IGI Logo

Into the abyss and back

Volume down 2% and realization 15%

UPL’s (UPLL IN) topline came in better than expected at INR 141bn (15% YoY drop) versus expectations of INR 116bn (30% YoY dip), led by lowerthan-expected volume dip and price decline. Higher rebates on existing sales yielded an aggregate impact of INR 9.5bn on Q4 realizations. Gross margin came in lower than expected at 36% but operating leverage benefits arrested the decline in EBITDA to INR 18.5bn (expectation of INR 10bn). Current net debt, including perpetual bond, was INR 254bn versus INR 200bn last year. Working capital days increased by 14 to 114, led by a 13-day increase in inventory, a 14-day rise in debtors and a 13-day increase in payables.

FY25 guidance – Topline at 4-8% and EBITDA growth >50%

The management has guided for 4-8% topline growth in FY25, all led by volumes. UPLL expects >50% EBITDA growth in FY25, driven by cost control and operating leverage benefit. To improve profitability, UPLL has structurally reduced its fixed overheads by USD 100mn. UPLL plans to complete its INR 42bn rights issue in the next six months. It also plans to raise capital in one or more of its subsidiaries (Advanta).

Endeavor ongoing to shorten working capital cycle

UPLL plans to improve its cash generation by changing strategy and positioning sales closer to application. Focus on cash generation and better inventory management may shrink working capital, aiding balance sheet deleverage. UPLL is also incentivizing rebates on sell-out (final sale).

Valuation: Upgrade to Accumulate with higher TP of INR 597

New agrochemical supplies from China at dirt cheap prices continue, which may cap realization for UPLL. Amidst this, achieving 4-8% growth guidance is a tall task but the management seems confident to do so, driven by new products and accelerated volume growth in sustainable solutions business. We upgrade FY25E and FY26E EBITDA estimates by 58% and 27% respectively, led by better visibility on unsold inventory liquidation (further impact of rebates limited and high-cost inventory liquidation). So, we upgrade UPLL to Accumulate (from Reduce) and raise TP to INR 597 (from INR 491), on 6x FY26 EV/EBITDA.

Please refer disclaimer at Report
SEBI Registration number is INH000000933