3QFY2017 Result Update | Agrichemical
January 27, 2017
United Phosphorus
NEUTRAL
CMP
`740
Performance Highlights
Target Price
-
Y/E March (` cr)
3QFY2017 2QFY2017
% chg (qoq) 3QFY2016
% chg (yoy)
Investment Period
-
Net sales
3,855
3510
9.8
3259
18.3
Other income
164
8
1,945.4
198
(17.6)
Stock Info
Gross profit
2052
1483
38.4
1763
16.4
Sector
Agrichemical
Operating profit
685
699
(1.9)
479
43.0
Market Cap (` cr)
37,506
Adj. net profit
457
430
6.2
300
52.4
Source: Company, Angel Research, 2QFY2017 and 2QFY2016 numbers include Advanta seed numbers
Net Debt (` cr)
1,113
Beta
1.0
UPL posted robust numbers for 3QFY2017. In sales, the company posted gross
52 Week High / Low
755/342
revenues of `3,987cr v/s `3,377cr in 3QFY2016, growth of 18% yoy. The growth
Avg. Daily Volume
124,988
was driven by volume (18% yoy), while price dip was around 3% and exchange
Face Value (`)
2
gains added 3% to the top-line rise. On EBITDA front, the company posted an
BSE Sensex
27,708
EBITDA of 17.8% v/s 14.7% in 3QFY2016. Along with this, dip of 15% and 2% in
Nifty
8,603
the deprecation & finance cost respectively aided the PBT to grow by 68% yoy.
Reuters Code
UNPO.BO
Consequently, PAT came in at `457cr v/s `300cr in 3QFY2016, growth of 52.4%
Bloomberg Code
[email protected]
yoy. The management has maintained guidance of 12-15% revenue growth (owing
to presence in fast-growing countries) and 60-100bps improvement in EBITDA margin.
We maintain our neutral rating on the stock.
Shareholding Pattern (%)
Promoters
27.7
Quarterly highlights: In sales, the company posted gross revenues of `3,987cr v/s
MF / Banks / Indian Fls
12.5
`3,377cr in 3QFY2016, growth of 18.0% yoy. The growth was driven by volume
FII / NRIs / OCBs
53.0
(18% yoy), while price dip was around 3% and exchange gains added 3% to the
Indian Public / Others
6.8
top-line rise. In terms of geography - Latin America (`1,736cr, rose by 37% yoy),
India (`626, rose by 20%), ROW (`636cr, yoy rise of 2%), Europe (`329, posted a
yoy growth of 8%). However, US (`660cr) sales were flat during the quarter. On
Abs. (%)
3m 1yr
3yr
EBITDA front, the company posted an EBITDA of 17.8% v/s 14.7% in 3QFY2016.
Sensex
(1.4)
13.2
31.1
Along with this, dip of 15% and 2% in the deprecation & finance cost respectively
UPL
4.0
84.5
261.8
aided the PBT to grow by 68% yoy. Consequently, PAT, came in at `457cr v/s
`300cr in 3QFY2016, growth of 52.4% yoy.
3-year price chart
Outlook and Valuation: We expect UPL to post a CAGR of 25.9% and 17.7% in its
800
700
sales and PAT respectively over FY2016-18E. At the current market price, we
600
recommend a Neutral rating on the stock.
