Buy UPL; target of Rs 632: Sharekhan

Sharekhan's research report on UPL

 Management expects sustainable 7-8% revenue growth, backed by focus to increase share of BioSolutions and product innovation. Long-term EBITDA margin guidance of 24-25% (vs. 19% in FY2020) led by high-margin products and cost synergies. Q2FY2021 to witness improved revenue growth from Latin America, healthy growth in India, and flat revenue trend in Europe and the US. Reiterated FY2021 revenue/EBITDA growth guidance of 6-8%/10-12%. Expect FCF generation of Rs. 12,584 crore over FY21E-FY23E (led by 16% PAT CAGR and efficient WC cycle) to reduce net debt/EBITDA to 1.8x by FY23E vs. 3.2x in FY20.

Outlook

We maintain our Buy rating on UPL with a revised PT of Rs. 632 (higher PE multiple of 13x and rollover of target multiple to FY23E EPS).Improving earnings outlook and balance sheet deleveraging to be key rating catalyst.

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