volume no. 1 issue no. 22 upl ltd. - india’s #1 online ... · rating target (potential upside 0...
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![Page 1: Volume No. 1 Issue No. 22 UPL Ltd. - India’s #1 Online ... · Rating Target (Potential Upside 0 100 200-14 -14 -14 -14 14 v-14 -14 Jan-15 -15 -15 r-15 May-15 -15 CNX Nifty UPL One](https://reader036.vdocuments.site/reader036/viewer/2022071016/5fcf85f05bcb85735b06f053/html5/thumbnails/1.jpg)
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One year Price Chart
Established in 1969, UPL Ltd (UPL) is a crop protection, chemicals and
seeds company. The company offers a wide range of products while
operating through its two segments, namely, agro activities and non-agro
activities. UPL’s product portfolio includes insecticides, fungicides,
herbicides, fumigants, plant growth and regulators and rodenticides.
Globally, UPL has presence in North America, Europe, Latin America and
Rest of the World (RoW), apart from India.
Investment Rationale
Sustained revenue growth - set to continue: Driven by world class
brands, a wide distribution network and a robust B2B and B2C business
model, the company’s sustained revenue growth at CAGR ~14% over FY10-
FY15, is poised to continue as its expands its footprint into multiple
geographies and enhances its reach through acquiring brands that are
reasonably valued and having a payback period of 3-4 years. Further, the
company has applied for multiple product registration, which management
tracks keenly on continuous basis, and is investing on R&D for new
products and technology. Moreover, the management has set an
estimated revenue target of USD 4 bn in the next 4 years, which if
achieved, will set UPL apart from the competition in terms of ROE and ROI.
Product launches to drive growth: In a bid to provide a boost to its
revenue-base, UPL is eyeing launch of 69 new ingredients over the next
three years which would have a direct impact on its revenue-base. We
expect the company to achieve its target of increasing the revenue by two-
fold over the next four years, given its healthy product pipeline.
International penetration de-risks UPL’s business model: UPL
generates ~80% of its revenue from international operations while the
remaining 20% comes from domestic operations. The company’s 50
subsidiaries across 124 countries along with a diversified product portfolio
de-risk its business model, making the prospects brighter for the coming
times.
Increased focus on per hectare productivity will increase demand for
Agrochemicals: The world’s population is estimated to reach 11 bn in
2100, posing grave challenges for food supplies. Hence, it is crucial to
increase per hectare productivity to meet food supply that can be achieved
through use of agrochemicals. UPL, being one of the largest players in the
segment, is expected to benefit proportionately from strong demand for
agrochemicals.
Rating BUY
CMP (`) 520.8
Target (`) 621.2
Potential Upside ~19.3%
Duration Long Term
Face Value (`) 2.0
52 week H/L (`) 570.0/285.6
Adj. all time High (`) 570.0
Decline from 52WH (%) 8.6
Rise from 52WL (%) 82.4
Beta 0.9
Mkt. Cap (`cr) 22,323.4
EV (`cr) 24,004.7
Promoters 29.8 29.8 -
FII 46.3 46.5 (0.2)
DII 10.1 8.6 1.5
Others 13.8 15.1 (1.3)
Shareholding Pattern
Mar15 Dec14 Diff.
Market Data
Y/E FY14A FY15A FY16E FY17E
Revenue (`cr) 10,770.9 12,090.5 13,904.1 16,267.8
EBITDA (`cr) 2,019.6 2,362.6 2,862.8 3,732.7
Adj. net Profit
(`cr)
1,043.4 1,151.4 1,743.4 2,554.1
Adj. EPS (`) 23.7 26.9 40.7 59.6
Adj. P/E (x) 22.0 19.4 12.8 8.7
P/BV (x) 4.4 3.8 3.2 2.7
EV/EBITDA (x) 12.3 10.0 7.8 6.0
ROCE (%) 21.2 23.0 27.6 32.8
ROE (%) 19.9 19.6 25.0 30.6
Fiscal Year Ended
June 11, 2015
BSE Code: 512070 NSE Code: UPL Reuters Code: UPLL.NS Bloomberg Code: UPLL:IN CRG:IN
Volume No. 1 Issue No. 22 UPL Ltd.
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UPL - leading global producer of crop protection products, intermediates,
specialty/industrial chemicals and seeds
UPL Ltd (formerly United Phosphorus Ltd) is a global generic crop protection, chemicals and
seeds company. While operating through two key segments, namely, agro activities and non-
agro activities, the company offers a range of products that includes insecticides, fungicides,
herbicides, fumigants, plant growth and regulators and rodenticides. The agro activity division of
the company manufactures and markets agrochemical products, seeds and other agricultural-
related products. The non-agro activity division, on the other hand, manufactures and markets
industrial chemical and other non-agricultural-related products.