500
400
Key financials (Consolidated)
300
Y/E March (` cr)
FY2015
FY2016
FY2017E
FY2018E
200
Total revenue
11,911
13,083
16,516
20,722
100
% chg
12.6
9.8
26.2
25.5
0
Adj. profit
1,147
1,352
1,800
2,215
% chg
10.2
17.9
33.2
23.1
EBITDA (%)
18.3
18.5
17.5
17.5
Source: Company, Angel Research
EPS (`)
26.7
31.5
32.4
43.7
P/E (x)
26.0
22.1
21.5
15.9
P/BV (x)
5.1
4.4
4.3
3.5
RoE (%)
20.6
21.4
21.9
24.1
RoCE (%)
19.9
20.8
21.3
23.7
Sarabjit Kour Nangra
EV/Sales (x)
3.0
2.8
2.2
1.7
+91-22-3935 7800 ext. 6806
EV/EBITDA (x)
16.7
15.3
12.6
9.9
[email protected]
Source: Company, Angel Research; Note: CMP as of January 25, 2017, Includes Advanta sales
Please refer to important disclosures at the end of this report
1
United Phosphorus | 3QFY2017 Result Update
Exhibit 1: 3QFY2016 Performance (Consolidated)
Y/E March (` cr)
3QFY2017 2QFY2017
% chg (qoq) 3QFY2016
% chg (yoy) 9MFY2017 9MFY2016
% chg
Net sales
3,855
3,510
9.8
3,259
18.3
10,784
9,413
14.6
Other income
164
8
1,945.4
198
(17.6)
335
454
(26.3)
Total income
4,018
3,518
14.2
3,457
16.2
11,119
9,868
12.7
Gross profit
2052
1483
38.4
1763
16.4
5717
4901
16.7
Gross margin (%)
53.2
42.3
54.1
53.0
52.1
Operating profit
685
699
(1.9)
479
43.0
1806
1411
28.0
Operating margin (%)
17.8
19.9
14.7
16.7
15.0
Financial cost
176
106
66.3
209
(15.5)
499
508
Depreciation
162
169
(4.2)
166
(2.2)
485
477
1.7
PBT
511
432
18.3
304
68.3
1156
880
31.4
Provision for taxation
46
2
(23)
-
133
86
53.9
PAT Before Exc. And MI
464
430
8.0
326
42.3
1024
794
28.9
Minority Income/ ( Exp.)
3
2
8
6
4
Income from Associate/ (Exp)
(3)
2
(37)
(32)
(44)
Extra ordinary Income/( Exp.)
2
(28)
(19)
(82)
(46)
Reported PAT
459
402
14.2
281
63.3
986
746
32.2
Adjusted PAT
457
430
6.2
300
52.4
1068
792
34.9
EPS (`)
9.0
8.5
7.0
24.9
18.5
Source: Company, Angel Research, 2QFY2017 and 1QFY2017 results include Advanta numbers, rest are excluding the same
Top-line growth mainly led by Latin America and India
In sales, the company posted gross revenues of `3,987cr v/s
`3,377cr in
3QFY2016, growth of 18% yoy. The growth was driven by volume (18% yoy), while
price dip was around 3% and exchange gains added 3% rise to the top-line. In
terms of geography - Latin America (`1,736cr, rose by 37% yoy), India (`626,
rose by 20%), ROW (`636cr, yoy rise of 2%), Europe (`329, yoy growth of 8%).
However, US (`660cr) sales were flat during the quarter.
India witnessed good rainfall except for the states of Karnataka, Tamil Nadu and
Gujarat. However, there was a decline in seeds sales compared to last year. In
Latin America, Brazil witnessed a favorable season this year with expansion in area
and yield improvements. Hence, UPL benefited from its well positioned fungicide
portfolio to manage Asian Rust disease. UPL continued to grow across Latin
America in spite of currency headwinds. Due to lower margins and poor payment
terms, operations in Argentina are being consciously curtailed and focus is shifted
to high margin products. Advanta seeds continued to see improved acceptance in
Brazil.
In Europe, the company witnessed good herbicides season for Sugar beet, where
UPL has good product portfolio. Good rains in Southern Europe supported
fungicide sales, mainly on Horticulture Crops (Potato and Vines); though cereals
fungicides sale was lower. Medium term outlook is static in Europe, with moderate
growth in CIS
January 27, 2017
2
United Phosphorus | 3QFY2017 Result Update
Exhibit 2: Sales Break-up (Marketwise)
100%
1,250
80%
2,080
1,893
1,916
2,282
60%
562
872
341
40%
304
329
1,060
521
417
1,026
626
20%
659
971
638
660
375
0%
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
North America
India
EU
Others
Source: Company
Exhibit 3: Sales performance (including export incentives)
Exhibit 4: Growth break-up
4,292
20
18
4200
3,987
3,658
3,510
3600
3,377
15
3000
10
2400
1800
5
3
1200
0
600
0
(5)
(3)
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Exchange impact
Realisation
Volume
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 5: Volume and realization break-up (yoy)
30
26
25
23
20
18
15
11
10
8
5
3
1
0
(5)
(2)
(3)
(5)
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Realisation
Volume
Source: Company, Angel Research
January 27, 2017
3
United Phosphorus | 3QFY2017 Result Update
EBITDA margin expands
On the operating front, the gross margin came in at 53.2% (v/s 54.1% in
3QFY2016), which aided the OPM for the quarter to come in at 17.8% (v/s 14.7%
in 3QFY2016). The expansion in OPM was more than the gross margin
expansion, on the back of other expenses, which rose only by 1.1% yoy.
