Buy UPL; target of Rs 930: Sharekhan

Sharekhan's research report on UPL

Q3FY2023 results were strong on the operational front with better-than-expected consolidated revenue growth of 21.1% y-o-y and a beat of 68 bps in EBITDA margins at 22.2%. Adjusted operating profit of Rs. 3,034 crore beat estimate by 8.5%. Adjusted PAT at Rs. 1,107 crore (up 11.9% y-o-y) beat our estimate by 15.1%, as a beat in operating profit got further improved by higher-than-expected other income and lower-than-expected tax rate. Revenue growth was led by 13% y-o-y improvement in prices, 7% positive currency impact, and 1% improvement in volumes. Price growth was led by strong agri-commodity prices and continued firmness in product prices across regions, specifically for insecticide products. Europe growth was muted due to devaluation of the Euro and geopolitical tensions. Management maintained its FY2023 revenue/EBITDA growth guidance to 12-15%/15-18% and targets to lower net debt by $1.3 billion in Q4FY2023. With 9MFY2023 revenue/EBITDA growth of 22%/24% y-o-y, we expect UPL to beat its growth guidance, as Q4 is normally strong quarter, and management expects strong volume growth despite some channel destocking in the agrochemical industry.

Outlook

We maintain Buy on UPL with an unchanged PT of Rs. 930, as valuation of 9.3x/8.1x its FY2024E/FY2025E EPS is attractive, considering a strong growth outlook, and management aim to deleverage the balance sheet. Focus on increasing share of high-margin, differentiated, and sustainable solutions would improve earnings quality and drive valuation re-rating.

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