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Pre-placement of sales in US driving topline

UPL (UPLL IN) reported better-than-expected Q4FY25, driven by 77% YoY growth in its North American business. Topline grew 11% to INR 155.7bn, driven by higher volume (up 11%), with 1% price increase and 1% de-growth in foreign exchange. Gross margin expanded by 900bps to 45%, and EBITDA margin grew 736bps to 20.5%, on account of lower raw material cost and rebate normalization. Employee cost grew 40% to INR 14.5bn due to bonus provisioning. Free cashflow was INR 45bn and proceeds from rights issue and stake sale in Advanta were INR 47bn, leading to net debt reduction to INR 139bn, with net debt-to-EBITDA at 1.7x. Improved inventory management and better collections led to a drop in working capital days to 53 from 86 last year. Going forward, UPLL will focus on supply chain efficiencies and maintaining working capital at these levels. Expect topline growth to be volume-led. Active ingredient (AI) prices have stabilized at current levels and operational improvement will drive EBITDA margin. Retain Accumulate with a higher TP of INR 749, on 7x (6x earlier) FY27E EV/ EBITDA.

Slow growth expected in H1FY26: For FY26, UPLL has guided for 4-8% revenue growth and a 10-14% EBITDA growth. UPLL does not foresee any material impact from US tariffs as it has already placed materials in H2FY25 (North American sales up 55% YoY in Q3FY25 and 77% in Q4FY25). Topline growth in H1FY26 is likely to be muted due to pre-placement in North America. Growth momentum is likely to pick up H2 onwards. UPLL also reaffirmed its commitment to be disciplined as regards SG&A expenses.

Efforts on to sustain leadership in NPP: UPLL has emphasized on AI launches and market expansion for its natural plant protection (NPP) portfolio. It is targeting volume-led revenue growth and profitability, aiming to outperform the market with a ~13% CAGR in FY25-30. Key drivers are strengthening “hero products,” advancing innovation in biocontrol, microbials, pheromones, and enzymes, and deepening farmer engagement via “Closer to Farmer” GTM strategy. Growth is expected to be driven by successful launches in Brazil and North America, along with leveraging partnerships in Europe and LATAM. Sales outside India are projected to surpass USD 700mn by FY27, supported by a pipeline of 10 new technologies

Reiterate Accumulate with a higher TP of INR 749: Global destocking is over. But with large agrochemical supplies from China coming at subdued prices, industry growth may be led by volume in the short term. UPLL has aggressively reduced its cost structure and shrunk working capital requirement, both of which are likely to continue in FY26 as well. We have reduced our EBITDA estimates by 7% for FY26E and 6% for FY27E to factor in low product realizations. We were positively surprised by the extent of reduction in working capital and hence, we upgrade our target multiple from 6x to 7x EV/EBITDA on FY27E financials. We thus raise our TP to INR 749 (from INR 664). We retain Accumulate and introduce FY28E financials.

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