Internationally, UPL has expanded its footprints in North America, Europe, Latin America and
Rest of the World (RoW), apart from India. While the Indian market accounted for ~21% of the
total revenue, North America, Europe, Latin America and Rest of the World constituted ~20%,
~19%, ~27% and ~14% of the total revenue (as in FY14).
Having subsidiaries across the world, UPL has customer base in 123 countries. The company has
24 manufacturing facilities with 10 in India, 4 in France, 2 in Spain, 3 in Argentina and 1 each in
UK, Vietnam, Netherlands, Italy and China.
UPL offers a range of
products that includes
insecticides, fungicides,
herbicides, fumigants, plant
growth and regulators and
rodenticides.
Internationally, UPL has
expanded its footprints in
North America, Europe, Latin
America and Rest of the
World (RoW), apart from
India.
UPL’s Product Profile
Agrochemicals
Fungicides Herbicides Insecticides
Manzate Prostick Super Wham Starthene
Vandozeb Tricor Lancer Gold
Saaf Devrinol Phoskill
Cuprofix Ultra Blazer Ulala
Blue Bordo Dost Super Assail
Microthial Fascinate Trinca
Uthane Surflan Bifenture
Unizeb Gold Saathi Tengard
Elixir Eros Gold Bracket
Super Tin Jhatka Doom
Topsin Lagaam Umet
Penncozeb Zartan Viraat
Industrial and speciality chemicals
White/Yellow Phosphorus (WP/YP) Triphenyl Phosphate (TPPA) Phosphorus Red (RP)
Meta Chloro Phenyl Isocyanate Phosphorus Trichloride (PCL3) Triphenyl Phosphite (TPPI)
Phosphorus Oxychloride (POCL3) Triethyl Phosphite (TEPI) Phosphorus Pentachloride (PCL5)
Phenyl Isocyanate (PI) Phosphorus Pentoxide (P2O5) Meta Chloro Phenyl Isocyanate (MCPI)
Trimethyl Phosphite (TMP)
Seeds
Rice – PAC 835, 807, 801 Grain Sorghum – PAC 501 Cauliflower – Shigra
Field corn – PAC 740 Mustard/Canola – PAC 401, CORL 432 Cabbage – G Ball 65
Forages – Nutrifeed, Sugar graze,
Makkhan grass Peas – GS 10 Beet Root Lalima
Spinach – Shobha
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Recorded healthy numbers in Q4FY15
UPL showcased healthy performance in Q4FY15 with 8.6% YoY growth in consolidated total
revenue at `3,624.3 crore as against `3,338.8 crore in the year-ago period. This was mainly on
account of 8.9% YoY increase in revenue from the agro business segment which accounts for
~97% of the company’s top-line. Revenue from the non-agro segment grew 10.4% YoY to
`215.0 crore, during the quarter. Sequentially, the company reported 18.9% YoY surge in
revenue.
Geography-wise, growth in revenue was led by Latin America with ~29% growth, followed by
~13% growth in Rest of the world (RoW), ~9% in the US and ~5% in India.
EBITDA margin expanded
160bps YoY to 21.7%, during
the quarter under review, as
against 20.1% in the same
period a year ago.
Quarterly performance trend
3,3
38
.8
2,7
56
.7
2,6
62
.3
3,0
47
.2
3,6
24
.3
36
0.3
28
8.6
16
6.1
24
9.3
44
0.1
0.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
3,500.00
4,000.00
Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15
Total income Net profit
3,2
16
.6
2,9
33
.0
3,5
03
.4
19
4.7
22
0.8
21
5.0
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
Q4FY14 Q3FY15 Q4FY15
Agro Activities Non Agro Activities
While revenue from agro
segment grew 8.9% YoY, non
agro segment reported a
10.4% YoY growth in revenue.
`cr
ore
Segment-wise revenue break-up
`cr
ore
Demonstrating a decent performance, UPL reported a 17% surge in EBITDA to `784.9 crore in
Q4FY15 compared to `671.0 crore in Q4FY14 led by 160bps YoY decline in operating expenses
(as a percentage of total revenue) to 78.3% in Q4FY15 from 79.9% in Q4FY14. Consequently,
EBITDA margin expanded 160bps YoY to 21.7%, during the quarter under review, as against
20.1% in the same period a year ago.
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Supported by healthy operational performance, UPL recorded 22.1% YoY growth in net profit
to `440.1 crore in Q4FY15 as against `360.3 crore in Q4FY14. Financial expenses like interest
and taxation charges grew 3.3% and 14.2% YoY to `122.6 crore and `49.7 crore, while
depreciation charges declined by 13.4% YoY to `103.5 crore, during the above-mentioned
quarter.
