Higher other income, lower depreciation cost help United Phosphorus

Higher other income, lower depreciation cost help United Phosphorus

United Phosphorus Ltd’s gross consolidated revenue for the quarter ended December increased by 8% on a year-on-year basis to Rs1,250 crore. Even as revenue from the rest of world was strong, the poor performance of Europe and North America offset that to some extent.

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The rest of world region accounted for 43% of total revenue and grew by 38% but that from Europe, accounting for 16% of the total, fell 24%. North America revenue accounted for 14% of the total and fell 4%. The rest of the revenue came from India. The company also had to bear the impact of adverse foreign currency movements.

But operating profit margins improved by 100 basis points, or 1 percentage point, to 18% from 17% in the same period last year.

Operating profit thus grew at a relatively faster pace than revenue at 13% to Rs221 crore. That along with higher other income and a decline in depreciation costs helped profit before tax grow by 22% to Rs109 crore.

The company has given 20-21% operating margin guidance for this fiscal year; for the nine months ended December operating margin stood at 19%. Revenue guidance has been reduced to 5% for this fiscal compared with the earlier guidance of 10-15%. That’s one of the reasons why the stock was under pressure in the recent past and has corrected by 28% to Rs155 from its high of Rs216 on 25 October.

At the current level, the stock seems to be factoring in most of the negative news, making valuations attractive.

The 5% full-year revenue growth guidance would involve revenue growth of around 18% in the March quarter given the fact that revenue growth was flat in the nine months ended December. The March quarter normally tends to be stronger for United Phosphorus, but even so it does cast some doubt about whether the company can meet its guidance for the full year.

Graphics by Yogesh Kumar/Mint

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