1QFY2012 Result Update | Agrichemical

July 29, 2011

United Phosphorus
Performance Highlights
Parameter (` cr) Total revenue EBITDA EBITDA margin (%) Net PAT
Source: Company, Angel Research

BUY
CMP Target Price
1QFY11 1,430 289 19.7 142.4 % yoy 26.8 19.3 29.5 4QFY11. 1,806 367 19.8 179 % qoq 0.9 (5.9) 2.9

`166 `208
12 Months

1QFY12 1,822 345 18.5 184.3

Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Agrichemical 7,151 1.1 220/126 303129 2 19,136 5,750 UNPO.BO UNTP@IN

For 1QFY2012, United Phosphorus (UPL) reported a good performance. Total revenue grew by 26.8% yoy to `1,822cr and net PAT grew by 29.5% to `184.3cr. Management has increased its revenue guidance to 2530% for FY2012, compared to 1214% revenue growth guided at the end of FY2011. Also it has reaffirmed its OPM guidance at 2021%. At `166, the stock is quoting at attractive valuations of 9.9x FY2012E EPS and 8.8x FY2013E EPS. Hence, we maintain our

Buy recommendation on the stock.

Strong revenue growth: UPL reported strong revenue growth of 26.8% yoy to `1,822cr (810% inorganic and 17% organic). Robust growth was supported by a 32% yoy increase in India business and 25% growth in the international business. US, UPLs key market, witnessed 32% growth in sales, while Europe and RoW posted robust growth of 6% and 35%, respectively. Revenue growth was impacted by 1% due to the unfavourable exchange variance. However, volumes continued to be strong, moving up by 25% in 1QFY2012. Outlook and valuation: We expect UPL to post a CAGR of 9% and 18% in its sales and PAT over FY201113, respectively. At the current valuations of 11.2x FY2012E EPS and 10.4x FY2013E EPS, the stock is attractively valued. Hence, we maintain our Buy recommendation on the stock with a revised target price of `208.
Abs. (%) Sensex UPL 3m 4.0 8.2 1yr 9.3 2.7 3yr 10.1 (7.3) Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 26.6 17.2 37.7 18.5

Key financials (Consolidated)

Y/E March (` cr) Total revenue % chg Adj. profit % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x) FY2010 5,408 9.7 549 24.7 17.9 12.5 13.3 2.4 19.4 14.1 1.4 8.3 FY2011E 5,805 7.3 572 4.1 19.7 12.4 13.4 2.0 17.0 15.1 1.6 8.1 FY2012E 6,935 19.5 688 20.3 19.7 14.9 11.2 1.8 17.1 16.0 1.3 6.9 FY2013E 7,424 7.0 740 7.7 19.7 16.0 10.4 1.6 16.1 16.0 1.3 6.7

Sarabjit Kour Nangra

+91-22-3935 7800 ext. 6806 sageraj.bariya@angelbroking.com

Source: Company, Angel Research; Note: Price as on April 29, 2011

Please refer to important disclosures at the end of this report

United Phosphorus | 1QFY2012 Result Update

Exhibit 1: 1QFY2012 and FY2011 performance

Y/E March (` cr) Total Sales Other Op Income Net Revenue Raw-material cost Gross Profit Gross margin Employee Expenses as % of sales Other expenditure as % of sales Total Expenditure Operating Profit OPM (%) Depreciation EBIT EBIT (%) Other income Interest PBT (excl of Ext items) Ext items PBT (incl of Ext items) Tax Reported PAT Minority & Associate Net PAT Adj PAT Net EPS (`) Adj EPS (`)
Source: Company, Angel Research

1QFY12
1,822 40 1,857 1,023 765 42 149 7 345 17 1,517 345 18.6 63 322 16.2 23 71 273 273 47 227 2 224 4.0 4.0 1,822

1QFY11
1,430 38 1,469 765 630 44 133 9 281 18 1,179 289 19.7 47 242 13.1 19 49 211 51 160 16 145 145 3.2 4.4 1,430

% chg

FY11
5,650 155

FY10
5,290 168 5,408 2,954 2,336 44 502 9 1,007 19 4,463 945 17.5 215 730 13.5 34 194 570 (267) 303 81 222 13 549 12.5 7.0 5,290

% chg

26.4

5,805 2,988 2,662 47

7.3

11.5 22.7

515 9 1,191 21 4,694

2.6 18.2

19.2 33.2

1,111 19.1 214 897 15.5

17.6

21.1 44.6

94 312 678 (14) 664 82 582 (25)

55.2 23.3

558 12.1 9.5 5,650

1.5 (3.4)

Robust growth
For 1QFY2012, UPL reported strong revenue growth of 26.8% yoy to `1,822cr (8 10% inorganic and 17% organic). Robust growth was supported by a 32% yoy increase in India business and 25% growth in the international business. US, UPLs key market, witnessed 32% growth in sales, while Europe and RoW posted robust growth of 6% and 35%, respectively. Revenue growth was impacted by 1% due to the unfavourable exchange variance. However, volumes continued to be strong, moving up by 25% in 1QFY2012.

