Published on 19/09/2019 9:56:51 AM | Source: Prabhudas Lilladher Ltd

Buy UPL Ltd For Target Rs.745 - Prabhudas Lilladher

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Behemoth in the making

UPL’s FY19 annual report highlighted

a) potential opportunities in Arysta Lifescience,

b) its initiatives towards manufacturing key molecules and achieving self-sufficiency,

c) immense growth prospects for glufosinate and its swelling product portfolio backed by strong R&D.

Acquisition of Arysta Lifescience helped UPL establish as a global leader in crop protection products. The strength of UPL lies in manufacturing, proprietary off-patent & specialty products, deep marketing reach and R&D capabilities. UPL is working on building competences for expanding digital services and processes by investing in artificial intelligence tools to analyse customer needs, using robotic sensors to access real-time on-field farmer data etc. Continued focus on resistance management, cost leadership along with proprietary/generic products, diversified presence across all crops & geographies helped UPL to outperform industry growth as well as mitigate the impact of volatility arising out of trade wars and natural calamities. Maintain Buy with revise target price of Rs745 based on 8.5x FY21E EV/EBITDA (Previous – Rs752).


Industry consolidation and drive for scale led to the acquisition of Arysta Lifescience: UPL acquired Arysta for US$ 4.2 bn thereby making it the fifth largest Global agrochemical company. The global agrochemical industry had undergone significant consolidation after M&A between Bayer-Monsanto, Syngenta-Chem China and Dow-Dupont resulting in greater need for scale for other players to maintain competitiveness. This move would enhance economies of scale, ability to attract fresh talent and capability to launch differentiated products. Inorganic growth has been a mantra for UPL with 40+ acquisitions over last 25 years.


UPL continues to strengthen its manufacturing footprint: UPL continues to invest extensively in backward integration and adding capacities to maintain its cost leadership, strengthening resource security and reducing dependence on vendors. UPL capitalised more than Rs10bn worth of plant & equipment in FY19 while Capital WIP stood at Rs12bn.

UPL commenced second plant for one of its key herbicide. Due to its manufacturing prowess, UPL has been able to make this plant cost effective by reducing the number of steps in manufacturing, rationalization of raw materials and operational cost. It also commenced production of an active ingredient for an herbicide and commercialization of a combination formulation for corn crop. UPL replaced procurement of a key intermediate (for an herbicide) with in-house manufacturing helping it to meet its desired yield and quality. UPL has also started commercial production of three specialty chemicals.

UPL chooses to set up significant portion of its active ingredient manufacturing plants in India because of locational and fundamental advantages. The Company’s MR205 and glufosinate plants were commissioned in half of the time taken by peers, resulting in significant savings and faster revenue realization.


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