Exhibit 6: EBITDA margin trend
25.0
24.0
23.0
22.0
21.0
21.6
20.0
19.0
18.0
18.6
17.0
17.8
16.0
15.0
14.0
14.7
14.6
13.0
12.0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Source: Company, Angel Research
Adjusted Net Profit grew 52.4% yoy
The company posted a 52.4% yoy growth in its Adjusted PAT, excluding the extra-
ordinaries and profits from associates and subsidiaries.
Exhibit 7: Adjusted PAT trend
700
60
600
52
50
45
500
40
400
27
30
300
26
20
200
14
10
100
300
574
430
222
457.1
0
0
3QFY2016
4QFY2016
1QFY2017
2QFY2017
3QFY2017
Adj PAT
% YoY
Source: Company, Angel Research
January 27, 2017
4
United Phosphorus | 3QFY2017 Result Update
Invvestment arguments
Innovators dominant in the off-patent space; Generic firms in
a sweet spot
The global agrichemical industry, valued at US$56bn (CY2015), is dominated by
the top six innovators, viz. Bayer, Syngenta, Monsanto, BASF, DuPont and Dow,
which enjoy a large market share of the patented (23%) and off-patent (54%)
market. The top six innovators enjoy a large share of the off-patent market due to
high entry barriers for pure generic players. Thus, of the total pie worth US$30bn,
which is controlled by the top six innovators through proprietary
off-patent products, provides a high-growth opportunity for larger integrated
generic players like UPL.
Generic segment’s market share to increase
The industry registered a CAGR of 3% over 1998-2006, while generic players
outpaced the industry with a CAGR of 6%. Going ahead, given the opportunities
and a drop in the rate of new molecule introduction by innovators, we expect
generic players to continue to outpace the industry’s growth rate and augment
their market share in the overall pie. Historically, global agrichem players have
been logging in-line growth with global GDP. Going ahead, over CY2016-17, the
global economy is expected to grow by 3-4%. Assuming this trend plays out in
terms of growth for the agrichemical industry and the same rate of genericization
occurs, then the agrichemical generic industry could log in 6-8% yoy growth during
the period and garner a higher market share.
A global generic play
UPL is the third largest global generic agrichemical player with presence across
major markets including the US, EU, Latin America, and India. Given the high
entry barriers by way of high investments, entry of new players is restricted. Thus,
amidst this scenario and on account of having a low-cost base,
we believe UPL enjoys an edge over competition and is placed in a sweet spot to
leverage the upcoming opportunities in the global generic space.
Advanta - An Entry into seeds business
During FY2016, UPL announced a merger of Advanta with itself. With this, the
company has made its foray into the seed business, thus, widening its business
offerings in the Agri-business. The company had sales of around US$204mn in
2015, with OPM of around 15-16%. It is the 11th largest seed company globally,
with world leadership in Sorghum. Along with this, it also completes the company’s
business portfolio, in-line with the other major Agri-businesses, who have around
5-20% (Monsanto and DuPont have around 65% of their sales mix through seeds)
of their sales mix through seeds business. While the acquisition improves the
presence of the company in the low capital intensive industry coupled with the
propriety products, which will yield long term profitability; the near term challenges
include high R&D cost coupled with long legislation period for the product
commercialization.
