UPL (United Phosphorous) report

7/27/2019 UPL (United Phosphorous) report

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United Phosphorus Ltd (UPL) is the leading producer of agriculture chemicals in India and the world. The

mpany produces crop protection products, intermediaries, specialty chemicals and other chemicals. UPL has its

sence across value added agri inputs ranging from seeds to crop protection and post harvest activities.

The company produces a wide range of products that includes fumigants, fungicides, insecticides, rodenticides

d herbicides. The product portfolio of the company includes all those products that are required in protecting plants

ing its different stages of growth. UPL has an efficient R&D division which helps it to launch new products to meet the

nging demand of the market.

The company has 21 manufacturing facilities. Among them, 9 are in India, 4 are in France, 2 in Spain and one

h in UK, Argentina, Vietnam, Netherland, Italy and China. UPL has subsidiaries across the world.

USINESS PROFILE

UPL has its presence value added agri ranging from seeds tprotection and post activities

UPL has 21 manufafacilities; 9 in India, 4 in 2 in Spain and one eachArgentina, VNetherland, Italy and Ch

With 78% of the revenuthe overseas market, Utransformed itself intglobal company tstring of acquisitionstrategic alliances

22%

25%21%

32%

Revenue Breakup - FY11

North America

India

Europe

RoW

21%

22%

18%

39%

Revenue Breakup - FY12

North America

India

Europe

RoW

UPL

Crop Protection Specialty Chemicals Non-Crop Protection

With around 78% of the revenues coming from the overseas market, UPL has transformed itself into truly global

mpany through string of acquisitions and strategic alliances in recent past. Rest of the world (RoW) including Brazil

tributes 39% of the revenue followed by Indian operations which contributes 22%. Europe and North America

tributes 18% and 21% respectively.

Over the years, UPL has been successful in increasing revenue contribution from RoW through expanding in the

zilian and other regulated markets to reduce its dependence on the US and Europe, which are highly regulated market.

elps the company to diversify its revenue stream and reduce the cyclicality in the revenue.


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VESTMENT RATIONALEbal Player

In July 2012, UPL has acquired 51 per cent stake in Brazilian firm DVA Agro Do Brazil(DVA Agro Brazil) for USD 150mn

ch is engaged in the production and marketing of crop protection products. It has a formulation plant in Brazil and is

ergoing expansion. In the same year in March, the company had acquired 50% stake in yet another Brazilian company

am Isagro Brazil(SIB).

In our opinion, these acquisitions will give UPL the strong foothold in the Brazilian market which is one of the most

ortant agro chemical markets in the world. This has the potential to drive the volume growth going forward in addition to

fact that it will reduce the seasonality in the business for UPL.

On the back of strong global presence (78% of the revenues from overseas operations), the company is aiming 15%

GR in the next few years. In our opinion this is certainly achievable looking at the geographical presence and the product

ge the company has to offer.

erics Opportunity

As per industry estimates, approximately USD 5bn worth of products are going off patents in next 3-4 years. It

ents a great opportunity for the company like UPL which follows a strategy of filing its own registrations globally and

uiring tail end brands of global majors in a highly regulated agro chemicals markets.

We believe that UPL with its geographical presence and generics lead strategy is poised to tap this opportunity and is

only Indian play in global generics market. We also like the fact that its a high entry barrier business due to high

stments and regulations. With its low cost manufacturing bases in key markets, it will be able to negotiate the competition.

a Opportunity

India may be highest producers in certain crops in tonnage terms but per hectare yields is no way near the potential.

late there has been realization that India needs to double its farm output to meet the growing demand coming from

easing population as well as increasing spending power of Indian middle class. This would invariably require greater use of

ous inputs like quality seeds, fertilizers, pesticides etc.

As per reports, India uses only ~500 grams of crop protection chemicals per hectare which is one of the lowest in the

ld. This has resulted in lower yields of various crops in India. This effectively means that India loses approximately 30% crops

to damages caused by insects, diseases and weeds.

In our view this scenario presents a huge opportunity in the agri inputs business as government has initiated several

s in past few years to strengthen the supply side of food. Moreover, RBI data shows that the area under cash crops has

eased by 30% between FY03 and FY11, which typically require greater use of crop protection chemicals. In our opinion agri

uts space in India is all set for exponential growth.

