UPL sees green shoots of recovery ahead; brokerages turn positive

UPL's net losses widened on year in Q2.

Agrochemical player UPL Ltd, despite posting weak quarterly numbers, stated seeing an improvement in volume growth, hinting that the worst for the company may be behind. The management, in the post earnings call also expressed confidence in achieving its EBITDA and net-debt guidance. The firm also expects higher-than-industry growth in its flagship crops business as destocking is largely done and prices have now stabilised. Banking on this, brokerages have also shared a positive outlook ahead for the company.

Shares of UPL fell as much as 8 percent in the previous session after the company's net losses widened in Q2 to Rs 443 crore, compared to a net loss of Rs 189 crore that it had reported during the same quarter last year. However, brokerage firm HSBC, which has a 'buy' call on the stock with a price target of Rs 680, stated that the sharp stock correction seemed more like an overreaction.

Along similar lines, the stock surged over 4 percent in early trade today.

Much like the management, HSBC also believes the company is on the course to recovery as further improvements are expected in the second half of the current fiscal.

Despite the weak bottomline, UPL reported a 9 percent growth in revenue to Rs 11,090 crore in the September quarter, as against Rs 10,170 crore during the same period last year. Revenue growth for the quarter was driven by a 16 percent year-on-year increase in volumes, a 7 percent decline in prices and near-flat forex rates.

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Led by this volume growth, the company said that it is on track to achieve its net debt and EBITDA guidance for the current financial year. Meanwhile, the management also maintained FY25 revenue growth guidance of 4–8 percent and EBITDA growth of 50 percent-plus as high-cost inventory liquidation is over.

In addition, the company is also undertaking a rights issue of around $400 million and other initiatives to pare it staggering debt levels. Analysts at Nuvama Institutional Equities believe the rights issue and potential value unlocking from Advanta would strengthen UPL’s balance sheet, addressing the risk of a leveraged balance sheet and potentially drive a re-rating,  prompting the brokerage to upgrade the stock.

Nuvama upgraded its rating to 'buy' from the previous 'reduce' for UPL and also raised its price target for the stock by over 21 percent to Rs 590.

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