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Stable performance, opportunities emerging

UPL Ltd is a global agriculture solutions company engaged in the agrochemicals and industrial chemicals business with manufacturing sites globally. Through recent expansion, the company has become a leader in global food systems as well.

* In Q1FY25, UPL’s consolidated revenue grew 1.2% YoY to Rs. 9,067cr, primarily driven by higher sales volumes (+16.0% YoY), offset by decline in prices (-14.0% YoY).

* EBITDA declined 28.0% YoY to Rs. 1,146cr and margin fell 520bps YoY to 12.6% due to higher cost of materials consumed (+15.0% YoY).

* The company had a muted Q1 earnings result as price realisations deteriorated. Volume expansion, recovering demand, and launching new products should support the company’s revenue improvements in the long run. Liquidation of high-cost inventory and stabilisation of agrochemical prices are expected to aid the company’s bottom line. Hence, we upgrade our rating on the stock to ACCUMULATE with a revised target price of Rs. 640 based on 15.5x FY26E adjusted EPS

Revenue inches up, fueled by a notable expansion in volume

In Q1FY25, UPL's consolidated revenue increased marginally by 1.2% YoY to Rs. 9,067cr driven by a 16.0% YoY rise in sales volumes, offset by a 14.0% YoY decline in prices and an unfavourable 1.0% impact of foreign exchange fluctuations. Geographically, the company experienced strong volume growth across various regions. Notably, North America saw a significant 42.0% YoY revenue increase to Rs. 1,235cr, led by robust growth in herbicides and fungicides. Europe reported 13.0% YoY growth to Rs. 1,425cr, driven by expansion in Mediterranean countries and fungicide volumes. The Rest of the World segment witnessed modest 3% YoY growth to Rs. 1,876cr.However, Latin America experienced a 10.0% YoY decline to Rs. 2,659cr, due to price declines and drought conditions in Colombia. Revenue from India also declined 9.0% YoY to Rs. 1,872cr.

Key concall highlights

* UPL maintained its FY25 guidance, expecting EBITDA growth of over 50% and cash flow from operations of USD 300-400mn, which should help reduce interest costs and drive return to profitability.

* It anticipated FY25 revenue growth to be in the range of 4% to 8%, primarily driven by an increase in sales volumes.

* It remained committed to expanding its product portfolio, with a robust pipeline poised to deliver revenue of USD 85mn from newly introduced products in FY25

Pricing and cost pressures erode margins

EBITDA decreased 28.0% YoY to Rs. 1,146cr, with margins declining 520bps YoY to 12.6% primarily driven by an increase in cost of sales, higher employee and trade expenses, price declines, and partial liquidation of high-cost inventory. Consequently, UPL reported a net loss of Rs. 527cr due to a significant increase in interest costs.

Valuation

UPL's quarterly performance was muted due to declining prices, which offset the growth in volumes. However, the company is optimistic about its prospects, driven by increasing volumes, new product launches, and a rebound in demand for crop protection products. Additionally, margins are expected to recover as high-cost inventory is liquidated, agrochemical prices stabilise, and cost-saving initiatives take effect. Therefore, we upgrade our rating on the stock to ACCUMULATE, with a revised target price of Rs. 640, based on 15.5x FY26E adjusted EPS.

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SEBI Registration Number: INH200000345