Penalty

Recently CCI (Competition Commission of India) has imposed a penalty of Rs 2.52bn for cartelization and price

nipulations of Aluminum Phosphide Tablets (APT) sale to FCI. UPL's management is confident that the company is not at

t and CCIs claims of cartelization are untenable in the Appellate Tribunal. The management indicated that its pricing for

to FCI was lower than its pricing in domestic market. We believe this negative news is already built up in the valuation.

Recent acquisitiongive UPL the foothold in the Bmarket; one of thimportant agro cmarkets in the worl

As per industry esapproximately USworth of productsoff patents in neyears

As per reports, Indonly ~500 grams protection chemichectare which is onlowest in the world


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USINESS PERFORMANCE

In Q4FY12, consolidated net sales grew by 16% on Y-o-Y basis to Rs 21.3bn while PAT stood at Rs 2.26bn, registering

-growth of 3.4% on Y-o-Y basis. The revenue growth of 16% was driven by 12% volume growth, 4% price increase and

change rate impact of 2%.

UPL reported EBITDA of Rs 3.9bn, 5% growth on Y-o-Y basis which was impacted by higher employee cost.

nagement has guided for 15% revenue growth in FY13 with EBITDA margins of 18-20% and is confident that the domestic

owth will rebound. It is also planning to launch 2- 3 new products in Indian market in upcoming quarters.

In Q4FY12, consolnet sales grew by 1Y-o-Y basis to Rs 21

Management has gfor 15% revenue gin FY13 with Emargins of 18-20%

In terms of PE anvaluation, UPL is trcheap compared toRallis India and Cropscience

er ComparisonWe compare UPL with Rallis India and Bayer Cropscience, both of which has presence in the crop protection

rket. Rallis is a Tata Group Company and subsidiary of Tata Chemical, which has most of the business coming from India

ereas Bayer Cropscience is subsidiary of German MNC Bayer. UPL has healthy EBITDA margin of 16.7% and PAT margin of

5%. In terms of PE and PB valuation, UPL is trading cheap compared to both Rallis India and Bayer Cropscience.

er Group Comparison

mpaniesRevenue

(Rs. mn)

EBIDTA

Margin (%)

PAT Margin

(%)ROE %

P/E

(x)

P/B

(x)

CMP

(Rs.)

FV

(Rs.)

56,497 16.7% 10.5% 16% 8.9 1.4 112 2

s India 10,657 16.4% 12.0% 25% 18.9 4.7 123 1

er Cropscience 21,273 11.3% 6.3% 19% 24.7 4.7 805 1011 Consolidated figures

0.0%

2.0%4.0%

6.0%

8.0%

10.0%

12.0%

0

25

50

75

100

FY 10 FY 11 FY12E FY13E FY14E

Yearly Revenue & PAT Margin

Revenue PAT Margin

0.0%

5.0%

10.0%

15.0%

0

5000

10000

15000

20000

25000

Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12

R

sinmn

Quarterly Revenue & PAT Margin

Revenue PAT Margin

0.0

25.0

50.0

75.0

100.0

125.0


Rs

EPS & BVPS

EPS BVPS

0

5,000

10,000

15,000

20,000


EBITDA & PAT

EBITDA PAT


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ALUATIONSWe expect UPLs revenue to grow at a CAGR of 13% from FY12 to FY14E to Rs 98.3bn and further estimate that

would grow at a CAGR of 37% in the same period to Rs 10.8bn. New product launches in Indian market (2 insecticide

eties), favorable forex scenario and Brazilian acquisitions will drive the volume growth going forward. We believe EBITDA

gins would stabilize around 17% in FY14E.

At current market price, the stock is trading at 4.8x based on estimated EPS of Rs 23.3 for FY14E. We value the

k at 6.75x FY14E EPS, which is 25% discount to the average of last five years two year forward PE multiple of 9. We

gn the discount on valuation to factor in the muted performance in global business of the company which is impacted

hanges in climatic condition and forex volatility.

Based on a consolidated FY14 P/E multiple of 6.75, the fair value for the company works out to Rs

/share. We recommend a BUY rating on the stock.