International business paved way for continued growth momentum in
Q4FY15
Primarily driven by Latin America and RoW, UPL registered 8.6% YoY growth in its consolidated
top-line. While revenue from Latin America grew by ~29%, RoW recorded a revenue growth of
~13% in Q4FY15. Among others, UPL saw ~9% and ~5% growth in revenue from the US and
Indian market, respectively. Besides, Europe registered de-growth by ~10% due to currency
devaluation, export ban to Russia which impacted potato and fruits business and added to
price pressure. It was observed that volume growth remained the highest at 18% in Q4FY15,
while price declined by 2%, during the quarter.
In Latin America, new product in Mexico performed as per company’s plan. Unizeb Gold, which
is for resistance management against Asian rust disease on soya, showed impressive
performance. In RoW, new product program in Philippines (on Banana) and Indonesia (on Rice)
performed exceptionally well. Australian business picked momentum in FY15 and new
registration increased market access in Africa. However, due to regulatory process, new
product launches delayed in Thailand and Vietnam. Overall new herbicide (Glufosinate)
supported growth in Asia. In India, new products Iris (Soya) and Eros (Rice), both herbicides,
performed as per company’s plan. Moreover, existing products Ulala, Lancer Gold, Starthene
Power, Saaf, Saathi also performed reasonably well.
New product launches to drive growth
In a move to drive the revenue growth and to stay ahead of its peers, UPL has been constantly
launching new products across different regions. With the help of such launches, UPL recorded
a revenue growth of 11% in FY15. In North America, the company recently launched Lifeline
and Satellite; while in India, its two products, Iris and Eros, received positive response.
UPL recorded 22.1% YoY growth
in net profit to `440.1 crore in
Q4FY15 as against `360.3 crore
in Q4FY14.
Revenue from Latin America
grew by ~29%, while, RoW
recorded a revenue growth of
~13% in Q4FY15.
UPL has consistently focused on
new product launches across
geographies to stay competitive
and to drive revenue growth.
EBITDA margin trend
67
1.0
52
2.6
48
0.5
57
4.6
78
4.9
20.1
19.0 18.0
18.9
21.7
16.0
17.0
18.0
19.0
20.0
21.0
22.0
-
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15
EBITDA EBITDA margin (%)
`cr
ore
%
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Going forward, UPL is expected to launch 69 active ingredients over the next three years. The
management has set an ambitious target of attaining USD 4 bn in sales in the next four years.
As per our estimates, revenue is expected to grow by 14% and 16%, respectively, in FY16 and
FY17.
UPL set to prosper amid strong agrochemicals demand scenario
The agrochemical industry has seen rapid growth in recent years and is estimated to grow at a
CAGR of 12-13% over medium term. With the rise in global population, agrochemicals play an
important role in meeting the food requirement by boosting the productivity. With
expectation of an increase in India’s share in world protection market by 9% in 2014 to ~13%
in FY19, UPL, being one of the country’s largest players in crop-protection market, is well
placed to take advantage of it. The company being consistent in product innovation and
product diversification is likely to benefit from the growing demand for agrochemicals. Thus
UPL, which generates ~80% revenue from international markets, is well placed to reap the
benefits from this growth momentum.
Registered 187 products in FY15
In FY15, the company obtained registrations on 187 products, taking its total product
registrations to 3,687 to date. New registrations have also been lined up as the company seeks
to strengthen its pipeline. Additionally, strong growth opportunity is expected to open up for
UPL as ~ USD 5bn worth of products are expected to go off-patent by 2020. The company,
over the years has transformed itself from a pure generics manufacturer to having an
innovation-led brand portfolio, and has created various niche products, thereby strengthening
its competitiveness. A diversified product mix at competitive costs, coupled with well-
established brands across geographies, is expected to boost the company’s growth.
Key risks
Foreign exchange risks
A significant portion of UPL’s earnings is exposed to foreign currencies. The company, which
derives a significant amount of its revenue from exports, is exposed to a variety of risks,
including the effects of changes in foreign currency exchange rates, interest rates etc. Any
adverse movement in the domestic currency could have a material impact on revenues.
Competitive market could reduce yields
Competition among key players could be a major risk for the company. However, UPL is one of
the most profitable in the global generics agrochemicals space with a large product portfolio
comprising around 50 molecules and 5,500 SKU’s of different products, which helps it stand
among other players in the market.
High raw material cost
For UPL, raw material cost accounts for ~51% of the total operating expenses (as in Q4FY15),
which poses a serious challenge in front of the company. However, the company has tried to
reduce its exposure to this particular risk through backward integration. Moreover, UPL tries
and procure raw materials through long-term contracts in order to reduce its exposure to
price volatility.
Indian agrochemical Industry,
which has seen rapid growth in
recent years, and currently the
world’s 5th
largest producer of
agrochemicals, is expected to
grow at a CAGR of 12-13% over
the medium term.
In FY15, the company obtained
registrations on 187 products,
taking its total product
registrations to 3,687 to date.
