portfolio driving EBITDA margins resulted into PAT CAGR of 43%. We believe pressure on farmers profitability is likely to squeeze affordability for agrochemicals and put pressure on companys earnings in the near future.

160

38

140

22

120

100 Dec-10

Feb-11

Apr-11
Rallis India (LHS)

Jun-11

Aug-11

Oct-11

-10 Dec-11

Rel to Nifty (RHS)

Source: Bloomberg

Ramp up of seed business and Dahej plant to support long term growth
Acquisition of seed company - Metahelix has helped Rallis to capture the opportunity in fast growing seeds market. Rallis is confident of boosting its revenues from Metahelix from Rs ~1 bn at present to Rs 4-5 bn over next 3-4 years on back of its strong brand equity and distribution network. Companys Dahej plant (largely to cater exports market) was commissioned in Q1FY12 and it is currently operating at 40-50% capacity utilization. Planned ramp up at Dahej plant to 100% by end of FY13 is also likely to support revenue growth for the company.

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn) Agri-input & Chemicals RALI@IN 194 1 194 186/117 24/453 354657 1.0

Reduce earnings and target price, downgrade to HOLD

Due to increasing pressure on domestic farm incomes and shrinking farm profitability, we have cut our FY12/13 EPS estimates by 12.8%/22% to Rs 7.0/8.5, respectively in anticipation of increasing pressure on margins and growth in near term. Rallis witnessed significant re-rating in FY11 to P/E of 14x from 8 x in FY08-10 driven by higher earnings growth and improved return ratios (RoE 27%). However with recent moderation in earnings we have trimmed our target multiple to 14x from 18x. Subsequently we reduce our target price from Rs 197 to Rs 120 and downgrade the stock from BUY to HOLD. Financial Snapshot
YE-Mar Net Sales FY10 FY11 FY12E 8,787 10,657 13,442 15,704 EBITDA (Core) 1,562 1,713 2,352 2,870 (%) 17.8 16.1 17.5 18.3 PAT 1,114 1,259 1,357 1,653 EPS (Rs) 5.0 6.5 7.0 8.5 EPS % chg 62.2 29.2 7.8 21.8 RoE (%) 26.1 27.1 24.5 24.9 P/E 23.7 18.8 17.5 14.3 EV/ EBITDA 15.4 14.3 10.3 8.4 P/BV 5.6 4.7 3.9 3.3

Shareholding Pattern (%)

Sep-11 Jun-11 Mar-11 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

50.8 6.8 18.2 4.3 19.9

50.7 6.5 19.0 4.6 19.3

50.7 4.2 21.0 3.7 20.4

Rs Mn

Rohan Gupta rohan.gupta@emkayglobal.com +91 22 6612 1248 Balwindar Singh balwindar.singh@emkayglobal.com +91 22 6612 1272

FY13E

Emkay Global Financial Services Ltd

12

Company Update

Rallis India

Rallis India

Sector Update

Downgrade EPS estimates by 13/22%in FY12 & FY13 resp. to Rs 7.0/8.5

We have revised our estimates downwards to reflect pressure on domestic agrochemical companies. Revised EPS stands at Rs 7.0/Rs 8.5 (previous Rs 8.0/10.9) for FY12 & FY13 resp.
FY12E Rs mn Net sales EBITDA EBITDA % APAT AEPS Old Estimates 13,950 2,624 18.8% 1,551 8.0 New Estimates 13,442 2,352 17.5% 1,357 7.0 % Change -3.6% -10.4% -131 -12.5% -12.8% Old Estimates 17,607 3,525 20.0% 2,124 10.9 New Estimates 15,704 2,870 18.3% 1,653 8.5 FY13E % Change -10.8% -18.6% -174 -22.2% -22.0%

