Buy United Phosphorus - Update on Brazilian Acquisition - Motilal Oswal

UNITED PHOSPHORUS: Acquisition of 50% stake in Sipcam Isagro (Brazil); To boosts its nascent Brazilian operations; Buy

United Phosphorus (UNTP) is in the process of buying 50% stake in Sipcam Isagro Brazil (SIB) from Isagro.

SIB is a 50:50 JV between Sipcam-Oxon group and Isagro. Isagro is exiting this JV to focus on its core competency of R&D and reduce its financial gearing.

SIB specializes in manufacturing formulations (plant in Brazil) and distribution of agrochemicals, with strength in insecticides and fungicides.

Based on Isagro's financial statements, SIB had revenues of ~US$113m and PBIT margins of 9-10% in CY09. SIB doesn't have significant long term debt.

This acquisition would add ~US$45-50m to UNTP's revenues in FY12 (for 50% stake), driving 3-4% of revenue growth.

More importantly, it strengthens UNTP's presence in US$7b Brazilian agrochem market, where it has nascent operations. Over long term, we believe this acquisition has potential to drive performance as it leverages UNTP's product portfolio. Our estimates are yet to factor in this acquisition. The stock trades at 9x FY12E EPS of Rs17.3 and 7x FY13E EPS of Rs20.8. Maintain Buy with target price of Rs208 (~10x FY13E EPS).

Source : Equity Bulls

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