We expect UPLs revegrow at a CAGR offrom FY12 to FY1Rs.98.3bn and PAT be around Rs 10.8FY14E

Profit & Loss Statement (Consolidated)

Particulars (Rs Mn) FY10A FY11A FY12E FY13E FY14E

Net Sales 52,900 56,497 76,738 86,899 98,254

Operating Expenditure 44,856 47,079 63,108 72,799 81,435

Depreciation 2,147 2,138 2,924 3,279 3,425

EBIT 5,897 7,280 10,706 10,821 13,394

EBIT Margin (%) 11% 13% 14% 12% 14%

Interest Expenses 1,938 3,120 4,147 2,981 2,649

Other Income 2,028 2,485 902 2,172 2,456

Profit Before Tax 5,987 6,644 7,461 10,013 13,201

Less: Tax 854 731 1,280 1,802 2,376

Adjusted PAT 5,074 5,810 5,730 8,150 10,756

PAT Margin (%) 10% 10% 7% 9% 11%

ROE (%) 17% 16% 14% 17% 18%

EPS (Rs) 11.0 12.6 12.4 17.6 23.3

BVPS (Rs) 65.1 81.1 91.5 106.4 126.0

Valuation Ratios (x) FY12E FY13E FY14E

PER x 9.0 6.3 4.8

P/B Ratio 1.2 1.1 0.9

Ratio Analysis


Current Ratio 3.0 2.6 2.6 2.5 2.4

Cash Ratio 1.1 0.8 0.8 0.7 0.8

Interest Coverage Ratio 0.3 0.4 0.4 0.3 0.2

Debt Equity Ratio 0.8 0.7 0.9 0.7 0.5

ROCE 9% 10% 11% 11% 13%


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Balance Sheet (Consolidated)


Application of Funds

Fixed Asset (Net) 17,723 23,209 34,785 34,806 34,181CWIP 406 658 658 658 658

Investments 7,612 8,232 7,834 7,834 7,834

Inventories 10,084 14,055 16,859 19,092 21,586

Sundry Debtors 12,135 14,795 18,849 21,345 24,666

Cash & Bank Balance 15,778 15,659 18,152 19,499 24,194

Loans & Advances 5,207 5,406 5,406 5,406 5,406

Miscellaneous Expenditure not W/O 0 0 0 0 0

Total 68,943 82,013 102,542 108,639 118,524

Sources of Funds

Share Capital 879 924 924 924 924

Reserves & Surplus 29,039 36,337 41,114 47,908 56,900

Minority Interest 140 180 233 294 363

Total Debt 24,193 25,293 37,264 33,111 29,290Net Deferred Tax 115 (78) (78) (78) (78)

Current Liabilities 13,413 18,117 21,907 24,812 29,197

Provisions 1,164 1,241 1,179 1,669 1,929

Total 68,943 82,013 102,542 108,639 118,524

Cash Flow Statement (Consolidated)


Profit Before Tax 6,254 6,784 7,461 10,013 13,201

Total Adjustments 3,778 4,273 7,070 6,260 6,074

Change in Working Capital 4,024 (1,884) (3,130) (1,333) (1,170)

Direct Taxes Paid (853) (885) (1,280) (1,802) (2,376)

Others 0 0 0 0 0

Cash Flow from Operations 13,203 8,288 10,122 13,137 15,729

Net Investment in GFA (2,315) (7,108) (14,500) (3,300) (2,800)

Sale of Fixed Assets 30 147 0 0 0

Others 2,482 (448) 0 0 0

Cash Flow from Investment (2,432) (9,133) (14,500) (3,300) (2,800)

Proceeds from Issue of shares 0 0 0 0 0

Proceed from Issue of Debentures 0 0 0 0 0

Proceed from LT Borrowings 2,850 2,888 14,500 3,300 2,800

Proceed from ST Borrowings 0 0 0 0 1

Repayment of f the L T Borrowings 0 0 (2,529) (7,453) (6,622)

Repayment of f the S T Borrowings 0 0 0 0 0

Dividend Paid (667) (944) (953) (1,356) (1,764)

Interest Paid (1,844) (1,095) (4,147) (2,981) (2,649)Others (225) (1,016) 0 0 0

Cash Flow from Financing 114 (167) 6,871 (8,489) (8,234)

Net Cash Flows 10,884 (1,012) 2,493 1,347 4,695

Op bal of cash 5,539 16,178 15,659 18,152 19,499

Transferred to B/S 16,423 15,166 18,152 19,499 24,194


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Director Name Current Position Description

Rajju Shroff Chairman of the Board, Managing Director

Mr. Rajju D. Shroff is the Director of United Phosphorus Limited since 1 October, 1992. He is also the Chairman and Manag

of the Company. He has been associated with the group since incepti on. He has extensive experience in the chemical i nd

has been closely involved with the Research and Development of all the Groups products. Hi s technical expertise was inst

in United Phosphorus Limited winning the Governments Gold Shield Award. He has held various important positions in co

educational and social fields. He is al so a Director on the Board of various other public limited companies, viz. Uniphos Ent

Limited, Uniphos Agro Industries Limited, Enviro Technology Limited, Nivi Trading Limited, Shroff United Chemicals Limite

Corporation Limited, Pradeep Metals Limited, Bharuch Enviro Infrastructure Limited, Agri Net Solutions Limited, Vapi Efflu

Management Co. Limited, Search Enviro Limited, Uniphos Enviro Limited and JRF Biogenomics Limited.

