Despite hiccups in 1H’20, UPL is expected to sail though in 2H due to its continuous focus on resistance management, cost leadership along with proprietary/generic products, diversified presence across all crops & geographies. Size has changed the game for UPL and its negotiating power is expected to increase with both vendors and clients. Its increased clout in the market enables it to maximize revenue and profits along with gaining market share. We have introduced FY22 nos, downgraded our EBITDA & PAT estimates for FY20/21 and reduced out target EV/EBITDA multiple to 8.0x (from 8.5x) due to higher than expected share of revenue from LatAM (lowest margin contribution geography). We maintain our earnings estimates and expect revenue, EBITDA and APAT to grow at CAGR of 34%, 53% and 35% between FY19-21E. Maintain Buy with target price of Rs 740 (Previous- 752) based on 8.0x Sep’21E EV/EBITDA.
Behemoth in the making UPL’s FY19 annual report highlighted a) potential opportunities in Arysta Lifescience, b) its initiatives towards manufacturing key molecules and achieving self-sufficiency, c) immense growth prospects for glufosinate and its swelling product portfolio backed by strong R&D. Acquisition of Arysta Lifescience helped UPL establish as a global leader in crop protection products. The strength of UPL lies in manufacturing, proprietary off-patent & specialty products, deep marketing reach and R&D capabilities. UPL is working on building competences for expanding digital services and processes by investing in artificial intelligence tools to analyse customer needs, using robotic sensors to access real-time on-field farmer data etc. Continued focus on resistance management, cost leadership along with proprietary/generic products, diversified presence across all crops & geographies helped UPL to outperform industry growth as well as mitigate the impact of volatility arising out of trade wars and natural calamities. Maintain Buy with revise target price of Rs745 based on 8.5x FY21E EV/EBITDA (Previous – Rs752).
UPL results on track Maintain. Buy UPL has reported financials including Arysta for 1QFY20 vs UPL excluding Arysta in 1QFY19. Financials for 1QFY20 include provisions related to Arsyta deal on inventory (Rs4.2bn) that has affected gross margins, EBITDA and depreciation. The results including these adjustments have come in line with our estimates (which also include the above adjustments) at the EBITDA level. PAT has come in lower because of lower than expected other income. EBITDA margin came in lower at 15.7% vs our estimate of 17.4% on revenue reported at Rs79.1bn (beat of 8%).
UPL’s continuous focus on resistance management, cost leadership alongwith proprietary/generic products, diversified presence across all crops & geographies has enabled it to outperform industry growth plus minimise the impact of volatility arising out of trade wars and natural calamities. We maintain our earnings estimates and expect revenue, EBITDA and APAT to grow at CAGR of 35%, 48% and 29% between FY19-21E. Maintain Buy with target price of Rs 752 based on 8.5x FY21E EV/EBITDA.
We believe that some of these concerns are either premature or unsubstantiated at this stage and in any case largely priced in, following the above correction in the stock. The more pertinent concerns are related to accounting, earnings and cashflows from the Arysta business. We maintain our forecasts and upgrade our rating on the stock from Accumulate to Buy based on our TP of Rs1,129 that implies 20.4% upside from CMP.
We have factored a synergy gain of USD 45mn and USD 70mn for FY20E and FY21E (we thus believe that with managements expectation of USD200mn synergy, there are upside risks to our estimates). UPL is expected to deliver a OCF yield of 9.9/9.1% and a FCFF yield of 7.2/6.1% in FY20E/FY21E, respectively, which lead us to assume a 10x EV/EBITDA multiple to arrive at a TP of ` 1,206 (implied P/E multiple of 13.7x FY21 EPS). We resume coverage, with a Buy rating.
We believe the growth appears reasonable, given the strong global footing in a consolidating market leading to potentially higher market share and improving margins. We expect revenues to grow at a CAGR of 32.8% over FY19-21E and PAT to grow at a CAGR of 31.5% over FY19-21E. At a CMP of INR 1,016, UPL is trading at a valuation of 17.8x FY20E EPS and 15.8x FY21E EPS. We valued the company by assigning a P/E multiple of 20x on the FY20E EPS of INR 57.1 and arrived at a target price of INR 1,142.0 (potential upside – 12.4% ). We have an ACCUMULATE rating on the stock.
Maintain Buy with revised a PT of Rs. 1,086: UPL is better placed to benefit from globalrecovery in the agri commodity space over the next 2-3 years. UPL (ex Arysta) reported revenue and earnings growth of 14% and 10% y-o-y, respectively, during FY2019. With synergiesand integration benefits flowing through, webelieve growth momentum should accelerate further, as the acquisition will further strengthen UPL’s position in the global agri chem market. We maintain our Buy rating on the stock with a revised price target (PT) of Rs. 1,086.
The management was upbeat on the progress in integration with Arysta on strategy, culture and operations during the post-result analyst meet. UPL reaffirmed the targets for merger synergies, but extended the timeline for cost savings from two years to three years. We have revised our forecasts based on the FY19 results- raised earnings in legacy UPL( ex- Arysta) on the healthy growth outlook; but cut our forecast for consolidated UPL-Arysta earnings on reduced Arysta estimates. We are downgrading our rating on UPL from Buy to Accumulate on our marginally reduced TP of Rs1129/sh (0.44% cut) following the 31-49% rally in the stock over the last 6-12 months.
While the Arysta acquisition bodes well from the medium- term growth and synergy (cost synergy of USD200m+ and revenue synergy of USD350m+ over three years) perspective, it has resulted in a significant rise in net D/E from 0.4x in FY18 to 1.8x in FY19. As a result, RoCE dipped from 19.8% in FY18 to 10.3% in FY19, and we expect it to recover only up to 12.3% in FY21. We maintain our estimates of 9%/14%/20% revenue/EBITDA/PAT growth in FY21. Moreover, the stock has run up ~85% over the last one year, providing limited room for a further upside. We, thus, downgrade the stock to Neutral, valuing it at 14x FY21E EPS (~10% discount to its five-year average trading multiple, primarily due to its highly leveraged balance sheet). Our target price of INR1,067 implies a 5% upside.
Our estimateson EBITDA growth and finance cost is conservative than the management’sguidance hence there might be upside risks to our earnings projection. The downside risk to our earnings projection can come from the expected volatility that the LatAM agchem industry may see as a result of widespread swine flu in Asia & Africa and change in protein consumption mix as a consequence of that. We retain BUY recommendation with revise target price of INR 1126 based on 8.5x FY21E EV/EBITDA (Previous- 8.0x).
Indian generics agrochemicals company UPL Ltd (UPLL) is set for robust growth after the recent US$4.2bn all-cash buyout of global competitor Arysta LifeScience Inc. The Indian multinational is present across the entire crop protection chemicals (CPC) and seeds chain. UPLL caters to all categories focused on key crops and geographies, including Latin America (LatAm), its largest market. UPLL is present in 133 countries with 79% of its revenues coming from overseas markets. We forecast FY19-21E EPS CAGR of 41% for the UPLL-Arysta combine (including synergies). We initiate coverage on UPLL with a Buy rating and a target price of Rs1,134, up 24.2% from the current market price.
We remain positive on UPLL’s holistic growth prospects and maintain our estimates (revenue/PAT CAGR of 32%/19% over FY18-21) and value UPLL at a P/E of 14x (~10% discount to its three-year average trading multiple, primarily due to the highly leveraged balance sheet). Our TP of INR1,035 implies 15% upside. Maintain Buy.