INDIA’S leading agrochemical player United Phosphorous posted a 37% growth in its fourth quarter profits at Rs 220 crore after a stagnancy in the first three quarters of the year. This enabled the company to end the year with 10% higher profit at Rs 530 crore.
The company’s performance in the earlier quarters was affected mainly due to its high cost raw material inventory and slowdown in the US and European demand. The March 2010 quarter saw the company benefiting from the raw materials purchased at lower prices, while the sales growth was driven by strong performance in regions other than the US, Europe and India.
In view of the economic slowdown, the company is highly conservative on its next year growth projections. While the sales in the US and EU, which together contributed over half of the company’s FY10 revenues, are expected to grow less than 5%, a double-digit growth in the India and rest of world can help it post around 10% sales growth. It also hopes to expand its EBITDA margins, thanks to its restructuring exercises this year. The growth in net profit could be higher as indicated by stagnating interest and depreciation costs of FY10.
The company, which had made a series of large-ticket acquisitions between FY05 and FY08 and spent last two years consolidating, has again started looking out for inorganic growth opportunities. It is currently carrying over Rs 1,800 crore of cash in its books and aims to complete at least one acquisition during FY11.
After a year of dip in dividend rate, UPL has again gone back to paying 100% dividend on its Rs 2 face value shares, which works out to 1.4% dividend yield. At the current market price of Rs 147.85, the scrip is trading 12.3 times its consolidated profits for FY10. For a company, which is a leader in its segment, this valuation appears inexpensive for long-term investors.
The company’s performance in the earlier quarters was affected mainly due to its high cost raw material inventory and slowdown in the US and European demand. The March 2010 quarter saw the company benefiting from the raw materials purchased at lower prices, while the sales growth was driven by strong performance in regions other than the US, Europe and India.
In view of the economic slowdown, the company is highly conservative on its next year growth projections. While the sales in the US and EU, which together contributed over half of the company’s FY10 revenues, are expected to grow less than 5%, a double-digit growth in the India and rest of world can help it post around 10% sales growth. It also hopes to expand its EBITDA margins, thanks to its restructuring exercises this year. The growth in net profit could be higher as indicated by stagnating interest and depreciation costs of FY10.
The company, which had made a series of large-ticket acquisitions between FY05 and FY08 and spent last two years consolidating, has again started looking out for inorganic growth opportunities. It is currently carrying over Rs 1,800 crore of cash in its books and aims to complete at least one acquisition during FY11.
After a year of dip in dividend rate, UPL has again gone back to paying 100% dividend on its Rs 2 face value shares, which works out to 1.4% dividend yield. At the current market price of Rs 147.85, the scrip is trading 12.3 times its consolidated profits for FY10. For a company, which is a leader in its segment, this valuation appears inexpensive for long-term investors.
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