Buy UPL Ltd For Target Rs.980 By Elara Capital
Restructuring fails to simplify structure & unlock value
UPL (UPLL IN) has approved a composite scheme on 20 February, to consolidate its India crop protection businesses (via UPL SAS) and global crop protection businesses into a new entity, UPL Global. This will be followed by its demerger and automatic listing on India’s stock exchanges. UPLL is separately evaluating Superform, its specialty chemicals arm, although details are pending. While the businesses are separate, overall shareholding structure remains complicated. The move is unlikely to generate incremental value for shareholders; rather we believe concerns will surface over the holding company’s discount. Short term, it is a negative, as shifting focus from financial discipline hopes to restructuring flaws. In the long term, we remain positive as profitability gains and deleveraging should bolster growth. We retain Buy with a TP of INR 980 based on 7x H1FY28E EV/EBITDA.
India plus global crop protection business carved out: UPL plans to merge UPL SAS (India crop protection business) into UPLL, demerge India crop protection business from UPLL to UPL Global, and merge international crop protection business into UPL Global. Listing of UPL Global is likely to be in Q1FY28. The proforma financials of UPL Global is INR 39.6bn in top line, with an EBITDA of INR 6bn and a margin of 15.5% as on TTMFY26.
UPLL to become a holding company: Post restructuring, UPLL will become a holding company, which will house: 1) the crop protection business (UPL Global), 2) seeds & postharvest business, Advanta, and 3) specialty chemical business, Superform; they will be listed on exchanges, leading to value discovery at each subsidiary level. While there will be value creation at the subsidiary level, UPLL would garner holding company discount.
Retain Buy with a TP of INR 980: The restructuring event, in our view, is rather short-term negative as it shifts the narrative of “hopes of financial discipline” to restructuring flaws. We await the full scheme document to arrive at a valuation, but our calculation does not indicate the move will create value for UPLL shareholders in the near term. In the long term, improved profitability and leverage profile would remain key value drivers. We retain Buy with a TP of INR 980 based on 7x H1FY28E EV/EBITDA.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