Sandra Shroff Non-Exec utive Vice Chairman of the Board

Mrs. Sandra R. Shroff is Non-Executive Vice Chairman of the Board of United Phosphorus Limited She is the Director of the

since 1st October, 1992. She has been associated with Uniphos Enterprises Ltd. (erstwhile United Phosphorus Ltd.) since it

She has held various important positions in commercial, educational and social fields. She is on the Board of Uniphos Ente

Uniphos Agro Industries Ltd., Enviro Technology Ltd., Nivi Trading Ltd., Shroff United Chemicals Ltd., Bharuch Enviro I nfras

Ltd., Vapi Waste and Effluent Management Co. Ltd., Ventura Guaranty Ltd. and UPL Environmental Engineers Ltd.

Jaidev Shroff Global CEO of the Group, DirectorMr. Jaidev R. Shroff is Global CEO of the Group, Director of United Phosphorus Ltd. He is is the Director of the Company sinOctober, 1992 and is a science graduate. He has worked with the Group for more than 18 years. He has substantial experie

various areas of the Groups operations. He is also a Director on the Board of various other public limi ted companies

A. Ashar Director - Finance, Whole-time Director

Mr. Arun C. Ashar is Director - Finance, Whole-time Director of United Phosphorus Limited since March, 1993. He is a Chart

Accountant. He was associated with the group in the capacity of consultant prior to his joining of the Board. He.Iooks after

financial functions of the Company and has been instrumental in raising finance for various projects of the Company.

Kalyan Banerjee Whole Time Director

Mr. Kalyan M. Banerjee is Whole Time Director of the United Phosphorus Ltd since 21 October, 2003. He is a Chemical Engi

has been associated with the Uniphos Enterprises Limited (erstwhile United Phosphorus Limited) since its, inception. He h

various important positions in commercial, educational and social fi elds. He has been the Director of Rotary International a

activeFy associated with all the Rotary projects

Vikram Shroff Executive Director

Mr. Vikram R. Shroff is Executive Director of United Phosphorus Limited . He is Sci ence graduate from University of Mumba

been associated with the group since 1997. He looks after HR functions, Purchase, Commercial, Marketing (IocI), productio

departments and SAP implementation in the o rganization. He is onthe Board of Bharuch Enviro Infrastructure Ltd. and Ag

Solutions ltd.

Chirayu Amin Independent Non-Executive Director

Mr. Chirayu R. Amin is Independent Non-Executive Director of United Phosphorus Limited. He is a Science graduate and M

Business Administration. Presently, he is the Chairman nd Managing Director of Alembic Limited. He represented the indu

various associations and federations such as FICCI, International Chambers of Commerce, Federation of Gujarat Industries

keenly interested in sports and presently he is the Vice-President of Cricket Control Board of India. He has many years of ex

in business. He is also Chairman of Alembic Glass Industries Ltd. and Paushak Ltd.

Pradeep Goyal Independent Non-Executive Director

Mr. Pradeep Goyal is Independent Non-Executive Director of United Phosphorus Limited since 31 january, 2002. He is a Me

Engineer from IIT and Master Graduate from MIT, USA. He has been the member of various associations such as All India

Manufacturers Organisation, ASSOCHAM, Indo-German Chambers of Commerce, etc.

P. Krishna Independent Non-Executive Director

Dr. P. V. Krishna is Independent Non-Executive Director of United Phosphorus Ltd since 31 January, 2002. He is a member o

Committee, Shareholders/Investors Grievance Committee and Remuneration Committee. He is Ph.D.(Tech.). He is a Chem

technologist with specialization in chemicals and petrochemicals. He has over 40 years experience in Research & Develop

industry and held various positions in Government of Gujarat and Government of India.

Board Of Directors

UPL (United Phosphorous) report

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