Remain optimistic on business prospects but cautious in the near-term – UPL

  • Remain optimistic on business prospects but cautious in the near-term – UPL
12 May

Remain optimistic on business prospects but cautious in the near-term – UPL

By UPL 0 Comments

Update on the Indian Equity Market:

On Thursday, NIFTY ended lower at 15,808 (-2.2%). All the sectoral indices ended in the red led by PSUBANK (-5.4%), METAL (-3.7%), and PRIVATEBANK (-3.5%). Among the stocks, WIPRO (+0.8%), EICHERMOT (+0.2%), and HCLTECH (+0.1%) led the gainers, while ADANIPORTS (-5.8%), INDUSINDBK (-5.7%), and TATAMOTORS (-4.2%) led the losers.

Excerpts of an interview with Mr. Jaidev Shroff, Global CEO, UPL with CNBC-TV18 on 9th May 2022:

  • The company remains optimistic about business prospects although cautious in the near term due to the global supply chain and shipping disruptions.
  • The company is quite comfortable committing to conservative guidance of 10% revenue growth in FY23E due to global uncertainties.
  • Europe had a challenging quarter in Q4FY22 with low single-digit growth. Europe has continued to ban certain traditional products which also impacts the portfolio. Europe is expected to be the slowest growing region in FY23E. The company expects a 7-8% YOY growth in the Europe business in FY23E.
  • In 4QFY22 Indian business grew by 63% on a YoY basis. The company anticipates the India business to continue this growth momentum for FY23E on the back of new launches in 4QFY22, strong commodity prices for farm products, and investments in sustainable technologies.
  • The company is investing in sustainable solutions that will provide considerable value to farmers, making agriculture more sustainable.
  • There is a global need for sustainable agriculture techniques and technologies. A slew of new technologies is being introduced by the company under the Natural Plant Protection (NPP) vertical. The company is reorganizing to focus on this business vertical which is expected to grow faster than the traditional businesses.
  • In FY22, the company incurred a debt of Rs 182,500 mn. The company’s goal is to reduce the debt to equity ratio to 2, or Rs 30,000 mn in absolute terms, by FY23E.

Asset Multiplier Comments

  • For FY23E, the management has guided growth across revenue and EBITDA at 10% and 12-15% YoY, supported by strong commodity prices, increased demand for biofuels fueled by high cost, and reduced availability of fertilizers.
  • Strengthening the supply chain through a reduction in imports and diversifying the raw material sourcing mix ensures a reliable supply base.
  • Reorganizing the firm’s focus towards the high margin and sustainable solutions business positions the company favorably to reach the company’s long-term growth objective of 7-10% from FY23-FY27E.

Consensus Estimates: (Source: Market screener website)

  • The closing price of UPL was ₹ 510/- as of 12-May-2022.  It traded at 8/7x the consensus earnings estimate of ₹ 62.1/72.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 974/- implies a P/E Multiple of 13.4x on the FY24E EPS estimate of ₹ 72.6/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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