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Home >Markets >Mark To Market >Rising agricultural incomes push UPL stock higher as well

Robust sales growth in Latin America and India have driven the strong March quarter show of UPL Ltd, which manufactures and markets agrochemicals, industrial chemicals, chemical intermediates and specialty chemicals, and also offers crop protection solutions. Other geographies also contributed but India sales were strong, led by favourable crop conditions.

The growth in Latin America came on the back of a catch-up because of a delayed crop season in Brazil and helped the company offset the impact of unfavourable currency movements. Sales in Latin America grew as much as 40% year-on-year (y-o-y) in Q4. India sales growth remained robust at 23% y-o-y. Sales in Europe and the rest of the world supported well with 11-17% growth. Sales in the US, however, remained flat and growth was largely impacted by supply constraints.

SATISH KUMAR/MINT
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SATISH KUMAR/MINT


FY21 registered a decent 8% growth despite covid disruptions. In Q4, UPL saw earnings before interest, tax, depreciation and amortization (Ebitda) grow 31% y-o-y, with margins expanding by 170 basis points (bps). Cost synergies with its acquired firms have augured well for it. Against the guided $200 million cost synergies post Arysta LifeScience acquisition, it managed cost synergies worth $235 million in two years.

Revenue synergies at $440 million exceeded the guidance of $350 million. Business prospects remain strong with India growth likely to be supported by a normal monsoon. Latin America continues to see decent growth.

With agri-commodity prices rising, increasing farmer incomes are likely to drive growth for agri-related activities. UPL’s high debt had remained a key cause of concern. It has reduced gross debt and net debt by 5,039 crore and 3,140 crore, respectively. These stood at 23,774 crore and 18,922 crore, respectively, on 31 March.

UPL plans a further cut and aims to achieve net debt to Ebitda levels of less than 2x during FY22. Analysts at Prabhudas Lilladher Pvt. Ltd have increased revenue, Ebitda and net profit estimates by 3%, 7% and 12%, respectively, for FY22 and 3%, 8% and 13% for FY23 driven by higher volumes, better sales mix and price hikes.

An increasing contribution from differentiated products has also prompted analysts at CLSA to raise their valuation target multiples. With earnings upgrades, it is not surprising that the stock gained more than 9% on Friday.

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