Emkay Research

28 December 2011

13

Rallis India

Sector Update

Key Financials
Income Statement
Y/E, Mar (Rs. mn) Net Sales Growth (%) Expenditure Materials Consumed Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adjusted PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY10 8,787 5.5 7,225 5,034 667 1,524 1,562 45.9 17.8 183 1,378 15.7 275 27 1,626 512 31.5 1,114 64.2 12.7 1,114 (14) 1,099 1,114 64.2 FY11 10,657 21.3 8,944 6,283 696 1,762 1,713 9.7 16.1 175 1,539 14.4 340 40 1,839 580 31.6 1,259 13.0 11.8 1,259 1,259 1,259 13.0 FY12E 13,442 26.1 11,090 7,986 877 2,227 2,352 37.3 17.5 277 2,075 15.4 17 157 1,935 578 29.9 1,357 7.8 10.1 1,357 1,357 1,357 7.8 FY13E 15,704 16.8 12,834 9,191 1,015 2,628 2,870 22.0 18.3 320 2,550 16.2 40 265 2,325 672 28.9 1,653 21.8 10.5 1,653 1,653 1,653 21.8 Gross Block Less: Depreciation Net block Capital work in progress Goodwill Investment Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Total Assets 3,091 1,564 1,527 1,120 1,402 3,263 1,489 755 119 886 15 3,041 2,595 446 222 4,272 4,057 1,743 2,314 1,695 1,236 256 4,666 2,289 1,064 146 1,154 13 3,891 3,306 586 774 6,275 5,751 2,020 3,732 400 1,236 256 5,196 2,388 1,261 380 1,154 13 3,518 3,046 472 1,677 7,301 6,151 2,340 3,812 400 1,236 256 6,383 2,900 1,677 639 1,154 13 3,558 3,012 546 2,825 8,529

Balance Sheet
Y/E, Mar (Rs. mn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred tax liability Total Liabilities FY10 130 4,115 4,245 0 16 65 81 (53) 4,272 FY11 194 4,855 5,049 21 1,087 85 1,172 32 6,275 FY12E 194 5,838 6,032 21 1,087 85 1,172 32 7,301 FY13E 194 7,078 7,272 21 1,087 85 1,172 32 8,529

Cash Flow
Y/E, Mar (Rs. mn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY10 1,527 183 23 9 1,077 -667 2,152 (949) 1,203 8 28 36 9 (744) (28) (440) 0 (2) -1,205 35 84 119 FY11 1,845 175 25 (124) (236) -697 987 (1,378) -391 54 (116) -63 849 (39) (357) 0 453 -1 119 146 FY12E 1,935 277 157 (105) (556) -578 1,131 (400) 731 0 (157) (339) 0 -497 234 146 380 FY13E 2,325 320 265 62 (962) -672 1,338 (400) 938 0 (265) (413) 0 -678 259 380 639

Key Ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) EPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) (0.3) (1.0) (15) 0.2 0.4 2 0.1 0.2 16 0.0 0.1 36 23.7 20.0 5.6 2.5 15.4 1.3 18.8 16.5 4.7 2.3 14.3 0.8 17.5 14.5 3.9 1.8 10.3 1.0 14.3 12.0 3.3 1.5 8.4 1.6 5.0 6.1 21.8 1.2 6.5 7.4 26.0 2.0 7.0 8.4 31.0 1.7 8.5 10.1 37.4 2.1 16.5 11.4 36.6 26.1 62.6 16.1 11.8 35.7 27.1 53.2 17.5 10.1 31.0 24.5 40.1 18.3 10.5 33.0 24.9 38.1 FY10 FY11 FY12E FY13E

Emkay Research

28 December 2011

14

Global growth remains buoyant

December 28, 2011

UPLs diversified geographical presence provide cushion Previous Reco Buy Target Price Rs 215
NA NA 4,751 15,874

Reco Buy CMP Rs 132

against slowing domestic rural growth. Buoyant growth in key global markets to ensure growth for UPL

Recent acquisition in Latin American markets has

EPS change FY12E/13E (%) Target Price change (%) Nifty Sensex

strengthened its RoW presence whose contribution has increased to 39% of total revenues from 33% earlier seasonally strong quarter for North America & Europe. DVA contribution & seasonally strong Q3 for RoW to boost growth

H2FY12 is likely to witness strong growth since Q4 is a

Price Performance
(%) Absolute Rel. to Nifty
Source: Bloomberg

Stock has underperformed at 6.5x 1 yr fwd earnings

3M (6) (5) 6M 12M (16) (17) (2) 5

1M 1 0

compared to average of 13x enjoyed historically. Expect valuation gap to bridge, maintain Buy with target of Rs 215

Diversified geographical spread should help UPL to beat demand pressure in Indian agrochemical markets
UPLs diversified geographical presence (India-25%, North America-18%, Europe-7% & Rest of World (RoW) -39% of revenues in FY12) enables the company to reap benefits from varied geographies with different demand profiles. While domestic agrochemical market is under pressure due to moderating rural growth, Europe and North America remain on track. North American pipeline remains strong and company is likely to witness organic volume growth in excess of 15% during the current year. Since, Q4 is a seasonally strong quarter in these geographies we are likely to witness strong growth in these regions in H2FY12. UPLs recent acquisition in Latin American markets has also strengthened its Rest of World (RoW) presence whose contribution has increased to 39% of total revenues from 33% earlier. RoW operations remain strong with growth being driven primarily from Latin American countries.

