Tuesday, September 21, 2010

Stock Idea: United Phosphorus Ltd.

Profitability to improve going ahead: A slowdown in revenue growth coupled with the deterioration in the earnings before interest, tax, depreciation and amortisation (EBITDA) margin led to a contraction in the return ratios during the year under review. The return on capital employed (RoCE) contracted to 14.9% in FY2010 from 16.4% in FY2009 and the return on equity (RoE) declined by 50 basis points to 17.6%. Going ahead, the EBITDA margin is expected to improve as (1) the high-cost inventory moves out of the system and (2) the benefits from the restructuring of Cerexagri accrue. The improvement in the margin coupled with a stronger top line growth (due to a pick-up in the demand in Europe and North America) will lead to an improvement in the return ratios

Maintain Buy with a price target of Rs220: At the current market price of Rs187.5 the stock trades at 11.6 times its FY2011E earnings per share (EPS) and 10.1 times its FY2012E EPS. We maintain our Buy recommendation on the stock with a price target of Rs220

Source: Internet (Valuenotes by Sharekhan)

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