July 29, 2011

United Phosphorus | 1QFY2012 Result Update

Exhibit 2: Sales performance

1,857 1,800 1,500 1,464 1,469 1,257 1,222 1,862

Exhibit 3: Growth break-up

30 25 25 20

(` cr)

1,200

600 300 10 5

(%)

900

15

2QFY11

3QFY11

4QFY11

1QFY12

4QFY10

1QFY11

0 Exchange impact Realisation Volume

Source: Company, Angel Research

Source: Company, Angel Research

Exhibit 4: Volume and realisation break-up (yoy)

20 15 10 14 10 2 3 0 (3) (7) 14 20

(%)

5 0 (5) (10) (15) 4QFY10 (5)

1QFY11

2QFY11 Realisation

3QFY11 Volume

4QFY11

1QFY12

Source: Company, Angel Research

EBITDA margin under pressure

UPL reported a dip in its operating margin, which declined by 120bp yoy to end the period at 18.5%, mainly on account of a decline in gross margin, which fell by 270bp to end the period at 43.8%. However, the same was restricted on account of lower rise in staff cost and other expenses by 11.5% and 22.7%. For FY2012, management expects OPM of 2021%.

July 29, 2011

United Phosphorus | 1QFY2012 Result Update

Exhibit 5: EBITDA margin trend

20 19 18 20 20 19 18 17 17 16 15 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12

Exhibit 6: Other cost as a percentage of sales

400 350 300 250 20 30 25

(` cr)

19

(%)

150 100 50 0 1QFY11 2QFY11 3QFY11 Other cost 4QFY11 % of sales 1QFY12

10 5 0

Source: Company, Angel Research

Source: Company, Angel Research

Robust earnings growth

Net profit for the quarter came in at `184.3cr, reporting 29.5% yoy growth. Despite the decline in its operating margin, the company reported PAT growth mainly on account of lower interest expenses.

Exhibit 7: Adjusted PAT trend

250 200 150 100 50 0 4QFY10 1QFY11 2QFY11 Adj PAT
Source: Company, Angel Research

180 160 140 120 100 80 60 40 20 0 -20 -40 3QFY11 % YoY 4QFY11 1QFY12

(` cr)

July 29, 2011

(%)

(%)

200

15

United Phosphorus | 1QFY2012 Result Update

Investment arguments Innovators dominant in off-patent space Generic firms in a sweet spot
The global agrichem industry, valued at US$40bn (CY2008), is dominated by the top six innovators, viz. Bayer, Syngenta, Monsanto, BASF, DuPont and Dow, which enjoy a large market share of the patented (28%) and off-patent (32%) market. Pertinently, the top six innovators also enjoy a large share of the off-patent market due to high entry barriers for pure generic players. Thus, one-third of the total pie worth US$13bn (controlled by the top six innovators through proprietary off-patent products) provides a high-growth opportunity for larger integrated generic players such as UPL.

Generic segments market share to increase

Generic players have been garnering a high market share, increasing from 32% levels in 1998 to 40% by 2006-end. The industry registered a CAGR of 3% over 19982006, while generic players outpaced the industry with a CAGR of 6%. Going ahead, given the opportunities and a drop in the rate of new molecule introduction by innovators, we expect generic players to continue to outpace the industrys growth and increase their market share in the overall pie. Historically, global agrichem players have been logging in-line growth with global GDP. Going ahead, over CY200911E, the global economy is expected to grow by 34%. Assuming this trend plays out in terms of growth for the agrichem industry and the same rate of genericisation occurs, the agrichemical generic industry could log in 68% yoy growth during the period and garner a market share of 4445%.

A global generic play

UPL figures among the top five global generic agrichemical players, with presence across major markets, including the US, EU, Latin America and India. Given the high entry barriers by way of high investments, entry of new players is also restricted. Thus, amidst this scenario and on account of having a low-cost base, we believe UPL enjoys an edge over competition and is placed in a sweet spot to leverage the upcoming opportunities in the global generic space.