Relative Price Chart

175 Rs % 20 160 12

145

130

-4

115

-12

100 Dec-10

Feb-11

Apr-11

Jun-11

Aug-11

Oct-11

-20 Dec-11

United Phosphorus (LHS)

Rel to Nifty (RHS)

Source: Bloomberg

Stock Details
Sector Bloomberg Equity Capital (Rs mn) Face Value(Rs) No of shares o/s (mn) 52 Week H/L Market Cap (Rs bn/USD mn) Daily Avg Volume (No of sh) Daily Avg Turnover (US$mn) Agri-input & Chemicals UNTP@IN 922 2 461 176/120 61/1,151 1224947 3.2

Pressure on domestic market and debt on balance sheets poses risk to companys earnings
Though UPL is a diversified global players but its revenue share from India markets has increased to 22% in FY10 to 24% in FY12E. With pressure on domestic agrochemical demand, companys domestic revenues may come under pressure. However its global revenues / profits are likely to gain from currency depreciation. UPL also has significant debt of Rs 32 bn, where it may see some M-T-M loss in near term. However UPL continue to hold has cash of ~ Rs 1 bn to support the funding of any acquisition opportunity in future.

Shareholding Pattern (%)

Sep-11 Jun-11 Mar-11 Promoters FII/NRI Institutions Private Corp Public
Source: Capitaline

Earnings might surprise in H2FY12, maintain Buy

UPLs expanding global footprint has enabled the company to record topline CAGR of 17% and APAT CAGR of 23% over FY08-11. Historically, UPL has commanded a PE multiple of 6x-20x with an average of 13x during FY06-11 however multiples have currently fallen to 6.5x due to concerns on growth in global markets, high debt and impact of currency depreciation. We believe that concerns are overdone with stock trading at 50% discount to its historical average P/E multiple and earnings are likely to surprise in H2FY12 driven by strong growth in North American & Latin American markets. We maintain Buy with target price of Rs 215. Financial Snapshot
YENet Sales 54,633 58,045 76,494 82,760 EBITDA (Core) 10,021 11,106 14,728 16,307 (%) 18.3 19.1 19.3 19.7 APAT 5,593 6,620 8,218 9,904 EPS (Rs) 12.1 14.3 17.8 21.4 EPS % chg (8.1) 18.3 24.1 20.5 RoE (%) 19.7 19.7 20.3 20.6 P/E 10.4 9.2 7.4 6.2 EV/ EBITDA 5.8 5.6 4.8 3.9 P/BV 1.9 1.6 1.4 1.2 Mar FY10 FY11 FY12E FY13E

26.6 39.3 15.6 10.7 7.8

26.6 38.5 16.7 10.6 7.7

26.6 37.7 17.2 11.2 7.3

Rs Mn

Rohan Gupta rohan.gupta@emkayglobal.com +91 22 6612 1248 Balwindar Singh balwindar.singh@emkayglobal.com +91 22 6612 1272

