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Strong quarter led by volume growth and better product mix

Operating performance in line

* UPL Ltd (UPLL) reported a strong quarter as EBITDA jumped 68% YoY (on a low base) to INR32.3b, fueled by a strong demand recovery (volume-driven growth; 11% YoY in 4Q), better product mix, rebate normalization, and lower COGS. Despite the challenging macro environment, UPL reported an industry-leading volume growth of ~13% YoY in FY25.

* During the capital markets day meet, the management indicated the macroeconomic conditions to remain challenging in FY26, with the overall industry growth expected to be flat (volume growth offset by price deflation). However, UPLL remains on track to accelerate its growth from 2HFY26 onwards, primarily led by the recovery in key markets and traction from newly launched products. The innovation rate is likely to improve to 17.5% in FY26 from 14% in FY25.

* Management guided ~4-8% revenue/~10-14% EBITDA growth for FY26, driven by volume and better product mix. We broadly retain our FY26/FY27 EBITDA estimates. Further, incorporating the Advanta stake sale (~12.5%) and an improving business scenario, we raise the minority share of profits for FY26/FY27. This, in turn, reduces our earnings by 13%/14%. Reiterate Neutral with a TP of INR660 (based on 11x FY27 EPS).

Growth across platforms fueled by higher volume

* UPLL reported revenue of INR155.7b (in-line) in 4QFY25, up 11% YoY (volume growth: 11%, price growth: 1%, forex decline: 1%). EBITDA stood at INR32.4b (in line), up 68% YoY. EBITDA margin was 20.8% vs. 13.7% in 4QFY24, due to a 910bp expansion in gross margin. The contribution margin was improved due to improved product mix and rebate normalization. Adj. PAT came at INR11.9b (est. Adj. PAT INR14b), up 3.3x YoY.

* The India revenue grew 16% YoY to INR14b, led by strong Rabi placement. North America revenue grew 77% YoY to INR27b on account of strong volume recovery (up 65% YoY) led by key herbicides and fungicides. LATAM revenue grew 2% to INR50.8b, as the volume growth was offset by price softening and unfavorable forex. Europe remained flat (up 1% YoY) at INR31.1b, aided by continued strong volume growth in fungicides and NPP while prices remained soft. RoW revenue declined 1% YoY to INR32.8b, owing to growth in China and Southeast Asia being offset by price challenges in Africa.

* Advanta’s revenue increased 37% YoY to INR15.4b, driven by higher volumes and improved realizations in corn, sorghum, canola, and vegetables, while UPLL Specialty Chemical’s revenue grew 24% YoY in FY25, driven by overall growth in demand, new launches, and enhanced capacities.

* Gross debt (excluding perpetual bonds) declined to INR237b in Mar’25 from INR284b as of Mar’24. Net debt declined to INR138b in Mar’25 vs. INR221b in Mar’24. The decline was due to strong cash flow generation and improved working capital days, which declined to 53 in Mar’25 from 86 in Mar’24.

* FY25 revenue/EBITDA increased 8%/47% YoY to INR466b/INR81b, while the Adj. PAT stood at INR19b, up 7x YoY.

Highlights from the management commentary

* UPL Corp: Despite FY24 being a challenging year for the industry, UPL capitalized on it for a strong recovery in FY25, meeting all guidance targets. For FY26, the company aims for USD130m in revenue from over 20 new product launches, primarily driven by North America, Europe, and LATAM.

* Advanta: It now ranks among the top 10 global seed companies, with UPL expanding its portfolio across all crops and regions. Advanta achieved 12% YoY revenue growth in FY25, driven by higher volumes and improved realizations in corn, sorghum, canola, and vegetables, despite the industry’s flat growth.

* Superform: The newly formed businesses comprising Agchem and Natural Plant Protection (75% revenue share), Spec Chem, Health & Nutrition, and Animal Health (25%) achieved 6% YoY revenue growth in FY25. Within that, the specialty business grew 24% YoY, and the company launched seven new products in FY25. However, the EBITDA margin contracted 160bp YoY due to some captive pricing pressure and under-absorbed factory costs. UPLL entered into six binding/non-binding MoUs for contract manufacturing; peak revenue potential of INR15-20b.

Valuation and view

* UPLL has witnessed resilient growth in 2HFY25 despite macro headwinds. Building on this momentum, the company is likely to experience further growth in FY26 (largely in 2H; 1H to be subdued due to geopolitical risks). This growth will be propelled by healthy volume growth across key regions (North America, LATAM, and ROW), while pricing will remain soft. Further, new product contribution would see a healthy ramp-up, while Advanta Seeds will continue witnessing growth in both existing and new products.

* We expect revenue/EBITDA/Adj. PAT CAGR at 7%/14%/52% over FY25-27. Reiterate Neutral with a TP of INR660 (based on 11x FY27 EPS).

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