July 29, 2011

United Phosphorus | 1QFY2012 Result Update

Outlook and valuation

Over the last few years, the global agriculture sector has been rejuvenating/reviving on the back of rising food prices. Food security is also a top priority for most governments; reducing food loss is one of the easiest ways to boost food inventory. Hence, we believe agrichemical companies would continue to do well in the wake of heightened food security risks, and strong demand is likely to be witnessed across the world. Overall, we expect the global agrichemical industry to perform well from here on. However, generics are expected to register healthy growth due to a) increasing penetration and wresting market share from innovators and b) patent expiries worth US$3bn4bn (2007) during 200914. We estimate UPL to post a 9% and 18% CAGR in sales and PAT, respectively, over FY201113. The stock is trading at attractive valuations of 11.2x FY2012E EPS and 10.4x FY2013E EPS. Hence, we maintain our Buy recommendation on the stock with a target price of `208.

Exhibit 8: Key assumption

Geographic sales growth (%) North America India EU RoW Total EBITDA margin Tax rate
Source: Company, Angel Research

FY2012E 2.0 15.0 (15.0) 35.2 17.6 19.7 15.0

FY2013E 2.0 12.0 0.0 10.0 6.8 19.7 20.0

Comment Adverse weather conditions impacting demand and volume growth Robust volume growth on account of normal monsoons Drying up of distributor inventory to boost demand Stable raw-material price and realisation coupled with restructuring to improve margin

Exhibit 9: Peer valuation

Company Reco. Mcap (` cr) CMP (`) TP (`) Upside (%) P/E FY12E FY13E EV/Sales FY12E FY13E EV/EBITDA FY12E FY13E CAGR (%) (FY11-13E) Sales PAT

Rallis UPL

Neutral Buy

3,161 7,671

163 166

208

47

20.0 11.2

17.1 10.4

2.3 1.3

1.9 1.3

12.7 6.9

10.8 6.7

20.0 13.1

23.0 13.8

Source: Company, Angel Research

July 29, 2011

United Phosphorus | 1QFY2012 Result Update

Exhibit 10: P/E Band

300 250 200

(`)

150 100 50 0

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10
17.0x

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Aug-06

Aug-07

Aug-08

Aug-09

Price

9.0x

11.0x

13.0x

15.0x

Source: Company, Angel Research

July 29, 2011

Aug-10

Apr-11

United Phosphorus | 1QFY2012 Result Update

Profit & Loss Statement (Consolidated)

Y/E March (` cr) Net Sales Other operating income Total operating income % chg Total Expenditure Net Raw Materials Other Mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation& Amortisation EBIT % chg (% of Net Sales) Interest & other Charges Other Income (% of PBT) Recurring PBT % chg Extraordinary Expense/(Inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg FY08 3,516 126 3,641 52.3 3,025 1,815 692 402 117 616 21.1 17.5 152 464 35.2 13.2 80 31 7 416 30.7 (114) 301 42 10.2 259 22 1 23 257 390 34.1 11.1 8.9 8.9 14.5 FY09 4,802 129 4,931 35.4 3,987 2,451 885 479 172 945 53.2 19.7 193 752 62.0 15.7 292 42 8 502 20.8 (10) 492 27 5.4 465 20 2 27 456 440 12.9 9.2 10.0 10.0 12.8 FY10 5,290 118 5,408 9.7 4,461 2,954 839 502 166 947 0.2 17.9 215 732 (2.6) 13.8 145 34 6 621 23.8 (23) 598 81 13.1 517 19 6 3 526 549 24.7 10.4 12.5 12.5 24.7 FY11 5,650 155 5,805 7.3 4,694 2,988 1,191 515 1,111 17.3 19.7 214 897 22.5 15.9 312 94 14 678 9.2 (14) 664 73 10.8 591 (14) 10 9 558 572 4.1 10.1 12.4 12.4 (1.1) FY12E 6,776 159 6,935 19.5 5,604 3,468 1,228 631 277 1,332 19.9 19.7 263 1,068 19.1 15.8 250 20 2 838 23.5 838 126 15.0 712 (14) 10 688 688 20.3 10.1 14.9 14.9 20.3 FY13E 7,260 164 7,424 7.0 5,991 3,712 1,314 668 297 1,433 7.6 19.7 277 1,156 8.2 15.9 250 51 5 956 14.1 956 191 20.0 765 (14) 10 740 740 7.7 10.2 16.0 16.0 7.7

