phne no


5:40-42 - "If a man wants to sue you for your coat, let him have it and your overcoat as well. If anybody forces you to go a mile with him, do more - go two miles with him. Give to the man who asks anything from you, and don't turn away from the man who wants to borrow."

10 Dec 2018


                     {UPL LTD}       BUY
UPL is a leading global manufacturer of crop protection products with strong presence in off-patent market of US and Europe. The company has presence across agri-input value chain from seeds to post-harvest chemicals. It has historically focused on acquisitions of smaller companies and brands to achieve higher growth than the market. UPL has achieved healthy revenue CAGR of 22% over FY12-18, with stable EBITDA at 17-20%, despite widespread changes in regional weather patterns or swings in commodity prices and currencies.

UPL’s reported revenue grew by 13% YoY to Rs4257cr in 2QFY19 led by 8% volume growth. EBITDA grew by 17% YoY to Rs839cr, while EBITDA margin expanded 60bps YoY to 19.7%. Consequently, PAT grew 12% YoY to Rs270cr. Management expects the second half to be equally strong, given the emerging opportunities in exports due to trade war between the US and China. Management has maintained its growth (10-12%) and margins guidance.

Recently UPL has announced acquisition of Arysta. Management has guided potential US$200+ mn of synergy benefits from the proposed transaction. We believe that the businesses complement each other in terms of: geographical mix as UPL gains wider market in Europe; segment mix with higher share of bio solutions and seed treatment; and product mix with higher share of value-added / specialty products. Further, synergies include backward integration to produce active ingredients and formulations for Arysta, rationalization of R&D expenses, economies of scale in procurement and distribution and reduction in corporate overheads. Further, UPL may be able to reduce distribution costs by optimizing warehousing and logistics, and leveraging its enhanced bargaining power with distributors.

Highly leveraged balance sheet due to Arysta acquisition, higher exposure to forex risk and cyclical & seasonal nature of the business are the key risks factors for UPL. However, UPL’s seasonality risk is mitigated to an extent due to geographical reach.

Management focus on new product launches across geographies & foray into biologics segment bode well for UPL. UPL is well-positioned to post stronger growth driven by a pick-up in demand amid better monsoon and healthy performance of the new and existing product portfolio. We believe the recent acquisition of Arysta life Science will create significant strategic value for UPL in the long run. We expect EBITDA/PAT to grow at a strong CAGR of 24/31% over FY18-20E led by backward integration & shift in product mix towards biologics. Continuous improvement in global market share of UPL will further facilitate the momentum. We have a BUY rating for the stock with TP of Rs790 based on 15x P/E FY20E.

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