Buy UPL, target price Rs 1060: JM Financial

JM Financial has buy call on UPL with a target price of Rs 1060. The current market price of UPL Ltd. is Rs 717.15.

UPL Ltd., incorporated in the year 1985, is a Large Cap company (having a market cap of Rs 54160.09 Crore) operating in Pesticides/Agro Chemicals sector.

UPL Ltd. key Products/Revenue Segments include Agrochemicals, Export Incentives, Sale of services, Other Operating Revenue, Royalty Income for the year ending 31-Mar-2022.


Financials
For the quarter ended 30-06-2022, the company reported a Consolidated Total Income of Rs 10894.00 Crore, down -31.81 % from last quarter Total Income of Rs 15977.00 Crore and up 27.22 % from last year same quarter Total Income of Rs 8563.00 Crore. Company reported net profit after tax of Rs 975.00 Crore in latest quarter.

Investment Rationale
UPL reported an all-round beat on sales in 2QFY23 across geographies led by price hikes. During the quarter, volume fell 7% primarily due to LATAM and Brazil. For FY23, the company indicated mid-single-digit volume growth. Inventory levels were strategically increased in 1HFY23 in anticipation of high demand in 2HFY23. The management expects inventory days to fall sharply in 2HFY23. On the debt front, factoring will be curtailed in certain countries like Brazil where interest rates have spiked. At end-FY23, net debt levels are expected to decline from ~USD 2.5bn to ~USD 2.0bn. The company has maintained its guidance of ~12-15% revenue and ~15-18% EBITDA growth in FY23E. Hence, with the reduction in working capital in 2HFY23 and robust EBITDA growth, the brokerage believes UPL should be able to meet its USD 400-500mn net debt reduction guidance in FY23. It has kept estimates unchanged and maintains BUY with an unchanged Sep’23 TP of INR 1,060/share as we believe UPL stands to benefit from robust crop protection demand.

Promoter/FII Holdings
Promoters held 28.96 per cent stake in the company as of 30-Sep-2022, while FIIs owned 36.45 per cent, DIIs 17.03 per cent.