According to the industry numbers, the international seed sector is growing at 6%
per annum. In value terms, the Indian hybrid seed sector, estimated to be worth
January 27, 2017
5
United Phosphorus | 3QFY2017 Result Update
`12,000cr comprises some 14 states seed corporations and two national-level
corporations, 20 large players including multinationals and around 500 small
regional players. About 10 domestic and multinational companies control over
80% of the market. The market has been growing at 15-20% annually over the
past several years, and is projected to reach around `18,000cr by 2018. Though,
we have included the Advanta numbers in our projections, we have been
conservative on the same.
Outlook and valuation
Over the last few years, the global agriculture sector has been reviving on the back
of rising food prices. Food security is also a top priority for most governments, and
reducing food loss is one of the easiest ways to boost food inventory. Hence, we
believe agrichemical companies would continue to do well in the wake of
heightened food security risks, and strong demand is likely to be witnessed across
the world. Overall, we expect the global agrichemical industry to perform well
from here on. Generics are expected to register a healthy growth due to - (a)
increasing penetration and wresting market share from innovators, and b) patent
expiries worth US$3bn-4bn during the next five years.
We estimate UPL to post a 25.9% and 17.7% CAGR in sales and PAT respectively
over FY2016-18E. The stock is trading at 15.9x FY2018E EPS, which we believe
provides very little room for appreciation. Hence, we recommend a Neutral rating
on the stock.
Exhibit 8: Key assumption
FY2017E
FY2018E
Sales growth
26.2
25.5
EBITDA margin
17.5
17.5
Tax rate
20.0
20.0
Source: Company, Angel Research
Exhibit 9: P/E band
800
700
600
500
400
300
200
100
0
Price
6x
8x
10x
12x
14x
Source: Company, Angel Research
January 27, 2017
6
United Phosphorus | 3QFY2017 Result Update
Exhibit 10: Peer valuation
Company Reco
Mcap
CMP TP Upside
P/E (x)
EV/Sales (x)
EV/EBITDA (x)
RoE (%)
CAGR (%)
(` cr)
(`)
(`)
(%)
FY17 FY18 FY17 FY18 FY17 FY18 FY17 FY18 Sales PAT
Rallis
Neutral
4,424
228
-
-
22.4
17.5
2.1
1.8
14.7
12.8
16.5
18.0
15.0
22.3
UPL
Neutral
37,505
740
-
-
21.5
15.9
2.2
1.7
12.6
9.9
21.4
24.1
25.9
17.7
Source: Company, Angel Research, Bloomberg, All numbers in FY17 and FY18 are expected numbers
Company background
United Phosphorus (UPL) is a global generic crop protection, chemicals and seeds
company. The company is fully backward and forward integrated by taking
advantage of the consolidation opportunities within the agrochemical industry. UPL
is the largest Indian agrochemical company and had revenue of about `11,911cr
for the year ended March 2015. During FY2016, UPL announced its merger with
Advanta. With this, the company has made its foray into the seed business, thus,
widening its business offerings in the Agri-business.
January 27, 2017
7
United Phosphorus | 3QFY2017 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Net Sales
9,010
10,580
11,911
13,083
16,516
20,722
Other operating income
184
191
45
219
219
219
Total operating income
9,195
10,771
11,956
13,302
16,735
20,941
% chg
19.9
17.1
11.0
11.3
25.8
25.1
Total Expenditure
7,568
8,751
9,736
10,663
13,619
17,088
Net Raw Materials
4,687
5,441
6,016
6,411
8,094
10,155
Other Mfg costs
741
942
866
1,164
1,470
1,844
Personnel
853
946
1,043
1,224
1,545
1,939
Other
1,287
1,422
1,810
1,864
2,510
3,150
EBITDA
1,442
1,829
2,175
2,419
2,897
3,634
% chg
19.6
26.8
19.0
11.2
26.2
25.5
(% of Net Sales)
16.0
17.3
18.3
18.5
17.5
17.5
Dep. & Amortisation
354
407
425
502
573
629
EBIT
1,273
1,613
1,796
2,137
2,542
3,224
% chg
21.1
26.7
11.4
19.0
26.4
26.8
(% of Net Sales)
13.8
15.0
15.0
16.1
16.1
15.4
Interest & other Charges
429
487
517
622
502
502
Other Income
73
131
131
112
112
112
(% of PBT)
8
10
9
7
5
4
Recurring PBT
917
1,257
1,410
1,626
2,152
2,834
% chg
25.0
37.1
12.2
15.3
42.0
31.7
Extraordinary Exp./(Inc.)
27
85
(2)
(53)
-
-
PBT (reported)
944
1,172
1,413
1,679
2,152
2,834
Tax
203
222
244
283
462
567
(% of PBT)
21.5
18.9
17.3
16.9
20.0
20.0
PAT (reported)
741
950
1,169
1,396
1,690
2,267
Add: Share of earnings of
32
30
21
(31)
(35)
(39)
asso.
Less: Minority interest (MI)
(2)
7
43
13
13
13
Prior period items
-
24
-
-
-
-
PAT after MI (reported)
775
950
1,144
1,299
1,642
2,215
ADJ. PAT
754
1,040
1,147
1,352
1,642
2,215
% chg
34.3
38.0
10.2
17.9
33.2
34.9
(% of Net Sales)
8.4
9.8
9.6
10.3
10.9
10.7
Basic EPS (`)
17.0
24.3
26.7
31.5
32.4
43.7
Fully Diluted EPS (`)
17.0
24.3
26.7
31.5
32.4
43.7
% chg
40.1
42.5
10.2
17.9
2.7
34.9
January 27, 2017
8
United Phosphorus | 3QFY2017 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
SOURCES OF FUNDS
Equity Share Capital
89
86
86
86
101
101
Preference Capital
-
-
-
-
-
-
Reserves& Surplus
4,557
5,162
5,775
6,705
8,094
10,055
Shareholders’ Funds
4,645
5,247
5,860
6,791
8,195
10,156
Minority Interest
234
172
44
42
55
68
Total Loans
4,203
2,873
2,781
3,860
3,860
3,860
Other Long term liab.
395
311
594
464
464
464
Long Term Provisions
51
53
53
53
53
53
Deferred Tax Liability
(13)
57
45
(5)
(5)
(5)
Total Liabilities
9,516
8,714
9,378
11,205
12,622
14,597
APPLICATION OF FUNDS
Gross Block
5,386
6,039
6,792
7,791
8,591
9,391
Less: Acc. Depreciation
3,173
3,580
4,005
4,507
5,080
5,709
Net Block
2,213
2,459
2,787
3,285
3,511
3,682
Capital Work-in-Progress
378
378
378
378
378
378
Goodwill / Intangilbles
1,277
1,212
1,449
1,463
1,463
1,463
Investments
1,025
737
764
1,066
1,066
1,066
Long Term Loan & Adv.
277
389
418
537
579
727
Current Assets
7,154
7,572
8,372
10,069
12,265
15,613
Cash
1,548
1,023
1,010
1,068
1,489
2,243
Loans & Advances
852
771
586
840
1,380
1,581
Other
4,754
5,779
6,776
8,162
9,396
11,789
Current liabilities
2,807
4,033
4,789
5,593
6,641
8,332
Net Current Assets
4,346
3,539
3,582
4,476
5,624
7,281
Others
-
-
-
-
-
-
Total Assets
9,516
8,714
9,378
11,205
12,622
14,597
January 27, 2017
9
United Phosphorus | 3QFY2017 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2013 FY2014 FY2015 FY2016 FY2017E FY2018E
Profit before tax
944
1,172
1,413
1,679
2,310
2,834
Depreciation
354
407
425
502
573
629
Change in Working Capital
(806)
171
(86)
(955)
(950)
(1,247)
Less: Other income
-
-
-
-
-
-
Direct taxes paid
(203)
(222)
(244)
(283)
(462)
(567)
Cash Flow from Operations
288
1,528
1,508
942
1,471
1,649
(Inc.)/ Dec. in Fixed Assets
(771)
(653)
(753)
(1,000)
(800)
(800)
(Inc.)/ Dec. in Investments
(231)
-
-
-
-
-
Inc./ (Dec.) in loans and adv.
