IGI Logo

* UPLL reported muted 4QFY23 revenue growth of 4% YoY, primarily led by decline in post-patented product prices with ramp-up of supply from China as well as lower sales in North America (down 14% YoY). Operating performance deteriorated (down 16% YoY) due to liquidation of high-cost inventory, idle capacity costs (INR2.0-2.5b) to achieve competitive inventory position and unfavorable region mix (rise in share of LATAM).

* Gross debt/net debt reduced to INR230b/INR169b in FY23 from INR258.7b/ INR189b in FY22 (i.e. net debt reduced by USD440m v/s guidance of USD500m in 3QFY23).

* Factoring in UPLL’s weak 4QFY23 performance, we cut our FY24E/FY25E earnings by 13%/9%. We reiterate our Neutral rating with a TP of INR750

High-cost inventory and unfavorable region mix drag margins

* UPLL posted revenue of INR165.7b (est. INR168.4b) in 4QFY23, up 4% YoY (volume growth: 1%, price decline: 3%, FX: +6%). EBITDA stood at INR30.2b (est. INR38.6b), down 16% YoY. EBITDA margin was at 18.2% v/s 22.6% in 4QFY22. Adj. PAT stood at INR10.5b (est. INR19.4b), down 45% YoY. Effective tax rate came in at 24.5% in 4QFY23.

* Revenue from North America declined 14% YoY to INR30.1b due to delayed spring that impacted herbicides and insecticides adversely coupled with fall in glufosinate prices. Conversely, LATAM’s revenue was up 12% YoY to INR64.4b, aided by strong growth in insecticide volume.

* India’s revenue grew 15% YoY to INR15.9b, driven by growth in herbicides (Sweep Power®, Ferio®) and biosolutions. Europe’s revenue rose 7% YoY despite macroeconomic challenges, unfavorable weather and product ban (Mancozeb). Revenue from the RoW increased 6% YoY, driven by herbicides.

* Net working capital (NWC) days in FY23 fell to 64 from 69 in FY22 due to lower receivable days (102 v/s 114) and improved inventory days (95 v/s 104).

* For FY23, UPLL’s revenue/EBITDA grew 16%/10% YoY while Adj. PAT declined 8% YoY. CFO/FCFF stood at ~INR77.5b/INR24.8b.

Highlights from the management commentary

* Group guidance: Management has guided for revenue/EBITDA growth of 6- 10%/8-12% for FY24; while ROCE is likely to increase by ~125-175bp.

* Differentiated & sustainable portfolio grew 12% YoY in FY23, led by growth in volumes. UPLL is on the path to achieve 50% of the revenue from differentiated portfolio by FY27E v/s 28% in FY23. Pipeline peak sales are expected to be at ~USD8.5b (78% of this is from differentiated portfolio).

* Currently, China has an overcapacity that it is trying to liquidate. Therefore, management expects 1QFY24 to be a challenging quarter as the pricing pressure will be intense in the global crop protection segment.

* Capex guidance for FY24 is USD350m with ~USD160m for specialty chemical and manufacturing division, ~USD20m for Advanta and rest for intangibles in the crop protection global business.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

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