1QFY2014 Result Update | Agrichemical

July 25, 2013

United Phosphorus
Performance Highlights
Y/E March (` cr) Net sales Other income Gross profit Operating profit Adj. net Net profit
1QFY2014 2,410 73 1182 411 213 4QFY2013 2773 66 1322 489 292 % chg (qoq) (13.1) 9.1 (10.5) (16.0) (27.3) 1QFY2013 2180 69 1039 353 203 % chg (yoy) 10.5 4.7 13.8 16.4 4.8

BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Agrichemical 6,484 2,655 0.9 168/107 225268 2 20,091 5,991 UNPO.BO UNTP@IN

`143 `225
12 Months

Source: Company, Angel Research

For 1QFY2014, United Phosphorus (UPL) revenue grew by 10.5% yoy to `2,410cr and Adj. net PAT grew by 4.8% yoy to `213cr. For FY2014, the Management has maintained its guidance of a revenue growth of 12-15% and OPM (incl. other income) expansion of 100bp. However, even after factoring in the conservative numbers, the stock is quoting at an attractive valuation of 6.3x FY2015E EPS and hence, we maintain our Buy rating on the stock. OPM improves yoy : The company has reported a top-line growth of 10.5% yoy for the quarter to `2,410cr. The top-line growth was driven by the domestic business, which grew by 24.0%. Among the key markets - North America degrew by 23% and Europe posted a growth of 18%. Other key markets which showed significant improvement were RoW, which posted a growth of 43% yoy, and Latin America which grew by 12% yoy. The top-line growth was driven by a 7% volume growth, while the price rise was of around 2%. The exchange impact on sales growth was of around 2%. On the operating front, the company reported an EBITDA margin expansion of 80bp to 17.0% (16.2% in 1QFY2013). This aided the net profit to grow by 4.8% yoy to end the period at `213cr, on account of a high interest expense. Outlook and valuation: We expect UPL to post a CAGR of 12.0% and 15.0% in its sales and PAT respectively, over FY2013-15. At the current valuation of 6.3x FY2015E EPS, the stock is attractively valued. Hence, we maintain our Buy recommendation on the stock with a revised target price of `225.

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 28.9 22.0 39.9 9.2

Abs. (%) Sensex UPL

3m 4.8 10.4

1yr 18.8 15.0

3yr 10.8 (21.1)

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) FY2012 7,534 33.4 561 1.6 16.0 12.2 11.7 1.6 14.2 14.4 1.1 6.7 FY2013E 9,010 19.6 754 34.3 16.0 17.0 8.4 1.4 17.1 14.4 1.0 6.0 FY2014E 10,091 12.0 850 12.8 16.5 19.2 7.4 1.2 17.0 14.8 0.8 5.0 FY2015E 11,302 12.0 998 17.3 16.5 22.5 6.3 1.0 17.2 15.4 0.7 4.1

Sarabjit Kour Nangra

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

Source: Company, Angel Research; CMP as of July 24, 2013

Please refer to important disclosures at the end of this report

United Phosphorus | 1QFY2014 Result Update

Exhibit 1: 1QFY2014 Performance (Consolidated)

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin (%) Operating profit Operating margin (%) Financial cost Depreciation PBT Provision for taxation PAT Before Exc. And MI Minority Income from Associate Extra ordinary Income/( Exp.) Reported PAT Adjusted PAT EPS (`)
Source: Company, Angel Research

1QFY2014 2,410 73 2,482 1182 49.1 411 17.0 136 86 261 68 193 (19) 1 0 213 213 4.8

4QFY2013 2,773 66 2,839 1322 47.7 489 17.6 130 102 323 19 305 6 (19) (14) 278 292 6.3

% chg (qoq) (13.1) 9.1 (12.6) (10.5) (16.0) 4.6 (15.5) (19.3) 266.9 (36.8)

1QFY2013 2,180 69 2,250 1039 47.6 353 16.2 111 73 238 70 167 (31) 5 0

% chg (yoy) 10.5 4.7 10.3 13.8 16.4 22.4 17.6 9.9 (2.9) 15.2

FY2013 9,010 284 9,294 4323 48.0 1442 16.0 429 354 944 203 741 (2) 32 27

FY2012 7,534 229 7,764 3476 46.1 1206 16.0 415 292 729 128 601 5 (40) (5) 556 561 12.2

% chg 19.6 23.9 19.7 24.4 19.6

21.0 29.5 58.7 23.3

(23.6) (27.3)