July 29, 2011

United Phosphorus | 1QFY2012 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity Share Capital Preference Capital Reserves& Surplus Shareholders Funds Minority Interest Total Loans Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill / Intangibles Investments Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Others Total Assets 2,113 1,125 988 142 469 743 2,872 509 365 1,998 1,347 1,525 57 3,924 2,487 1,235 1,252 124 473 433 4,117 554 676 2,888 1,626 2,491 77 4,850 2,519 1,229 1,290 41 482 761 4,324 1,578 469 2,277 1,462 2,863 67 5,503 3,690 1,442 2,247 74 1,135 761 4,368 866 547 2,955 2,269 2,099 66 6,383 3,939 1,706 2,233 79 1,540 761 4,540 685 621 3,233 2,259 2,281 41 6,935 4,096 1,983 2,113 82 1,540 761 5,053 336 772 3,945 2,039 3,013 17 7,527 44 2,194 2,238 6 1,568 112 3,924 88 2,585 2,673 10 2,067 101 4,850 88 2,904 2,992 14 2,382 116 5,503 92 3,661 3,753 14 2,500 116 6,383 92 4,213 4,305 14 2,500 116 6,935 92 4,805 4,897 14 2,500 116 7,527 FY08 FY09 FY10 FY11E FY12E FY13E

July 29, 2011

United Phosphorus | 1QFY2012 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation Change in Working Capital Less: Other income Direct taxes paid Cash Flow from Operations (Inc.)/ Dec. in Fixed Assets (Inc.)/ Dec. in Investments Inc./ (Dec.) in loans and advances Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances (523) 1,138 (328) (1) (161) 647 198 511 709 (450) 476 (51) (263) 162 (158) 709 550 FY08 416 10 (378) 26 74 (340) (183) FY09 502 468 (758) (83) 129 (414) (36) FY10 625 299 419 (81) 1,261 302 285 (77) (229) (21) 1,314 554 1,578 FY11E 664 540 (1) (73) 1,130 312 118 (103) (312) 16 (712) 1,578 866 FY12E 838 513 (126) 836 (659) (659) (108) (250) (358) (181) 866 685 FY13E 956 527 (191) 197 (161) (161) (135) (250) (385) (349) 685 336

(389) (1,095)

(228) (1,857)

74 (1,857)

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United Phosphorus | 1QFY2012 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) Working capital cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest) 0.5 1.7 3.4 0.6 1.6 4.9 0.2 0.6 4.9 0.4 1.2 2.9 0.4 1.2 4.3 0.4 1.3 4.6 1.6 111 74 119 123 2.1 105 76 94 143 2.2 93 81 90 139 1.9 78 87 105 105 1.8 100 81 120 101 1.8 110 85 105 128 12.4 18.3 20.9 17.1 20.1 17.9 14.1 23.4 19.4 15.1 19.2 17.0 16.0 19.7 17.1 16.0 18.2 16.1 13.2 89.8 1.4 16.1 6.9 0.7 22.3 15.7 94.6 1.5 22.4 8.1 0.5 29.8 13.8 86.9 1.5 18.5 5.9 0.4 23.1 15.9 89.2 1.5 20.8 11.4 0.3 23.4 15.8 85.0 1.5 20.2 8.5 0.4 24.4 15.9 80.0 1.5 19.3 8.0 0.4 23.5 8.9 8.9 12.3 1.0 50.9 10.0 10.0 14.4 1.5 60.8 12.5 12.5 17.4 2.0 68.1 12.4 12.4 17.0 2.0 81.2 14.9 14.9 20.6 2.5 93.1 16.0 16.0 22.0 2.8 105.9 18.7 13.5 3.3 0.6 2.3 13.5 2.1 16.6 11.5 2.7 0.9 1.8 9.3 1.8 13.3 9.6 2.4 1.2 1.4 8.3 1.4 13.4 9.8 2.0 1.2 1.6 8.1 1.4 11.2 8.1 1.8 1.5 1.3 6.9 1.3 10.4 7.5 1.6 1.7 1.3 6.7 1.3 FY08 FY09 FY10 FY11E FY12E FY13E

July 29, 2011

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United Phosphorus | 1QFY2012 Result Update

Research Team Tel: 022 - 39357800

E-mail: research@angelbroking.com

Website: www.angelbroking.com

DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

UPL No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%) Reduce (-5% to 15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

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12