UPL gains after Moodys changes outlook to stable from positive

The UPL scrip was currently trading 0.17% higher at Rs 545.35.

Nov 26, 2019 04:11 IST capital market

Moodys Investors Service has changed the outlook on UPL Corporations (UPL Corp) ratings to stable from positive. At the same time, Moodys has affirmed the companys Baa3 long-term issuer rating and the Baa3 rating on the companys senior unsecured notes maturing in 2021.

The stock traded in the range of Rs 537.20 and Rs 549.70 so far during the day.

The change in outlook to stable from positive reflects the weaker than expected operating performance of the broader UPL Group, and our expectation that it will take longer for its credit metrics to improve to a level appropriate for a higher rating, says Kaustubh Chaubal, a Moodys Vice President and Senior Credit Officer.

Specifically, we expect UPL Groups EBITDA margin to remain below or at the lower-end of our previous expectations of 22%-25% over the next 12-18 months, and for its leverage -- as measured by adjusted debt/EBITDA -- to remain above the upgrade trigger of 2.5x, adds Chaubal, who is also Moodys Lead Analyst for UPL Corp.

In January 2019, UPL Corp completed the acquisition of Arysta LifeScience Inc. for $4.2 billion, funded with a mix of debt ($3.0 billion) and equity ($1.2 billion). Arystas asset-light and lean operations with a strong presence in Africa, Russia and Eastern Europe complement UPL Groups leading position in India, the Americas and Western Europe, as well as its vertically integrated manufacturing capabilities.

The affirmation of the Baa3 ratings reflects UPL Groups status as the largest post-patent agrochemicals manufacturer by revenue globally, its geographically diversified operations with complementary product offerings from Arysta that smoothen intra-year sales volatility, and the economies of scale following the acquisition that will result in cost and revenue synergies.

The stable outlook reflects Moodys view that the company will maintain a strong business profile with credit metrics appropriate for its Baa3 rating. The stable outlook also incorporates the expectation that the company will not undertake any large or transformational acquisitions, at least until Arsyta is completely integrated and the companys financial profile has been restored to pre-acquisition levels.

UPLs consolidated net profit fell 59.4% to Rs 126 crore on 83.6% surge in net sales to Rs 7,817 crore in Q2 September 2019 over Q2 September 2018.

UPL provides crop protection solutions. The firm is engaged in the business of agrochemicals, industrial chemicals, chemical intermediates and specialty chemicals.

On the technical front, the stocks RSI (relative strength index) stood at 41.956. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30.

The stock was trading above its 50-day placed at Rs 575.66 and 200-day moving average (DMA) placed at Rs 599.25.

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