203 203 4.4

4.8 4.8

775 754 17.0

39.4 34.3

Moderate top-line growth

For 1QFY2014, the top-line grew by 10.5% to `2,410cr. The top-line growth was driven by the domestic business, which grew by 24.0%. Among the key markets, North America de-grew by 23% and Europe posted a growth of 18%. Other key markets which showed significant improvement were RoW, which posted a growth of 43% yoy, and Latin America which grew by 12% yoy. The top-line growth was driven by a 7% volume growth, while the price rise was of around 2%. The exchange impact on sales growth was of around 2%.

Exhibit 2: Sales performance

3,000 2,700 2,400 2,100 1,800 1,500 1,200 900 600 300 0 1QFY2013 2QFY2013 3QFY2013 4QFY2013 1QFY2014 2,180 1,802 2,255 2,773 2,410

Exhibit 3: Growth break-up

8.0 7.0 6.0 5.0 7.0

( ` cr)

(%)

4.0 3.0 2.0 1.0 0.0 Exchange impact Realisation Volume 2.0 2.0

Source: Company, Angel Research

Source: Company, Angel Research

July 25, 2013

United Phosphorus | 1QFY2014 Result Update

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

40 35 30 25

(%)

20 15 10 5 0 1QFY2013 2QFY2013 5 4 5 2

15

16

7 4 2 1QFY2014

3QFY2013 4QFY2013 Realisation Volume

Source: Company, Angel Research

EBITDA margin improves yoy

During 1QFY2014, the gross profit margin expanded by 142bp yoy on back of an improved sales mix, which aided the operating margin to expand by 80bp to end the period at 17.0%. The expansion in the OPM was below the Gross Profit Margin expansion, on account of a 13.3% rise in the other expenditure.

Exhibit 5: EBITDA margin trend

20 19 18 17 16 18 17 16 15 16

(%)

15 14 13 12 11 10

1QFY2013

2QFY2013

3QFY2013

4QFY2013

1QFY2014

Source: Company, Angel Research

Adj net profit grew 4.8% yoy

While the operating profit for the quarter grew 16.4% yoy, the adjusted net profit grew only by 4.8% yoy due to a higher interest expense which came in at `135.8cr vs `110.94cr in 1QFY2013. Thus the adjusted net profit came in at `212.6cr vs `202.9cr during the corresponding period of last year.

July 25, 2013

United Phosphorus | 1QFY2014 Result Update

Exhibit 6: Adjusted PAT trend

350 300 250 203 173 120 292 80 70 60 213 50

(` cr)

200 150 100 50 0 1QFY2013 2QFY2013

30 20 10 0 3QFY2013 Adj PAT 4QFY2013 % YoY 1QFY2014

Source: Company, Angel Research

July 25, 2013

(%)

40

United Phosphorus | 1QFY2014 Result Update

Investment arguments
Agrichemical A highly companies in sweet spot consolidated industry, generic

The global agrichem industry, valued at ~US$45bn (CY2012E), 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, while in generic, the top-5 companies occupy 61% of market share (of the 40% off-patent market). In fact, from an overall market perspective, the top 11 players control 84% of the total agrichemical market. This is due to high entry barriers by way of investments required for product registration and to set up manufacturing facilities. Thus, one-third of the total pie worth ~US$15bn, which is controlled by the top six innovators through proprietary off-patent products, provides a high-growth opportunity for larger integrated generic players such as UPL. Moreover, as we go forward, around US$7bn worth of the products would be going off-patent in the next 2-3 years, augmenting the overall growth opportunity for generic players like 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 1998-2006, 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 CY2013-14, the global economy is expected to grow by 2-3%. 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 6-8% yoy growth during the period and garner a market share of 44-45%.

A leading fast growing global generic play

Over the last 10 years, UPL has evolved from being a small regional player focused on technical and generic formulations of crop protection, to a global player focused on formulations and offering crop solutions (seeds, crop protection and adjacent technologies). It now enjoys leadership in 10 products globally. Acquisitions (28 in last 10 years) have played a key role in UPL's evolution over the last 10 years; the company has outgrown the industry over the last 5 years, having grown at ~21% CAGR, with an ~16.8% CAGR organic growth. UPL now has presence in all the key markets, with presence in 70 countries and hence no major acquisition is expected by it in order to gain market access. Going forward, the company expects a) new product launches (company expects to participate in 30% of the products going off patent), b) collaborations, c) penetrating emerging markets, d) crop diversification and e) adjacent technologies to maintain its growth momentum.