Emkay Global Financial Services Ltd

15

Company Update

United Phosphorus

United Phosphorus

Sector Update

Key Financials
Income Statement
Y/E, Mar (Rs. mn) Net Sales Growth (%) Expenditure Materials Consumed Employee Cost Other Exp EBITDA Growth (%) EBITDA margin (%) Depreciation EBIT EBIT margin (%) Other Income Interest expenses PBT Tax Effective tax rate (%) Adjusted PAT Growth (%) Net Margin (%) (Profit)/loss from JVs/Ass/MI Adjusted PAT After JVs/Ass/MI E/O items Reported PAT PAT after MI Growth (%) FY10 54,633 10.8 44,612 29,542 5,018 10,052 10,021 6.1 18.3 2,147 7,874 14.4 343 1,938 6,279 814 13.0 5,465 (7.5) 10.0 128.2 5,593 5,593 5,593 (8.1) FY11 58,045 6.2 46,939 29,881 5,146 11,912 11,106 10.8 19.1 2,138 8,968 15.5 937 2,309 7,596 731 9.6 6,865 25.6 11.8 (245.3) 6,620 (1,006) 5,614 6,620 18.3 FY12E 76,494 31.8 61,766 46,499 6,642 8,625 14,728 32.6 19.3 2,600 12,128 15.9 1,269 3,000 10,397 2,079 20.0 8,318 21.2 10.9 (100.0) 8,218 8,218 8,218 24.1 FY13E 82,760 8.2 66,453 49,480 7,645 9,328 16,307 10.7 19.7 2,600 13,707 16.6 1,299 2,500 12,505 2,501 20.0 10,004 20.3 12.1 (100.0) 9,904 9,904 9,904 20.5 Gross Block Less: Depreciation Net block Capital work in progress Investments Current Assets Inventories Sundry debtors Cash & bank balance Loans & advances Other current assets Current lia & Prov Current liabilities Provisions Net current assets Total Assets 30,009 12,286 17,723 406 7,612 43,242 10,084 12,135 15,778 4,693 553 14,616 13,591 1,025 28,626 54,366 36,317 13,109 23,209 658 8,232 49,914 14,055 14,795 15,659 4,662 743 19,358 18,117 1,241 30,557 62,655 48,476 15,709 32,767 1,500 8,232 58,144 19,520 20,548 12,671 4,662 743 25,291 24,050 1,241 32,853 75,352 51,476 18,309 33,167 1,500 8,232 63,837 21,112 22,223 15,097 4,662 743 27,252 26,011 1,241 36,586 79,484

Balance Sheet
Y/E, Mar (Rs. mn) Equity share capital Reserves & surplus Net worth Minority Interest Secured Loans Unsecured Loans Loan Funds Net deferred liabilities Total Liabilities FY10 879 29,039 29,918 140 4,044 19,774 23,818 490 54,366 FY11 924 36,337 37,260 180 4,646 20,273 24,919 296 62,655 FY12E 924 42,933 43,857 380 4,646 26,273 30,919 196 75,352 FY13E 924 51,217 52,140 580 2,646 24,022 26,669 96 79,484

Cash Flow
Y/E, Mar (Rs. mn) PBT (Ex-Other income) Depreciation Interest Provided Other Non-Cash items Chg in working cap Tax paid Operating Cashflow Capital expenditure Free Cash Flow Other income Investments Investing Cashflow Equity Capital Raised Loans Taken / (Repaid) Interest Paid Dividend paid (incl tax) Income from investments Others Financing Cashflow Net chg in cash Opening cash position Closing cash position FY10 5,936 2,147 1,503 (970) 4,499 -813 12,302 (2,285) 10,017 313 122 435 2,840 (1,522) (769) 0 -761 -213 10,239 5,539 15,778 FY11 6,659 2,138 2,031 (36) (1,884) -885 8,023 (6,960) 1,063 125 (1,391) -1,266 2,888 (58) (1,095) (1,024) 0 -1027 -316 -520 16,178 15,658 FY12E 9,128 2,600 3,000 (5,285) -2,079 7,364 (13,000) -5,636 1,269 1,269 6,000 (3,000) (1,621) 0 0 1,379 -2,988 15,659 12,671 FY13E 11,207 2,600 2,500 (1,306) -2,501 12,500 (3,000) 9,500 1,299 1,299 (4,251) (2,500) (1,621) 0 0 -8,372 2,426 12,671 15,097

Key Ratios
Y/E, Mar Profitability (%) EBITDA Margin Net Margin ROCE ROE RoIC Per Share Data (Rs) FDEPS CEPS BVPS DPS Valuations (x) PER P/CEPS P/BV EV / Sales EV / EBITDA Dividend Yield (%) Gearing Ratio (x) Net Debt/ Equity Net Debt/EBIDTA Working Cap Cycle (days) 0.0 0.0 57.6 0.0 0.1 67.5 0.2 0.7 76.4 0.1 0.2 76.4 10.4 7.5 1.9 1.1 5.8 1.9 9.2 7.0 1.6 1.1 5.6 1.5 7.4 5.6 1.4 0.9 4.8 2.3 6.2 4.9 1.2 0.8 3.9 2.3 12.1 17.6 68.1 2.5 14.3 19.0 80.7 2.0 17.8 23.4 95.0 3.0 21.4 27.1 112.9 3.0 18.3 10.2 16.1 19.7 23.4 19.1 11.4 16.9 19.7 26.1 19.3 10.7 19.4 20.3 26.6 19.7 12.0 19.4 20.6 25.5 FY10 FY11 FY12E FY13E

Emkay Research

28 December 2011

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Sector Update

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Emkay Research

28 December 2011

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