UPL Ltd. share price target

95% of the nations soybean acreage emerged by 14 lower than last year and 4bp below the 5-year average. 60% of the nations cotton acreage reached the squaring stage by July, 10% lower than last year and 9bp below the 5-year average. Additionally, in the Tranche-3 list, the US customs increased import duty on AIs from China to 25% from 10%; this move is expected to increase the price of formulations (end product). Key AIs used by UPLL in its formulations and which made it to the Tranche-3 list are mancozeb, pendimethalin and bifenazate. If Tranche-4 gets implemented, duty will be imposed on AIs like glufosinate, triphenyltin hydroxide, acifluorfen and metribuzin, which are used by UPLL in its formulations. Thus, unfavorable weather conditions and increase in import duty on AIs (which would ultimately increase agrochemical prices) would impact the farm profitability adversely, leading to lower growth for agrochemical players.

We interacted with UPL Limited (UPL) management to discuss i) the recent developments and key happenings in the company and industry (including change in taxation policy in Mauritius, impact of African swine fever, and impact of ongoing U.S.-China trade war), ii) progress of Arysta's integration, and iii) business environment shaping up in different geographies (demand outlook, new product launches, inventory levels and input cost pressures). Short-term hiccups, no major worries: Management believes there is...

growth of 15% y-o-y to Rs. 6,556 crore during Q4FY2019. This was led by increased volumes (up 7% y-o-y), improved realisations (up 5% y-o-y) coupled with exchanged gain of 3%. Input cost pressures on account of rising crude prices and challenging environment in China in terms of commodity pricing and trade war scenario led to gross margin contraction of 57 BPS to 37.6%...

estimate: INR14.4b), with the margin expanding 50bp YoY to 21.9% (our estimate: 22%). Adj. PAT grew 39.5% YoY to INR10.7b in the quarter. Other income came in lower at INR590m (v/s INR1,180m in 4QFY18), but the impact was more than offset by a lower tax rate (2.8% v/s 17.7% in 4QFY18) and a decline in finance cost (INR2.6b v/s INR4.1b in 4QFY18). For FY19, revenue grew 14% to INR198.7b, with the margin expanding 60bp to 20.8%. Adj. PAT increased 17% to INR26.1b. Key highlights of Arysta consolidation: On incorporating Arysta's financials...

In line performance. Arysta's acquisition A strategic fit. UPL's 4QFY19 performance (excluding Arysta Lifescience's two months results) was largely in line with our estimates. The sales/EBITDA/Adj. PAT grew 15.2/0.9/23.5% YoY to ` 65.5/14.3/9.0bn, respectively. The adj.PAT growth of 23.5% YoY was primarily due to a decline in interest costs (down 59.3% YoY) and a lower tax rate (2.6% in 4QFY19 against 23.1% in 4QFY18). Sales rose 15.2% YoY, driven by a volume/value/exchange rate growth of 7.0/5.0/3.0% YoY, respectively. The 4QFY19 and FY19 results include the...

UPLL's revenue and EBITDA numbers (excluding Arysta's acquisition related Change in Estimates | Target | Reco adjustments) were largely in line with our estimates. It reported revenue of INR 85 bn in 4Q'19 vis--vis our estimate of INR 90 bn (UPL Group- INR 66 bn,...

PAT grew 6% YoY to INR15,510m. Growth was robust across key geographies (+36.6% YoY in Europe, +26.5% YoY in LATAM, +21.5% YoY in North America and +12.7% YoY in RoW), barring India (-20.8% YoY), where poor Kharif yield and erratic rainfall resulted in stressed cash flow for farmers. UPLL also faced restriction on the sale of organophosphorus products in a few states in India, which impacted the top line (to the tune of INR300-400m on an annualized basis). UPLLs performance in Europe has been a highlight, with the geography growing at 15.4% YoY in 9MFY19 against an estimated industry decline of 10% in CY18. We maintain our estimates (revenue/PAT CAGR of 32%/18% over FY18-21), factoring in the financials of Arysta in FY20E and FY21E. We roll over the target price to FY21E EPS, valuing UPLL at 13x (~15% discount to its three-year average trading multiple, primarily due to the expectedly high leverage in the balance sheet post Arysta acquisition).

The EU has passed a regulation (effective from Jan'19) to minimize the use of copper in crop protection products. The new regulation states that the permissible use of phy to sanitary products (pesticides, nematicides and rodenticides) containing copper compounds should be curbed. In this report, we analyze details of the regulation and its impact from UPLL's point of view.

LATAM drives revenue growth; steady volume growth Revenue rose by 13% YoY in Q2FY19 led by strong performance in India and LATAM businesses (contributing around 66% of total sales). LATAM business registered a strong revenue growth of 26% YoY in Q2FY19 led by decent growth across geographies in the region especially Brazil barring Argentina which was impacted by currency depreciation and overall economic situation. LATAM's revenue contribution has increased to 41% during the quarter from 37% in Q2FY18. Management expects strong performance to continue in LATAM in H2FY19 as well led by advance orders received in Brazil. Going ahead, we expect LATAM revenue to grow at a CAGR of 13% over FY18-20E on the back of strong...

Scales higher in the top five league globally: With Arysta's acquisition, UPL moves ahead in the global agri-chemical ranking and is now among the top five players. The acquisition is expected to provide significant benefits to UPL, as it complements UPL in many areas. Arysta is an asset-light company and a global provider of innovative crop-protection solutions, including...