-
-
-
-
-
-
Other income
-
-
-
-
-
-
Cash Flow from Investing
(1,002)
(653)
(753)
(1,000)
(800)
(800)
Issue of Equity
-
(3)
-
-
16
-
Inc./(Dec.) in loans
(908)
1,413
(192)
(949)
0
0
Dividend Paid (Incl. Tax)
(129)
(201)
(214)
(214)
(253)
(253)
Others
1,733
(2,612)
(362)
1,278
4
158
Cash Flow from Financing
696
(1,403)
(768)
115
(234)
(95)
Inc./(Dec.) in Cash
(18)
(525)
(13)
58
421
754
Opening Cash balances
1,566
1,548
1,023
1,010
1,068
1,489
Closing Cash balances
1,548
1,023
1,010
1,068
1,489
2,243
January 27, 2017
10
United Phosphorus | 3QFY2017 Result Update
Key Ratios
Y/E March
FY2013
FY2014
FY2015
FY2016
FY2017E
FY2018E
Valuation Ratio (x)
P/E (on FDEPS)
40.8
28.7
26.0
22.1
21.5
15.9
P/CEPS
27.8
20.6
19.0
16.1
15.9
12.4
P/BV
6.6
5.7
5.1
4.4
4.3
3.5
Dividend yield (%)
0.4
0.4
0.4
0.4
0.4
0.4
EV/Sales
4.1
3.4
3.0
2.8
2.2
1.7
EV/EBITDA
25.6
19.9
16.7
15.3
12.6
9.9
EV / Total Assets
3.9
4.2
3.9
3.3
2.9
2.5
Per Share Data (`)
EPS (Basic)
17.0
24.3
26.7
31.5
32.4
43.7
EPS (fully diluted)
17.0
24.3
26.7
31.5
32.4
43.7
Cash EPS
25.0
33.8
36.7
43.2
43.7
56.1
DPS
2.5
2.5
2.5
2.5
2.5
2.5
Book Value
105.0
122.4
136.7
158.4
161.7
200.4
DuPont Analysis
EBIT margin
13.8
15.0
15.0
16.1
16.1
15.4
Tax retention ratio
78.5
81.1
82.7
83.1
80.0
80.0
Asset turnover (x)
1.4
1.5
1.6
1.6
1.7
1.9
ROIC (Post-tax)
15.4
18.5
20.3
21.0
22.3
23.9
Cost of Debt (Post Tax)
8.9
11.2
15.1
15.6
10.4
10.4
Leverage (x)
0.5
0.5
0.3
0.4
0.4
0.2
Operating ROE
18.6
21.9
22.0
22.9
26.4
26.9
Returns (%)
ROCE (Pre-tax)
14.4
17.7
19.9
20.8
21.2
23.2
Angel ROIC (Pre-tax)
20.0
23.2
24.7
25.6
26.6
30.2
ROE
17.1
21.0
20.6
21.4
21.9
24.1
Turnover ratios (x)
Asset Turnover (Gross Block)
1.8
1.9
1.9
1.8
2.0
2.3
Inventory / Sales (days)
78
83
86
86
81
81
Receivables (days)
102
83
86
86
81
81
Payables (days)
108
69
72
73
68
68
WCcycle (ex-cash) (days)
96
92
78
83
85
86
Solvency ratios (x)
Net debt to equity
0.4
0.6
0.4
0.3
0.4
0.3
Net debt to EBITDA
1.5
1.8
1.0
0.8
1.2
0.8
Interest Coverage (EBIT / Int.)
3.0
3.3
3.5
3.4
5.4
6.4
January 27, 2017
11
United Phosphorus | 3QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
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/dealing in securities Market. Angel or its associates/analyst has not received any compensation / managed or co-managed public
offering of securities of the company covered by Analyst during the past twelve months.
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contrary view, if any.
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Disclosure of Interest Statement
UPL
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
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Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
January 27, 2017
12