July 25, 2013

United Phosphorus | 1QFY2014 Result Update

Outlook and valuation

Over the last few years, the global agriculture sector has been 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$7bn over the next 2-3 years. We estimate UPL to post a 12.0% and 15.0% CAGR in sales and PAT, respectively, over FY2013-15. The stock is trading at an attractive valuation of 6.3x FY2015E EPS. Hence, we maintain our Buy recommendation on the stock with a target price of `225.

Exhibit 7: Key assumption

FY2014E Sales growth EBITDA margin Tax rate
Source: Company, Angel Research

FY2015E 12.0 16.5 20.0

12.0 16.5 20.0

Exhibit 8: P/E band

350 300 250 200 150 100 50 0

01-Jan-05

01-Jan-06

01-Jan-07

01-Jan-08

01-Jan-09

01-Jan-10

01-Jan-11

01-Jan-12

01-Jan-13

01-Jul-04

01-Jul-05

01-Jul-06

01-Jul-07

01-Jul-08

01-Jul-09

01-Jul-10

01-Jul-11

01-Jul-12

Source: Company, Angel Research

Exhibit 9: Peer valuation

Company Rallis Reco Neutral Mcap CMP (` cr) 2,948 6,484 United Phosphorus Buy (`) 152 TP (`) 57.3 Upside (%) P/E (x) FY13E 22.2 7.4 FY14E 19.1 6.3 EV/Sales (x) FY13E 1.7 0.8 FY14E 1.5 0.7 EV/EBITDA (x) FY13E 12.3 5.0 FY14E 10.7 4.1 RoE (%) FY13E 20.0 17.0 19.6 17.2 CAGR (%) PAT 14.8 12.5 12.0 15.0 FY14E Sales

143 225

Source: Company, Angel Research, Bloomberg

July 25, 2013

01-Jul-13

United Phosphorus | 1QFY2014 Result Update

Company Background
United Phosphorus Ltd (UPL) is a global generic crop protection, chemicals and seeds company. The company is fully backward and forward integrated by taking advantage of the consolidation opportunities within the agrochemical industry. UPL is the largest Indian agrochemical company and had revenue of about `9,010cr for year ended March 2013.

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 FY2010 FY2011 FY2012 FY2013 FY2014E 5,290 5,290 6.4 4,486 2,954 318 491 723 804 (14.8) 15.2 215 590 (21.6) 11.1 194 218 36 614 22.3 (15) 599 85 14.3 513 19 6 526 543 16.6 10.3 12.4 12.4 16.6 5,650 111 5,761 8.9 4,708 2,902 514 515 778 942 17.1 16.7 214 839 42.3 14.6 312 131 20 658 7.2 6 664 73 11.0 591 (23) 10 558 552 1.7 9.8 12.0 12.0 (3.2) 7,534 137 7,671 33.2 6,328 4,058 590 686 994 1,206 28.1 16.0 292 1,051 25.3 13.7 415 97 13 734 11.4 (5) 729 128 17.6 601 (40) 5 556 561 1.6 7.5 12.2 12.2 1.6 9,010 184 9,195 19.9 7,568 4,687 741 853 1,287 1,442 19.6 16.0 354 1,273 21.1 13.8 429 73 8 917 25.0 27 944 203 21.5 741 32 (2) 775 754 34.3 8.4 17.0 17.0 40.1 10,091 184 10,276 11.8 8,426 5,436 790 919 1,282 1,665 15.5 16.5 388 1,462 14.9 14.2 546 100 10 1,016 10.8 1,016 203 20.0 812 36 (2) 850 850 12.8 8.4 19.2 19.2 12.8 FY2015E 11,302 184 11,487 11.8 9,437 6,088 885 1,029 1,435 1,865 12.0 16.5 409 1,641 12.2 14.3 546 100 8 1,194 17.6 1,194 239 20.0 956 41 (2) 998 998 17.3 8.8 22.5 22.5 17.3

