An eighteen per cent drop in earnings should normally lead to a run on the share price but the United Phosphorus scrip has actually risen by about six per cent to Rs 106 after the results were announced. Its performance in the domestic market was affected by oversupply in the phosphorus-based pesticides market leading to an 8.1 per cent drop in turnover in 1997-98. Consequently, the net profit was also down 19.4 per cent to Rs 22.2 crore.
The EPS, if the domestic results are considered, has gone down from Rs 11.2 to Rs 9 but if the consolidated figure is considered, it has increased to Rs 24. This could be the reason why the share price has moved up by almost 40 per cent in one week.
Organic phosphorus-based pesticides like monocrotophos have seen a downtrend in domestic prices in the last 4-5 years. To take care of the lower price realisations in the domestic market, the company gave more thrust to its exports and set up wholly owned subsidiaries abroad. The market in countries like South Africa and the rest of South East Asia is relatively large. The company has a huge capacity for intermediates of these products, namely tri-methyl phosphate, giving it the benefits of backward integration.
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Hence, losses in the domestic market have been partly offset through exports. If exceptional items like exchange difference on revaluation of ECB for UPL-India are ignored while computing the group net profit, the group net profit goes up to Rs 59 crore which is 1.68 times that of United Phosphorus.
As per market sources, international operations have got a major boost due to the acquisition of a Danish firm, Agrodan, through its UK subsidiary during the year. This has given it a stronger hold in the European market. The earnings from the subsidiaries seem to have improved the interest coverage ratio marginally from 1.68 to 1.83 after taking the revaluation into account.