Dolat Capital is bullish on UPL has recommended Buy rating on the stock with a target price of Rs 1206 in its research report dated May 20, 2019.
Dolat Capital's research report on UPL
UPL’s 4QFY19 performance (excluding Arysta Lifescience’s two months results) was largely in line with our estimates. The sales/EBITDA/Adj. PAT grew 15.2/0.9/23.5% YoY to ` 65.5/14.3/9.0bn, respectively. The adj.PAT growth of 23.5% YoY was primarily due to a decline in interest costs (down 59.3% YoY) and a lower tax rate (2.6% in 4QFY19 against 23.1% in 4QFY18). Sales rose 15.2% YoY, driven by a volume/value/exchange rate growth of 7.0/5.0/3.0% YoY, respectively. The 4QFY19 and FY19 results include the two -month performance of Arysta Lifescience, which reported Sales/EBITDA/Adj.PAT of ` 85.2/12.9/5.2bn. According to the management, the reported performance (inclusive of Arysta) includes purchase price allocations at fair value, i.e., a ` 4.42bn inventory write down, a ` 1.02bn rise in depreciation on Arysta Lifescience’s results, the ` 1.63bn impact of deferred tax, and the ` 1.31bn interest costs on the debt to finance the Arysta Lifescience acquisition. The management believes integration costs of USD 60-80mn are likely to reflect in the income statement in FY20 (as exceptional items).
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.
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