IGI Logo

Post a washout performance in Q4FY23, UPL reported again a dismal Q1FY24 marred by both volume decline as well as price corrections. It reported YoY Revenue/ EBITDA/ PAT decline of 17.2%/ 40.7%/ 81.1%. Except for Advanta, which reported a strong 26%/ 54% surge in revenues/ EBITDA, all the other platforms remained under pressure impacting overall performance. The Differentiated and Sustainable Solutions portfolio delivered robust performance with revenues growing 7% YoY, supporting contribution margins. Agrochemicals industry is facing dual challenge of inventory destocking as distributions are opting for need-based purchases and aggressive price competition from China in post-patented products. Management guided that Q2 is also expected to be weak and recovery is expected in 2HFY24E. On debt front, UPL reduced its net debt and non-recourse factoring by USD160mn and USD250mn YoY respectively. The company is also undertaking USD100mn cost reduction initiative over the next 24 months and expects 50% benefit to be accrued in FY24E. Based on Q1 performance and UPL’s revised guidance, we have revised our FY24E/ FY25E EBITDA downwards by 7%/ 9%. We maintain BUY rating with a revised SOTP-based TP of Rs949 (earlier Rs1,062).

North America faced significant headwinds, LATAM too remained under pressure

UPL’s topline declined 17.2% YoY impacted by 9% lower volumes, 10% decline in pricing, while forex benefit of 2%. Significant pricing pressure coupled with inventory destocking led to halving of North America revenues. Similarly, LATAM too faced similar issues with 14.4% YoY decline in revenues. Except ROW which reported 2.8% YoY growth, all the geographies reported YoY degrowth.

Advanta outshines in Q1

Advanta reported robust Q1 performance with 26% YoY surge in revenues supported by 14% jump in volumes, coupled with margin expansion leading to 54% YoY surge in EBITDA. UPL Corporation witnessed dismal performance with revenue/ EBITDA decline by 24%/ 65% YoY. UPL SAS performance too remained subdued with revenue/ EBITDA decline by 14%/ 32% YoY. UPL Specialty Chemicals reported revenue/ EBITDA decline by 20%/ 11% YoY.

Q2 to remain weak, FY24E guidance revised downwards

UPL continued its debt reduction spree with net debt reduction by USD160mn in Q1 taking net debt to USD3.2bn. Management guided that debt reduction to continue without providing any formal guidance. Based on Q1 performance and outlook, management revised its FY24E guidance downwards with Revenue/EBITDA growth of 1- 5%/ 3-7% vs earlier 6-10%/ 8-12%. FY24E growth is expected to be fueled by volume growth of 15-20% while cost reduction to aid EBITDA expansion. Based on revised guidance we have lowered our FY24E/ FY25E earnings estimates by 17%/ 19%. We maintain Buy rating with a SOTP-based revised TP of Rs949 (earlier Rs1,062). Post separation of Specialty Chemicals business into a wholly owned subsidiary in Q1FY24, demerger of the four platforms remains a medium term trigger for the stock.

Risk – Lower than expected volume growth in FY24E, continued pricing pressure

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer