Buy UPL Ltd for Target Rs 783 by Elara Capital
New products to drive volume growth
UPL’s (UPLL IN) 11% topline growth was currency- (+10%) and realization-led (+3%), while volumes declined by 3%. Advanta, Superform and global crop protection business contributed equally to consolidated topline growth. A 285bps expansion in gross margin to 57.6% was mix- and pricing-led. UPLL has guided for topline growth of 7-11% and EBITDA growth 10- 14% in FY27, which shall be volume-led for the next three quarters. Management reiterated its commitment to reach its medium-term target of <1.5x net debt-to-EBITDA.
Mike Frank, the CEO of global crop protection business, has resigned citing personal commitments. UPLL’s varied product pipeline across crop protection & seeds and chemical & NPP makes it portfolio resilient (~16% innovation turnover rate) and is the key growth driver. We revise UPLL to Buy from Accumulate with TP retained at INR 783, on 6.3x Q1FY29E EV/EBITDA.
Insecticides portfolio driving LatAM demand: LatAM revenue grew 5% in Q1, driven by strong herbicide and insecticide sales in Brazil, which offset softer demand in Colombia and Argentina. Chlorfenapyr based combination insecticide brands such as Propose and Constel along with Acephate-based combination molecule brands such as Feroce and Perito saw strong demand. Positive currency movements mitigated pricing pressure in the region.
Herbicides demand impacted Europe: The heat wave across Europe impacted herbicide and natural plant protection (NPP) portfolio, but a surge in Tebuconazole demand enabled 2% growth for the geography for UPLL. S-metachlor and Propanil herbicide and Mancozeb fungicide drove 11% growth for UPLL in North America.
Advanta – ~25% growth in topline and EBITDA: Growth in topline was driven by all three levers – Volume, price and forex. Corn portfolio gained traction in India, Latin America and Indonesia, whereas Sunflower seeds clocked demand in Argentina. Weak placements in Australia was courtesy sales advancement in Q4 last year. Post harvest segment was impacted in Italy and Spain.
Superform – Better realizations aided growth: Superform’s blended volume was down 2% but its specialty chemical segment saw a 51% volume growth, led by chemicals finding applications in lubricant, paints or flame retardant industries. EBITDA margin contracted 70bps due to higher overheads
Revise to Buy with TP of INR 783: UPLL’s varied product pipeline across crop protection & seeds and chemical & NPP makes it portfolio resilient (~16% innovation turnover rate) and is the key growth driver. We have reduced FY27E EBITDA estimates by 2% and rolled forward valuation to Q1FY29E financials. Due to a 7% drop in stock price since our last published report, we revise UPLL to Buy from Accumulate with a TP of INR 783, on 6.3x Q1FY29E EV/EBITDA.
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SEBI Registration number is INH000000933
