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LatAm/Europe drive overall growth

Better-than-expected earnings

*  UPLL reported robust all-round performance in 4QY21; revenue growth was led by Latin America (LatAm), India, and Europe. The EBITDA margin expanded 270bp YoY to 22.2% on the back of 200bp gross margin expansion, resulting in 31% EBITDA growth (13% above our est). Consequently, adj PAT grew 47% YoY.

* We maintain our revenue and EBITDA estimates for FY22/FY23, whereas we increase our PAT estimates (by 17% for FY22/FY23) owing to (i) a reduction in the tax rate, as guided by the management (17% v/s 21% earlier for FY22/FY23) and (ii) lower interest cost. Maintain Neutral.

Volumes up 18% in 4Q

* UPL reported revenue growth of 15% YoY to INR128b (est INR123.2b) in 4QFY21 (volume growth: +18%, price: +1% and exchange: -4%). EBITDA was up 31% YoY to INR28.4b (est INR25b). The EBITDA margin expanded 270bp YoY to 22.2%, largely owing to gross margin expansion of 200bp. Adj PAT was up 47% YoY to INR11.9b (est INR9.7b).

* In 4QFY21, strong revenue growth was seen across regions (LatAm: 40%, India: +23% and Europe: +17%), barring North America (flat YoY) and RoW (- 11% YoY).

* FY21 revenue / EBITDA / adjusted PAT grew 8%/16%/29% YoY. UPLL generated CFO of INR72.1b, down 18% YoY.

* FY21 India revenue grew 22%, led by (i) favorable weather conditions – normal monsoons drove higher acreages in both seasons and (ii) new product launches.

* Europe sales grew 12% in FY21 on i) an improved mix, driven by accelerated sales of differentiated products; (ii) strong growth in Benelux, Germany, Poland, Italy, and Iberia; and (iii) an excellent performance from Argos in its first launch year, in addition to Fazor in potatoes.

* Revenue was up 8% YoY in FY21 in LatAm (despite FX devaluation in Brazil) owing to (i) most LatAm countries delivering close to double-digit growth v/s FY20; (ii) Brazil reported growth ahead of the market despite significant currency devaluation; and (iii) sucking pest platforms (patented Sperto and Perito) and soybean resistance management platforms (Unizeb Gold, Tridium, and patented Unizeb Glory) expanding significantly in Brazil and other South American countries.

* North America revenue came in flat in FY21, impacted by supply constraints.

* RoW revenue was up 3% YoY in FY21, attributable to (i) double-digit growth in Southeast Asia, supported by the continued expansion of Glufosinate solutions; (ii) accelerated growth in China, driven by volume gains in UPLL’s branded sales and the Yoloo acquisition; and (iii) flat growth in Africa, impacted by COVID-related challenges.

Highlights from management commentary

* Debt: A sustainability loan has been raised by the company to replace the existing acquisition loan. The entire USD750m raised over Mar–Apr’21 has been used to repay the acquisition loan. As a result, the corresponding interest cost has declined by 30bp and maturity has been extended by two years.

* Price hike: There is room to increase price as RM cost has increased. The company did not take any price hike in FY21 due to currency devaluation. However, as crop prices are higher in FY22, farmers are likely to be less hesitant to take price hikes during the year.

* Capex: UPL plans to incur capex of USD300–320m in FY22 v/s USD275m in FY21.

* FY22 guidance: Revenue growth is guided at 7–10%, with EBITDA growth at 12– 15% and net debt to EBITDA at <2x.

Valuation and view

* The management commentary during the call sounded bullish on the global Agrochemicals market, led by better farm economics on account of rising global agri commodity prices – which would drive agrochemical consumption. This, coupled with lower channel inventory, is also expected to bode well for strong demand in the Agrochemicals sector in FY22. The company further expects to take price hikes in FY22 owing to an increase in RM prices. It remains confident that this would be absorbed by the farmers owing to their higher agri commodity prices.

* The stock has traded at average P/E of 13.2x over the last three years on a oneyear forward basis. However, we have ascribed 11x P/E (~15% discount to its three-year average) on account of its debt. In FY21, UPLL reduced net debt by INR31.4b and achieved 2.2x net debt to EBITDA v/s the 2x guidance for FY21. However, net debt to EBITDA (including perpetual bonds) stood at 2.5x as of FY21 v/s 3.4x as of FY20.

* We maintain our revenue and EBITDA estimates for FY22/FY23, whereas we increase our PAT estimates (by 17% for FY22/FY23) owing to (i) a reduction in the tax rate, as guided by the management (17% v/s 21% earlier for FY22/FY23) and (ii) lower interest cost.

* Maintain Neutral, with TP of INR750/share.

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