>United Phosphorus (CITI)

Buy: Strong Biz, Concerns Overdone; Raise TP to Rs183/sh

* Concerns overdone — We believe that UPL’s valuations do not reflect its strong fundamentals due to overplayed concerns on industry growth and pricing prospects. Our discussion with UPL and channel checks along with recent
earnings and management speak from global peers suggest that while the outlook is more cautious than 6 months back, things are better than is being perceived. Maintain as one of our top picks with a 14% higher TP of Rs183/sh.

* Global cues — Besides good results, management speak from global peers indicate that farm economics and demand are sound across markets, with the exception of some LatAm countries. The outlook for the next fiscal is strong in most cases and concurs with our positive view on UPL’s business.

* B/S strength could throw up opportunities — UPL has a steady B/S, with net D/E of 0.6x, low refinancing risk (most debt redeemable in 2011) and rising cash flows. As asset valuations come off, we believe UPL is one of the few
players positioned to be an active participant in any industry consolidation.

* Adjusting earnings — We believe conversion of warrants issued to promoters in Oct'07 is now unlikely. Our FY10-11E PAT estimates are lower by 4% due to lower other income, but the lower share count leads to c6-7% higher EPS.

* Core thesis — UPL is among the fastest growing and most profitable generics crop protection firms in the world. Its presence in regulated markets and low cost manufacturing base in India give it a competitive edge, while growing
scale and cash flows provide the ability to seed growth. At 7xFY10E earnings, the stock appears very attractive in light of the 30% EPS CAGR (FY08-11E).

To see full report: UNITED PHOSPHORUS