PL Stock Report: UPL (UPLL IN) - Q2FY24 Result Update – Lackluster operating performance; outlook bleak - HOLD

Prabhudas Lilladher Pvt Ltd
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Prabhudas Lilladher Pvt Ltd

Highlights

UPL (UPLL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

UPL (UPLL IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs541 | TP: Rs550

Q2FY24 Result Update – Lackluster operating performance; outlook bleak

Quick Pointers:

§ Volume/price growth of -15%/-7% YoY respectively.

§ Net debt stood at Rs336.8bn (including perpetual bond of Rs29.8bn), up Rs45.0bn QoQ and up Rs21.9bn YoY.

We trim our FY24E/25E/26E estimates by 29%26%/25% and maintain HOLD factoring in subdued growth and margin outlook in the near term primarily led by a) high inventory levels in key regions; b) adverse weather conditions impacting demand; and c) falling RM cost scenario exerting pressure on realizations & margins. UPL reported weak set of numbers below our and consensus estimates with Revenue/EBITDA/PAT loss of Rs101.7bn/Rs15.8bn/ Rs-1.2bn (-19%/-43%/-114%YoY). Citing bleak demand environment globally coupled with pressure on realizations & margins, UPL has revised downward their revenue growth guidance to flat growth YoY (earlier +1-5%) and +0 to -5% for EBITDA growth (earlier +3-7%) in FY24E. Company has highlighted that the gross debt is expected to come down by USD500mn in FY24E. We expect Revenue/PAT CAGR of 8%/22% over FY24-26E. Maintain HOLD with revised TP of INR550 (earlier Rs650) based on 10X FY26E EPS.

§ All geographies posted negative growth: Consolidated revenues at Rs101.7bn (-19% YoY) and were below our and consensus. Price/Volume/Fx for 2Q’24 stood at -15%/-7%/+3% YoY. All regions posted negative growth with LATAM/ Europe/NAFTA/India/ROW declining by 17%/7%/57%/23%/4% YoY growth. Subdued performance was largely on the back of a) significant decline in non-selective herbicides volume (particularly in LATAM and NAFTA); b) product specific bans in Europe (bifenazate- contributing to ~USD24mn last year) and c) higher channel de-stocking coupled with aggressive price competition from china.

§ Margins continue to be under pressure: UPL reported 520bps YoY contraction in gross margins to 48.6% primarily led by provisions of high cost inventory and higher sales return. Gross margin compression was despite higher contribution of differentiated products at 36% vs 27% last year to the overall CP revenues. Absolute EBITDA declined by 43% YoY to Rs15.8bn with margins down 660bps YoY to 15.5%. Adjusted PAT loss came in at Rs-1.2bn as against PAT of Rs8.5bn. Going forward, UPL is undertaking a cost reduction initiative of USD 100 mn over the next two years, with 50% being realized in FY24.

§ Net debt up Rs45.0bn QoQ: As on 30th September-23 net debt stood at Rs336.8bn (incl. perpetual bond of Rs29.9bn, considered as equity), up Rs21.9bn YoY and up Rs45.0bn sequentially management alluded that company's average cost of debt stood at 7% for 2QFY24. Further, the company has highlighted that the gross debt is expected to come down by USD500mn in FY24E.

(Click on the Link for Detailed Report)

PL Research is also available on Thomson Reuters & FactSet.

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