Active Stocks
Thu Mar 28 2024 14:09:24
  1. Tata Steel share price
  2. 155.95 2.03%
  1. HDFC Bank share price
  2. 1,456.40 1.09%
  1. ITC share price
  2. 431.00 0.70%
  1. Power Grid Corporation Of India share price
  2. 277.70 2.45%
  1. State Bank Of India share price
  2. 756.35 3.04%
Business News/ Market / Mark-to-market/  UPL ends FY16 well, but thrust on capex can undermine returns
BackBack

UPL ends FY16 well, but thrust on capex can undermine returns

The agrochemical firm is likely to incur a capex of `800-900 crore per annum for the next couple of years to expand and upgrade capacities

While operating profit for UPL jumped 25%, margins expanded 90 basis points to 22.6%. Premium
While operating profit for UPL jumped 25%, margins expanded 90 basis points to 22.6%.

Shares of agrochemical firm UPL Ltd gained 4% on Friday after the company reported its best quarterly performance in at least two years.

Revenue rose 20% on a 25% growth in volume.

In the previous eight quarters, revenue and volume had increased in the range of 2-19%. Strong growth in Latin America helped the company report a robust performance.

Late sowing of corn in the region led to sales spill-over from the December quarter. Also, UPL’s products for rice, fruits and vegetables performed well in Mexico and Columbia.

As a result, operating profit jumped 25%. Margins expanded 90 basis points to 22.6%. According to Emkay Global Financial Services Ltd, this is the company’s best ever quarterly margin. The company ended 2015-16 with a revenue growth of 10%. The growth is slower than the 12-17% increase the company saw in the last two fiscals. But the performance should be seen in the context of the demand and currency headwinds that the industry is facing.

The global crop protection market is estimated to have contracted 10% in 2015. Brazil, one of the key markets for agrochemical firms, declined 23%. Despite this, UPL has grown revenue, thanks to market share gains.

According to Sharekhan Ltd, the management maintained its guidance of 12-15% revenue growth and 60-100 basis points margin expansion in the current fiscal. The growth is expected to be driven by new product launches and market share gains, especially in Latin America.

The robust performance and guidance have led to an earnings upgrade.

HDFC Securities Ltd and Emkay raised their sales, operating profit estimates for the current fiscal.

But Emkay downgraded the stock citing run-up in the share price—it’s up 15% in the last fiscal.

While the gains are not spectacular, weighing on sentiment is the company’s renewed focus on capital expenditure.

According to Emkay, the company is likely to incur a capex of 800-900 crore per annum for the next couple of years to expand and upgrade capacities.

A growing firm like UPL cannot avoid investments. But the fear is that aggressive capex can limit free cash flows and delay the balance sheet improvement measures.

Also, it brings back earlier memories of UPL pursuing inorganic growth, which undermined key financial ratios and stock valuations. The coming quarterly results will prove if these concerns are unfounded or not.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 01 May 2016, 08:48 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App