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Profit & Loss Account (Consolidated)
Y/E (`cr) FY14A FY15A FY16E FY17E Share Capital 85.7 85.7 85.7 85.7
Reserves &
Surplus 5,161.7 5,774.6 6,889.0 8,252.0
Net Worth 5,247.4 5,860.3 6,974.7 8,337.7
Minority interest 172.1 44.4 44.4 44.4
Total debt 2,861.0 2,781.5 2,551.4 2,399.9
Deferred tax
liability 180.7 182.3 186.0 189.7
Provisions 368.1 414.8 496.5 595.0
Other non-
current liabilities 310.9 613.0 673.7 740.5
Other current
liabilities 3,718.4 4,408.5 5,290.2 6,348.3
Total equity &
liabilities 12,858.5 14,304.8 16,216.8 18,655.5
Fixed assets 4,048.7 3,164.6 4,715.2 4,809.5
Goodwill - 1,449.3 1,449.3 1,449.3
Investments 737.3 763.6 794.2 825.9
Deferred tax
assets 99.4 137.8 151.5 166.7
Loans & advances 1,159.8 995.6 1,016.1 1,037.7
Other non-
current assets 11.9 7.9 8.3 8.7
Other current
assets 6,801.4 7,786.0 8,082.1 10,357.6
Total assets 12,858.5 14,304.8 16,216.8 18,655.5
Y/E (`cr) FY14A FY15A FY16E FY17E
Total revenue 10,770.9 12,090.5 13,904.1 16,267.8
Operating
Expenses 8,751.3 9,727.9 11,041.3 12,535.1
EBITDA 2,019.6 2,362.6 2,862.8 3,732.7
Other Income 131.4 (2.8) 139.0 162.7
Depreciation 406.9 424.5 445.7 468.0
EBIT 1,744.0 1,935.3 2,556.1 3,427.3
Interest 486.6 517.0 465.3 418.8
Prior period
adjustments 15.6 4.9 4.9 4.9
Exceptional item 93.6 7.4 11.8 16.3
PBT 1,148.2 1,406.0 2,074.1 2,987.4
Tax 221.7 244.0 324.5 431.6
Minority Interest 7.2 43.3 43.3 43.3
Share in profit/loss
of asso. 30.4 25.4 25.4 25.4
Net profit 949.8 1,144.0 1,731.6 2,537.8
Adj net profit 1,043.4 1,151.4 1,743.4 2,554.1
Y/E FY14A FY15A FY16E FY17E
EBITDA Margin (%) 18.8 19.5 20.6 22.9
EBIT Margin (%) 16.2 16.0 18.4 21.1
NPM (%) 8.8 9.5 12.5 15.6
Adj. NPM (%) 9.7 9.5 12.5 15.7
ROCE (%) 21.2 23.0 27.6 32.8
ROE (%) 19.9 19.6 25.0 30.6
EPS (`) 21.6 26.7 40.4 59.2
Adj. EPS (`) 23.7 26.9 40.7 59.6
P/E (x) 24.1 19.5 12.9 8.8
Adj. P/E (x) 22.0 19.4 12.8 8.7
BVPS(`) 119.3 136.7 162.7 194.5
P/BVPS (x) 4.4 3.8 3.2 2.7
EV/Net Sales (x) 2.3 2.0 1.6 1.4
EV/EBITDA (x) 12.3 10.0 7.8 6.0
Key Ratios (Consolidated)
Balance Sheet (Consolidated)
Valuation and view
UPL is well placed as a global player in agrochemicals space.
The company showcased strong performance in Q4FY15 with
a growth of 8.6% and 22.1%, respectively, in consolidated
top-line and bottom-line. Further, strong product pipe-line
coupled with expectations to obtain new registrations makes
us positive about the stock. The comfortable level of working
capital cycle at 90 days in FY15, Debt/Equity at 0.30x and
interest coverage ratio at 3.74x, makes UPL financially strong,
thereby reiterating our stance on the stock.
We initiate BUY rating on UPL. At a current CMP of `520.8,
UPL is currently trading at an EV/EBITDA of 7.8x FY16E and
6.0x FY17E. Considering the company’s strong fundamentals,
we recommend ‘BUY’ with a target price of `621.2, which
implies potential upside of ~19.3% to the CMP from 1 year
perspective.
For private circulation only
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Disclaimer : This document has been prepared by Funds India and Dion Global Solution Ltd. (the company) and is being
distributed in India by Funds India. The information in the document has been compiled by the research department. Due
care has been taken in preparing the above document. However, this document is not, and should not be construed, as an
offer to sell or solicitation to buy any securities. Any act of buying, selling or otherwise dealing in any securities referred to
in this document shall be at investor’s sole risk and responsibility. This document may not be reproduced, distributed or
published, in whole or in part, without prior permission from the Company.
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