UPL’s net profit rose 29.7% YoY in Q4FY22 to Rs 1,379 crore, in line with Trendlyne’s Forecaster estimates. Its revenue grew 24.2% YoY to Rs 15,977 crore on the back of price hikes and increase in volumes. The company’s EBITDA margin rose 46 bps YoY in Q4FY22 to 22.6%. Higher realizations and efficient supply chain management helped the company to improve its EBITDA margin. 

Quick takes

• Price hikes and volume growth drive revenue and EBITDA higher in FY22
• High commodity prices and high demand for biosolutions to favor UPL in FY23
• Reduced availability of fertilizers increases demand for UPL’s crop protection products
• Patent approvals for UPL’s products to play a major role in price hikes in FY23

While price hikes and a marginal rise in sales volume increased the company’s Q4FY22 EBITDA, it was slightly offset by an increase in costs - production costs, freight charges, and selling, general, and administrative expenses. As a result, EBITDA rose 26% YoY to Rs 2,839 crore in Q4FY22 with the EBITDA margin increasing by 46 bps to 22.6%. The company plans to combat the increase in raw material costs by taking price hikes and increasing its sales volume.

Finance costs rose 90% YoY in Q4FY21 mainly due to a loss in net exchange, raising finance costs to Rs 172 crore against a gain of Rs 121 crore in Q4FY21. The company reduced its net debt by $91 million in FY22 to $ 2,497 million (in $ terms). However, the net debt remained flat due to Indian rupee weakening. 

High cost and the reduced availability of fertilizers to increase demand for UPL’s products

Higher commodity prices, specifically in the corn, wheat, and soy segments increase the plantation of these crops, which in turn raises the demand for crop protection products. UPL’s revenue grew 19% YoY in FY22 to Rs 46,240 crore and net profit rose 26.3% to Rs 4,627 crore. UPL’s crop protection portfolio, which is a high margin segment, was a major contributor to profit growth in FY22.  

The company is dependent on price hikes to drive revenues. Most price hikes were taken after getting the patent for the product. With multiple price hikes already taken by the company, patent approvals will play a major role in the future price hikes as UPL can increase the prices of patented products with minimal reduction in demand. 

UPL can consequently rely on price hikes going forward if it can continue its momentum in filing and receiving patents for its products. As of FY22, UPL has a total of 1,502 granted patents with 3,277 patents pending for approval.

The company gave revenue guidance of 10% and EBITDA growth of 12%-15% for FY23. This puts the EBITDA margin at around 22.7% in FY23, which represents a 70 bps increase YoY. UPL expects the prevailing strong commodity prices to drive product demand with corn, soy, and wheat being major beneficiaries. In addition, increased demand for its crop protection products and reduced availability of fertilizers is expected to favor UPL.

The company’s ability to take multiple price hikes in FY23 will have an impact on revenues and net income. With the increased demand for products like biosolutions and crop protection due to a supply crunch in fertilizers, UPL’s sales volume is set to grow in FY23. However, the EBITDA margin improvement will depend on how much UPL can continue to offset the increase in raw material costs with price hikes and volume growth.