United Phosphorus Limited (UPL), incorporated in 1969, is a leading global producer of crop protection products, intermediates, specialty chemicals and other industrial chemicals. UPL is present across the value added Agri inputs, ranging from seeds to crop protection and post harvest activity. It is the largest manufacturer of agrochemicals in India and offers a slew of products that includes insecticides, fungicides, herbicides, fumigants, PGR and rodenticides. The customer base is spread across 86 countries and the company ranks amongst the top 5 post – patent agrochemical manufacturers in the world.

INVESTMENT THESIS

• Company is one of the largest global generic players in crop protection. It has expanded its product profile and strengthened its distribution network through strategic acquisitions (both company and product) in key and emerging markets. The company is now well poised to leverage the increasing conversion to generics globally.

• Well integrated operations of United Phosphorus coupled with adherence to international technical and quality control norms has enabled it to gain a strong foothold in the global market. With this it de-risks its business as international markets contribute over 75% to its revenues.

• Its recent acquisitions of Mancozeb (brand acquisition from Dow in June 2010) and RiceCo (rice herbicide specialist acquired in December 2010) are expected to add ~US$100m to revenues in FY11. These acquisitions strengthen its presence in these molecules and provide access to markets (Latin America access due to Mancozeb) and ability to cross-sell (rice herbicides through RiceCo's network).

• Benefits of restructuring at Cerexagri, the Spain plant and at Rotterdam would be visible in 4QFY11 and FY12 numbers.

Valuations: Company witnessed positive operational performance in FY10 unlike a year ago. We expect strong momentum in profitability given the healthy margins and robust business growth. Also, the business environment for the agro-chemical industry has been improving gradually. Stock trades at just 11.46x and 8.75x multiple of our estimated FY11E & FY12E EPS of Rs. 12.3 and Rs. 16.1. Hence, we recommend BUY on United Phosphorus.