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United Phosphorus: Short-term hiccups

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Niraj Bhatt Mumbai
Last Updated : Feb 05 2013 | 2:36 AM IST
Rising expenses and subdued sales had a bearing on the numbers.
 
The financial performance of crop protection major United Phosphorus' in the September 2007 quarter was disappointing.

The company's standalone sales, which account for 42 per cent of its consolidated sales, grew at an annual 2.7 per cent. However, the consolidated sales growth, which is not strictly comparable, was impressive at 73 per cent y-o-y to Rs 885 crore.

This was because the sales growth in international markets was over 100 per cent and domestic sales were up 15 per cent. The company had acquired Europe-based Cerexagri, which contributed to nearly a third of its consolidated revenues.

However, the operating profit growth was just 34 per cent as total expenses increased by a staggering 86 per cent. Consequently, the operating profit margin declined by 580 basis points to 19.5 per cent.

Besides the low prevailing margins in India compared with regulated markets, Cerexagri's margins are below 10 per cent compared with around 25 per cent reported by the rest of the company.
 
An increase of 51 per cent in interest costs and a 36 per cent rise in depreciation were responsible for a mere 22 per cent increase in net profits.
 
The stock of United Phosphorus has been an underperformer since the beginning of October, declining by 8 per cent vis-a-vis the Sensex gains of 4 per cent.
 
Going forward, positive triggers for the stock are the integration of Cerexagri, product approvals in the regulated international markets and the company's success and track record in pursuing inorganic growth plans.
 
The integration of Cerexagri's operations with the company has already begun and will take two more quarters. If it can improve Cerexagri's margins, the stock will do well.
 
The management of United Phosphorus has maintained its guidance of 15-20 per cent growth in revenues and 25 per cent operating margins for FY08, excluding Cerexagri.
 
Besides, United Phosphorus has a 49.9 per cent stake in Advanta which is valued at Rs 47 a share. At Rs 330, the stock trades at about 20 times and 15 times estimated earnings for FY08 and FY09 respectively.
 
Varun Shipping: Fine mettle
 
Varun Shipping reported an improved performance in the September 2007 quarter, in spite of the weak spot freight rates globally, thanks to its focus on niche markets in the Caribbean and US. It also ramped up its presence in the booming offshore market.

The shipping company's core operating profits grew 31.5 per cent y-o-y to Rs 107.4 crore in Q2 FY08, while its freight and charter hire income expanded 18.1 per cent to Rs 201.4 crore.

Its operating profit margin also expanded 550 basis points y-o-y to 53.3 per cent in the last quarter. In contrast, the operating profit margin in the June 2007 quarter had declined 490 basis points on a yearly basis to 56.6 per cent.

The average spot freight rates in tanker segments such as VLCC (very large crude carriers) were $15,226 a day in the September 2007 quarter, compared with $57,332 a year earlier, point out analysts. However, the focus on niche markets helped to offset the decline in spot freight rates.
 
Varun Shipping has four anchor handling towing and supply vessels, which it deploys with upstream oil players.
 
The boom in oil exploration benefited Varun in the second quarter as the spot day hire rates were estimated at $100,000 a day in Q2 FY08 compared with $30,000 a day, a year earlier.
 
The spot freight rates in the key tanker segment are considerably lower on a year-on-year basis, but have shown signs of improvement on a sequential basis.
 
The company is expected to continuously leverage the booming market for deploying vessels to upstream oil players. At Rs 72, the stock trades at a reasonable seven times FY07 earnings.
 
With contributions from Priya Kansara and Amriteshwar Mathur

 
 

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First Published: Nov 23 2007 | 12:00 AM IST

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