July 25, 2013

United Phosphorus | 1QFY2014 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 Other Long term liabilities Long Term Provisions Deferred Tax Liability Total Liabilities APPLICATION OF FUNDS Gross Block Less: Acc. Depreciation Net Block Capital Work-in-Progress Goodwill / Intangilbles Investments Long Term Loan & Adv. Current Assets Cash Loans & Advances Other Current liabilities Net Current Assets Others Total Assets 4,324 1,578 521 2,277 1,462 2,863 5,437 3,210 1,920 1,290 41 482 761 3,947 2,174 1,773 57 548 823 220 4,777 700 326 3,751 1,709 3,068 6,488 4,687 2,605 2,082 306 1,141 795 321 5,625 1,566 602 3,458 2,111 3,514 8,158 5,386 3,173 2,213 378 1,277 1,025 277 7,154 1,548 852 4,754 2,807 4,346 9,516 5,686 3,561 2,125 378 1,277 1,025 310 8,265 1,987 954 5,324 3,144 5,121 10,236 5,986 3,969 2,016 378 1,277 1,025 348 9,580 2,548 1,069 5,963 3,522 6,058 11,102 11 5,437 88 2,904 2,992 14 2,419 92 3,634 3,726 18 2,679 42 31 (8) 6,488 92 4,081 4,173 250 3,389 301 51 (6) 8,158 89 4,557 4,645 234 4,203 395 51 (13) 9,516 89 5,278 5,366 233 4,203 395 51 (13) 10,236 89 6,146 6,235 231 4,203 395 51 (13) 11,102 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

July 25, 2013

United Phosphorus | 1QFY2014 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 adv. 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 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E 599 215 604 (81) 1,336 175 (328) (153) (285) (103) 228 (160) 1,024 554 1,578 664 214 (1,251) (73) (446) (753) (62) (815) 312 (333) (108) (455) (583) (878) 1,578 700 729 292 318 (128) 1,211 (989) 29 (961) (989) (134) 1,738 615 866 700 1,566 944 354 (806) (203) 288 (771) (231) (1,002) (908) (129) 1,733 696 (18) 1,566 1,548 1,016 388 (369) (203) 831 (300) (300) 0 (129) 37 (93) 439 1,548 1,987 1,194 409 (414) (239) 950 (300) (300) 0 (129) 40 (89) 561 1,987 2,548

July 25, 2013

United Phosphorus | 1QFY2014 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) WCcycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Int.) 0.6 1.7 3.0 0.3 1.0 2.7 0.5 2.1 2.5 0.4 1.5 3.0 0.6 1.8 2.7 0.4 1.3 3.0 1.6 93 87 80 111 1.6 76 87 102 118 1.8 78 93 102 105 1.8 78 102 108 96 1.9 85 85 70 107 2.0 85 85 70 107 11.5 17.1 19.2 14.1 20.8 16.4 14.4 19.5 14.2 14.4 20.0 17.1 14.8 20.6 17.0 15.4 22.2 17.2 11.1 85.7 1.5 14.7 7.3 0.4 17.9 14.6 89.0 1.4 18.2 10.9 0.4 21.1 13.7 82.4 1.4 15.8 11.3 0.5 18.0 13.8 78.5 1.4 15.4 8.9 0.5 18.6 14.2 80.0 1.4 16.2 10.4 0.5 19.1 14.3 80.0 1.5 17.5 10.4 0.3 19.9 12.4 12.4 17.2 2.0 68.1 12.0 12.0 16.6 2.0 80.7 12.2 12.2 18.5 2.5 90.4 17.0 17.0 25.0 2.5 105.0 19.2 19.2 28.0 2.5 121.2 22.5 22.5 31.8 2.5 140.9 11.5 8.3 2.1 1.4 1.4 8.9 1.3 11.9 8.6 1.8 1.4 1.5 8.7 1.3 11.7 7.7 1.6 1.8 1.1 6.7 1.0 8.4 5.7 1.4 1.8 1.0 6.0 0.9 7.4 5.1 1.2 1.8 0.8 5.0 0.8 6.3 4.5 1.0 1.8 0.7 4.1 0.7 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

July 25, 2013

10

United Phosphorus | 1QFY2014 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 Pvt. 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 Pvt. 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 Pvt. 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 Pvt. 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 Pvt. 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 Pvt. 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 Pvt. 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%)

July 25, 2013

11